Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2004-2005-2006
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAX LAWS AMENDMENT (SIMPLIFIED SUPERANNUATION) BILL 2006
SUPERANNUATION (EXCESS CONCESSIONAL CONTRIBUTIONS TAX)
BILL 2006
SUPERANNUATION (EXCESS NON-CONCESSIONAL CONTRIBUTIONS TAX)
BILL 2006
SUPERANNUATION (EXCESS UNTAXED ROLL-OVER AMOUNTS TAX)
BILL 2006
SUPERANNUATION (DEPARTING AUSTRALIA SUPERANNUATION
PAYMENTS TAX) BILL 2006
SUPERANNUATION (SELF MANAGED SUPERANNUATION FUNDS)
SUPERVISORY LEVY AMENDMENT BILL 2006
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Treasurer, the Hon Peter Costello MP)
Table of contents
Glossary ....................................................................................... 1
General outline and financial impact ....................................................... 3
Chapter 1 Contribution rules........................................................... 9
Chapter 2 Taxation of benefit payments....................................... 43
Chapter 3 Taxation of superannuation entities ............................. 79
Chapter 4 Employment termination payments............................ 117
Chapter 5 Social security arrangements .................................... 139
Chapter 6 Self-managed superannuation funds ......................... 155
Chapter 7 Other changes ........................................................... 171
Chapter 8 Regulation impact statement ..................................... 186
Index ................................................................................... 223
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
APRA Australian Prudential Regulation Authority
ATO Australian Taxation Office
CGT capital gains tax
Commissioner Commissioner of Taxation
ETP eligible termination payment
FBT fringe benefits tax
GIC general interest charge
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
PAYG pay as you go
RBL reasonable benefit limit
RSA retirement savings account
SG superannuation guarantee
TAA 1953 Taxation Administration Act 1953
TFN tax file number
This Bill Tax Laws Amendment (Simplified
Superannuation) Bill 2006
1
General outline and financial impact
Simplified superannuation
The Tax Laws Amendment (Simplified Superannuation) Bill 2006 (this
Bill) and supporting Bills:
· implement the Government's Simplified Superannuation
reforms; and
· rewrite the superannuation taxation law into the Income Tax
Assessment Act 1997 (ITAA 1997) to present a clear picture
of the taxation of superannuation.
A simplified and streamlined superannuation system
The Government is sweeping away the current raft of complex tax
arrangements and restrictions that apply to superannuation benefits. This
will improve retirement incomes and increase incentives to work and
save.
Schedule 1 to this Bill contains the key taxation elements of
Simplified Superannuation. Broadly, the rules contained in Schedule 1:
· make superannuation benefits paid from a taxed fund either
as a lump sum or a pension tax free for people aged 60 and
over;
· lower the tax paid on superannuation benefits paid from an
untaxed fund for people aged 60 and over;
· abolish reasonable benefit limits (RBLs);
· allow employers to claim a full tax deduction for
contributions to superannuation on behalf of employees
under the age of 75;
· allow the self-employed to claim a full tax deduction for
contributions to superannuation up to age 75;
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
Superannuation (Self Managed Superannuation Funds) Supervisory Levy Amendment Bill 2006
· limit the level of contributions to superannuation receiving
concessional tax treatment to $50,000 per person per
financial year; and
· limit personal superannuation contributions from an
individual's post-tax income (known as non-concessional
contributions) to $150,000 per financial year or $450,000 for
a three year period.
Schedule 2 to this Bill limits concessions on large employment
termination payments. Currently, both superannuation and employment
termination payments are counted together in assessing if a person
exceeds their RBL. As the RBL is to be removed for superannuation
benefits, it is necessary to apply an upper limit on the amount of
employment termination payments that receive concessional tax
treatment.
Schedules 4 to 7 contain other key elements of Simplified Superannuation.
Broadly, Schedules 4 to 7:
· streamline superannuation fund reporting requirements;
· extend access to the Government co-contribution to include
the self-employed; and
· improve the regulation of self-managed superannuation funds
through the application of new administrative penalties for
late returns and false statements.
Schedules 8 and 9 halve the pension assets-test taper rate so that
Age Pension, Service Pension and other pension recipients will only lose
$1.50 a fortnight (rather than $3) for every $1,000 of assets above the
relevant threshold. The 50 per cent assets-test exemption will be removed
for `complying' income streams purchased from 20 September 2007 as
retaining this concession alongside the reduced assets-test taper would
create scope for wealthier individuals to access the age pension.
Schedule 10 defines terms and Schedule 3 provides the method for
indexing certain limits on contributions and tax thresholds.
4
General outline and financial impact
The taxes on excess concessional and non-concessional contributions are
introduced separately in the Superannuation (Excess Concessional
Contributions Tax) Bill 2006 and the Superannuation (Excess
Non-concessional Contributions Tax) Bill 2006. Similarly, a higher rate
of tax on transfers over $1 million from untaxed to taxed schemes is
introduced separately in the Superannuation (Excess Untaxed Roll-over
Amounts Tax) Bill 2006. Each of these Bills deals with a separate object
of taxation.
The Superannuation (Departing Australia Superannuation Payments Tax)
Bill 2006 replaces the Income Tax (Superannuation Payments
Withholding Tax) Act 2002 to reflect the new components of
superannuation benefits while retaining the same rates of taxation.
The Superannuation (Self Managed Superannuation Funds) Supervisory
Levy Amendment Bill 2006 repeals the current penalty for the late
lodgement of a self-managed superannuation fund's regulatory return.
Improved superannuation law
The provisions dealing with the taxation of superannuation in the
Income Tax Assessment Act 1936 (ITAA 1936) are being rewritten and
consolidated into the ITAA 1997. This rewrite provides a clearer picture
of the taxation treatment of superannuation savings across the life of the
superannuation investment: when the money is contributed; during the
investment phase; and at the benefit payment phase, and provides a
consistent style.
The old legislation had become increasingly difficult to read and
understand. When first introduced, the ITAA 1936 was only 126 pages.
At that time, it was logically arranged and its sections were numbered in
simple sequence. Since then the law has been heavily amended. Adding
so much to the law has interfered with the logical arrangement of the
sections and the numbering, making the ITAA 1936 difficult to navigate.
The new legislation deals first with the simple, most common case. For
example, this means in the vast majority of cases the 90 per cent of
Australians in taxed schemes would have their tax treatment specified in
the first section about superannuation benefits if accessing their
superannuation after age 60.
Preserving existing entitlements for those retiring between preservation
age and age 60 and for the 10 per cent of Australians with benefits in
untaxed schemes, means that some of the complexity and length of the old
legislation has been retained. The user-friendliness of the legislation has
however been greatly improved for these groups by the use of improved
5
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
Superannuation (Self Managed Superannuation Funds) Supervisory Levy Amendment Bill 2006
legislative design principles, such as plain English drafting and guides to
groups of rules to aid reader navigation. In addition, sections are grouped
on a case-by-case basis so a person can choose a path through the
legislation.
Date of effect: Simplified Superannuation commences on 1 July 2007,
although limits on non-concessional contributions apply from
10 May 2006. The revised age pension arrangements will commence on
20 September 2007.
Proposal announced: The proposals were released for community
consultation on 9 May 2006 in A Plan to Simplify and Streamline
Superannuation. The Government's final decisions were announced on
5 September 2006 in Press Release No. 93 issued jointly by the Treasurer
and the Minister for Revenue and Assistant Treasurer.
Financial impact: The amendments in this Bill will have a budgetary
cost of $7.2 billion over four years (including administration costs).
Impact on fiscal balance ($ billion)
2006-07 2007-08 2008-09 2009-10
0.1 2.2 2.3 2.6
Compliance cost impact: Initial implementation costs for individuals,
employers and superannuation funds are expected to be offset by ongoing
compliance savings from the new simplified and streamlined
arrangements.
Summary of regulation impact statement
Impact: Simplified Superannuation will sweep away the raft of complex
tax arrangements and restrictions that apply to superannuation benefits.
These amendments will improve retirement incomes and increase
incentives to work and to save.
The reforms will generate substantial improvements and savings for
individuals, employers, superannuation funds and the Government, at the
lowest cost.
6
General outline and financial impact
Main points:
Individuals
· As a result of the Government's reforms, an average income
earner whose sole contribution to superannuation comprises
Superannuation Guarantee (SG) payments of 9 per cent over a
working life of 40 years will have an additional lump sum of
around $37,000 in retirement or an additional $136 per week if
they take their benefit as a superannuation pension.
· Australians who turn 60 and choose to retire will have a much
simpler system to face when deciding how to draw on their
superannuation.
· The reduction in the assets-test taper rate will allow individuals
to keep more of their pension when they exceed the relevant
threshold.
· Individuals who make non-concessional contributions in excess
of $150,000 per annum or $450,000 over a three year period
will be affected by the limit on non-concessional contributions.
However, the impact on these individuals will be mitigated
through a number of exemptions and transitional arrangements.
· Individuals will have greater flexibility in how and when they
take their superannuation benefits.
· The self-employed will benefit from improved incentives to
contribute to superannuation, such as access to the
superannuation co-contribution.
· Streamlined arrangements for individuals to find and transfer
superannuation will encourage individuals to consolidate their
accounts, thereby assisting in eliminating multiple fees and
charges.
Employers
· Employers will benefit from their ability to claim a full
deduction for superannuation contributions made on behalf of
employees up to age 75.
· Employers who pay termination payments will benefit from a
reduction in the number of forms required to process an
employment termination payment entitlement. However, they
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
Superannuation (Self Managed Superannuation Funds) Supervisory Levy Amendment Bill 2006
will be required to update their existing systems to reflect the
new employment termination payment tax arrangements.
Superannuation funds
· Superannuation funds will benefit from a reduction in the
myriad of rules and red tape with which they must currently
contend (eg, funds will no longer need to report benefits paid to
members and commutations of pensions for RBL purposes).
However, superannuation funds will incur implementation costs
associated with adapting existing record-keeping systems and
processes, training staff, updating product disclosure statements
and communicating the changes to members.
· Simplified and streamlined pension rules will provide
superannuation funds with greater scope to innovate. However,
superannuation funds will also incur costs associated with
communicating the streamlined rules to their members.
· Self-managed superannuation funds will benefit from
simplified and streamlined reporting requirements and a suite of
amendments designed to improve the level of education and
assistance provided to self-managed superannuation fund
trustees, and assist in the prevention and management of
compliance problems. However, self-managed superannuation
funds will face higher direct costs through an increase in the
supervisory levy from $45 per annum to $150 per annum.
Government
· The Australian Taxation Office (ATO) will experience a
reduction in the number of taxpayers who are required to
lodge tax returns each year (around
152,000 taxpayers per annum based on 2004-05 tax return
data) as a result of the abolition of end benefits tax.
· The ATO will require additional resourcing to develop new
information technology systems, update its technical and
information products (electronic and printed), and manage
the increased administrative workflow resulting from the new
contribution rules and arrangements to assist individuals in
locating their `lost' superannuation accounts.
8
Chapter 1
Contribution rules
Outline of chapter
1.1 Schedule 1 to this Bill provides tax concessions for
contributions to superannuation, imposes tax on contributions in excess of
specified thresholds and details the administrative arrangements for
excess contributions tax. The tax will be introduced in the
Superannuation (Excess Concessional Contributions Tax) Act 2006 and
the Superannuation (Excess Non-concessional Contributions Tax)
Act 2006 to ensure each Bill deals with a separate object of taxation.
1.2 All legislative amendments are to the Income Tax Assessment
Act 1997 (ITAA 1997) unless otherwise indicated.
Context of amendments
1.3 Currently, employer contributions (ie, through superannuation
guarantee (SG) and salary sacrifice arrangements) are subject to tax in the
superannuation fund. Employers can claim a tax deduction for these
contributions up to the employee's age-based deduction limits.
1.4 Taxable contributions include both deductible and undeducted
employer contributions. An example of an undeducted employer
contribution is where an employer makes a contribution above an
individual's age-based limit.
1.5 Personal contributions are also subject to tax when they are
deductible, for example when made by self-employed individuals and
certain other eligible persons. A full deduction is currently available for
the first $5,000 contributed to superannuation and a deduction is available
for 75 per cent of the remaining amount up to a maximum deduction equal
to the individual's age-based limit.
1.6 Some other less common contributions to superannuation
(ie, those made by a friend) are also subject to tax.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
1.7 These contributions are currently referred to as taxable
contributions but will be referred to in this Bill as assessable
contributions. Under the current law, and in this Bill, these contributions
are, and will be, included in the assessable income of the superannuation
provider and subject to the applicable rate of tax (for complying funds this
rate is 15 per cent).
1.8 Currently, personal contributions for which a tax deduction is
not claimed are commonly referred to as undeducted (or post-tax)
contributions. However, in this Bill they will be referred to as
non-concessional contributions. Under the current law, and in this Bill,
these contributions are not, and will not be, included in the assessable
income of the superannuation provider. Currently, there are also no limits
on the amount of undeducted contributions that can be made in a year.
Summary of new law
1.9 The object of this Schedule is to ensure that the amount of
concessionally taxed superannuation benefits that a person receives results
from superannuation contributions that have been made gradually over the
course of the person's life.
1.10 From 1 July 2007, employers will be entitled to a full deduction
for all contributions to superannuation on behalf of their employees
provided certain conditions are met. In addition, the self employed (and
other eligible individuals) will also be entitled to a full deduction. That is,
the limiting of the deduction for personal contributions to 75 per cent of
the contribution above $5,000 up to the person's age-based limits will be
abolished.
1.11 The removal of age-based deduction limits, reasonable benefit
limits (RBLs) and tax on superannuation benefits from taxed funds for
people 60 and over will increase the concessions provided to
superannuation. These changes, in conjunction with the continuing tax
exemption provided for income from superannuation assets supporting a
pension, will make superannuation an attractive vehicle for retaining
assets to minimise tax. There will be an incentive for people to transfer
income producing assets currently held outside superannuation to the
concessionally taxed superannuation system.
10
Contribution rules
1.12 To ensure superannuation taxation concessions are targeted
appropriately, limits will be placed on the amount of superannuation
contributions a person can make that receive concessional treatment. In
addition, this Bill replaces the current tax arrangements for deductible
contributions with a streamlined set of rules.
Concessional contributions
1.13 From 1 July 2007, the amount of concessional (generally
assessable) contributions that will benefit from the concessional tax
treatment will be capped at $50,000 per person per year.
1.14 Contributions in excess of this cap will be taxed at an additional
31.5 per cent. This tax will be imposed on the individual, who will be
able to withdraw from their superannuation fund an amount equal to their
tax liability.
1.15 A five year transitional cap of $100,000 per person per year (for
the financial years 2007-08 to 2011-12) will apply for people who are
aged 50 and over on the last day of a financial year in that period.
Non-concessional contributions
1.16 A cap of $150,000 a year on the amount of non-concessional
(generally undeducted) contributions a person can make will apply from
1 July 2007.
1.17 As a concession, to accommodate larger contributions, people
under age 65 will be able to bring forward future entitlements to two years
worth of contributions, giving them a cap of $450,000 over three years.
1.18 Non-concessional contributions in excess of a person's cap will
be taxed at 46.5 per cent. This tax will be imposed on the individual, who
must withdraw an amount from their superannuation fund equal to their
tax liability.
1.19 Certain contributions arising from payments for personal injuries
that result in permanent incapacity and amounts of up to a lifetime
indexed limit of $1 million from the disposal of qualifying small business
assets will not be counted towards the cap on non-concessional
contributions.
1.20 However, as an integrity measure, excess concessional
contributions will also be counted towards the cap on non-concessional
contributions.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
1.21 Transitional arrangements will apply to non-concessional
contributions made between 10 May 2006 and 30 June 2007. This
includes a cap of $1 million for this period for anyone eligible to
contribute (eg, those aged 65 to 74 who satisfy the work test).
Comparison of key features of new law and current law
New law Current law
Deductible contributions
Full deductibility for both employers and Employers receive a full tax deduction on
those who qualify for deductions for amounts up to the employee's indexed age
personal contributions. based limits. For 2006-07 these are:
Age Deduction limit
A cap of $50,000 per year on concessional
Under 35 $15,260 p.a.
contributions for all ages (with a five year
35 to 49 $42,385 p.a.
transitional cap of $100,000 per year for
50 and over $105,113 p.a.
people aged 50 and over).
The self-employed (and other eligible
Individuals will be subject to tax on
persons) receive a full deduction for the
contributions in excess of these caps at an
first $5,000 of contributions and a
additional 31.5 per cent.
75 per cent deduction on amounts above
this up to a maximum deduction equal to
the age-based limit.
Other assessable (taxable) contributions
Contribution made on behalf of someone Contribution made on behalf of someone
else but no deduction is allowed to the else but no deduction is allowed to the
contributor and not excluded from being contributor and not excluded from being
assessable contributions. taxable contributions.
Included in the $50,000 on concessional
contributions ($100,000 transitional cap for
people aged 50 and over) and contributions
in excess are taxed as above.
12
Contribution rules
New law Current law
Non-concessional contributions and amounts (including undeducted contributions)
A cap on non-concessional contributions of No limits on undeducted contributions
$150,000 a year from 1 July 2007. made in a year.
Other non-concessional contributions and
amounts include contributions that exceed
the concessional contributions cap.
Contributions totalling up to $450,000 in
one year are allowed by bringing forward
future entitlements to two years worth of
contributions.
A transitional cap of $1 million on
non-concessional contributions made
between 10 May 2006 and 30 June 2007.
Individuals will be subject to tax on
contributions in excess of the cap at
46.5 per cent.
Exemptions are provided for certain
contributions made from amounts from the
sale of qualifying small business assets and
from settlements resulting from personal
injuries.
Detailed explanation of new law
Tax concessions for superannuation contributions
1.22 As part of the Government's Simplified Superannuation reforms,
the provisions relating to tax concessions for contributions to
superannuation entities are being rewritten and consolidated in
Division 290 of the ITAA 1997.
1.23 Taxpayers can obtain a deduction or an offset for contributions
to a complying superannuation fund or retirement savings account (RSA).
The circumstances in which a deduction or offset is available vary
depending on who is making the contribution, who the contribution is
made for, and the status of the fund to which the contribution is made.
1.24 Superannuation contributions to either a complying or a
non-complying superannuation fund will not be able to be deducted under
provisions elsewhere in the Income Tax Assessment Act 1936
(ITAA 1936) or the ITAA 1997. However, other provisions of the
income tax law may vary the deduction available (eg, subsection 73B(14)
of the ITAA 1936, which applies to certain superannuation contributions
13
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
paid in respect of an employee engaged in research and development
activities). [Schedule 1, item 1, section 290-10]
1.25 Certain contributions will not be eligible for a tax deduction
under Division 290. These contributions include:
· the roll-over of superannuation benefits [Schedule 1, item 1,
section 290-5];
· a benefit transferred from an overseas superannuation fund
[Schedule 1, item 1, section 290-5]; or
· a directed termination payment paid into a superannuation
plan by an employer under transitional arrangements that
apply until 30 June 2012 [Schedule 1, item 25, section 290-10 of the
Income Tax (Transitional Provisions) Act 1997].
Employer contributions
1.26 Employers are entitled to a full deduction for all contributions to
superannuation on behalf of employees provided certain conditions are
met. A deduction is allowable only for the year in which the contribution
is made. [Schedule 1, item 1, section 290-60]
1.27 The contribution must be for the purpose of providing
superannuation benefits for the employee. The contribution will still be
deductible, even if these benefits are payable to dependants of the
employee (or their legal personal representative) after the death of the
employee. However, no deduction is available under this provision for a
contribution made in respect of an employee who has died, unless the
conditions in new section 290-85 are satisfied (see paragraph 1.39).
[Schedule 1, item 1, section 290-60]
1.28 The personal services income rules in Part 2-42 of the
ITAA 1997, which can affect the tax deductibility of superannuation
contributions, will continue to apply. These rules may disallow or limit
deductions on contributions made for the benefit of an associate (such as
a spouse).
1.29 A contribution made under the Family Law Act 1975 to satisfy
the entitlement of a former spouse (who may also be an employee) will
continue not to be an allowable deduction. [Schedule 1, item 1,
subsection 290-60(4)]
14
Contribution rules
Who is an employee?
1.30 The existing expanded definition of `employee' given by
section 12 of the Superannuation Guarantee (Administration) Act 1992
is maintained. For example, the expanded definition ensures a person
who works under a contract that is wholly or principally for their labour
is an employee. [Schedule 1, item 1, subsection 290-65(1)]
1.31 A partner who makes a contribution for an employee of the
partnership can deduct the contribution against their own income, even
though the partner is not strictly the employer. This does not limit the
ability of the partnership to claim a tax deduction when it makes a
superannuation contribution on behalf of the same employee. However, a
partner and the partnership cannot claim a tax deduction in respect of the
same contribution. [Schedule 1, item 1, subsection 290-65(2)]
1.32 The wording in the above provisions has been amended to
improve readability. This rewording does not modify the operation of the
existing law.
What conditions must be met?
1.33 The conditions that must be met for employer contributions to
be deductible have been simplified by removing the age-based deduction
limits. In addition, employers may receive a full tax deduction for all
contributions to superannuation on behalf of employees under the age of
75 (increased from the current age 70). This will allow more older
employees to enter into superannuation salary sacrifice arrangements.
[Schedule 1, item 1, section 290-80]
1.34 Employers will only be able to claim a deduction for
contributions to superannuation for employees aged 75 and over if those
contributions are required to be made under an industrial award,
determination or notional agreement preserving State awards. [Schedule 1,
item 1, section 290-80]
1.35 Conditions for the contribution to be deductible in the existing
legislation that have been maintained are that:
· the employee must be engaged in producing assessable
income of the employer or an Australian resident who is
engaged in the employer's business [Schedule 1, item 1,
section 290-70]; and
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
· the superannuation fund is a complying superannuation fund
or, if the fund is not complying, the employer reasonably
believed the fund was complying or obtained a written
statement from the fund stating that it was a resident
regulated superannuation fund and not subject to a direction
preventing it from accepting employer contributions
[Schedule 1, item 1, section 290-75].
Contributions for former employees
1.36 The general deduction rules outlined above are modified in
certain circumstances for contributions made for former employees.
1.37 Superannuation contributions for former employees would
ordinarily not be deductible because a condition for deductibility is that
the contribution is made at a time when the individual is an employee.
However, contributions for former employees that reduce an employer's
SG charge percentage (ie, to meet an SG obligation) will continue to be
deductible provided the other conditions for deductibility are present.
[Schedule 1, item 1, section 290-85]
1.38 This Bill also provides that a deduction is available for a
superannuation contribution made on behalf of a former employee if the
contribution is made in lieu of salary or wages (under a salary sacrifice
arrangement) and relates to a period of service during which the person
was an employee. The contribution has to be a one-off payment made
following termination of employment and should reflect the employee's
normal contributions to superannuation just before they ceased
employment. [Schedule 1, item 1, section 290-85]
Example 1.1
Andrew entered into a salary sacrifice arrangement during his
employment under which 20 per cent of his salary was contributed to
superannuation. Andrew resigns from his job on 1 December 2007
when he is age 50. His final pay period ends on 20 December 2007.
The 20 per cent of Andrew's final pay that is contributed to a
complying superannuation fund on 20 December is an allowable
deduction to his former employer (no other contribution is made after
his resignation).
1.39 Deductions will also be available for superannuation
contributions made after the death of an employee in the above
circumstances (ie, to satisfy an SG obligation or under a salary sacrifice
arrangement).
16
Contribution rules
Contributions made by persons with a controlling interest
1.40 The general deduction rules are also modified for certain
circumstances where superannuation contributions are made by an entity
other than an employer. For example, deductions may be available to a
person with a controlling interest in the employer. This modification has
been maintained from the existing legislation and, although the wording
has been updated, it is not intended to modify the operation of the existing
law. [Schedule 1, item 1, section 290-90]
Contributions to offset the superannuation guarantee charge
1.41 A charge imposed under the Superannuation Guarantee Charge
Act 1992 is not tax deductible. Therefore, a contribution that is offset
against a SG charge liability cannot be deducted. The wording of this
provision has been modified to improve readability. This rewording is not
intended to modify the operation of the existing law. [Schedule 1, item 1,
section 290-95]
Returned contributions
1.42 Returned contributions, and earnings on those contributions, are
assessable income to the recipient if they have previously been deductible
to the employer under new Subdivision 290-B of the ITAA 1997 or
section 82AAC of the ITAA 1936, unless they are received as a
superannuation benefit. The wording of this provision has been modified
to improve readability. This rewording is not intended to modify the
operation of the existing law. Consistent with existing law, the provision
does not apply to personal contributions. [Schedule 1, item 1, section 290-100]
Personal contributions
1.43 The self-employed (and other eligible individuals) can currently
deduct personal contributions if they are not entitled to receive
superannuation support as an employee from another person (eg, an
employer) or if that superannuation support is attributable to less than
10 per cent of their assessable income and reportable fringe benefits for
the year.
1.44 From 1 July 2007, the self-employed (and other eligible
individuals) will be entitled to a full deduction for superannuation
contributions provided certain conditions are met. The deduction is only
available in the income year in which the contribution is made.
[Schedule 1, item 1, section 290-150]
1.45 An individual's contribution must be for the purpose of
providing superannuation benefits for themself. Like employer
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
contributions, the contribution will still be deductible even if these
benefits are payable to their dependants (or legal personal representative)
after their death. [Schedule 1, item 1, section 290-150]
What conditions must be met?
1.46 A person can deduct personal contributions, even if they receive
some income as an employee. Currently, eligibility to deduct
contributions is determined by the percentage of earnings on which
superannuation support is obtained. This test will be simplified by
making it consistent with the rule that currently applies for the
Government co-contribution. [Schedule 1, item 1, section 290-160]
1.47 Personal contributions will be deductible if less than 10 per cent
of a person's assessable income and reportable fringe benefits are
attributable to employment as an employee. The test will no longer be
determined by the level of employer superannuation support a person
receives or should have received. [Schedule 1, item 1, section 290-160]
1.48 The self-employed person (or other eligible individual) must be
under the age of 75 (increased from the current age 70) in order to receive
a tax deduction. This will allow older individuals who meet the work test
to make deductible contributions to superannuation. [Schedule 1, item 1,
subsection 290-165(2)]
1.49 To be eligible for the deduction, individuals must have given a
notice to the trustee or RSA provider of their intention to claim a
deduction by a certain time, and received an acknowledgment from the
trustee or RSA provider of receipt of the notice. [Schedule 1, item 1,
sections 290-170 to 290-175]
1.50 Conditions for the contribution to be deductible that have been
maintained in the existing legislation are:
· The superannuation fund must be a complying
superannuation fund [Schedule 1, item 1, section 290-155].
· Individuals under the age of 18 must have derived income
from being an employee or carrying on a business [Schedule 1,
item 1, subsection 290-165(1)].
18
Contribution rules
Notice requirements
1.51 An individual who wishes to claim a tax deduction for their
superannuation contributions will continue to be required to notify the
trustee or RSA provider in writing. The notice arrangements are being
revised to ensure that the Australian Taxation Office (ATO) will have the
relevant information to administer the new contribution caps (ie, the
concessional contributions cap and the non-concessional contributions
cap) and to determine eligibility for the co-contribution, following
extension of the co-contribution to the self-employed.
1.52 This notice will now be required to be given by the earlier of the
time the person lodges their income tax return or the end of the financial
year following the year the contribution was made. This notice may be
varied in limited circumstances (see paragraph 1.58). This will assist the
Commissioner of Taxation (Commissioner) administration of the new
contribution caps, and reduce the administrative burdens on
superannuation funds and RSAs. [Schedule 1, item 1, section 290-170]
1.53 A notice will not be valid in certain circumstances. These
circumstances have been expanded to include when a notice is given to
the trustee or RSA provider, where it either no longer holds the
contribution or has begun to pay a superannuation income stream that
includes the contribution. [Schedule 1, item 1, subsection 290-170(2)]
1.54 An example of when the trustee or RSA provider no longer
holds a contribution is where the member has requested a partial roll-over
of the superannuation benefit which includes the contribution covered in
the notice.
Example 1.2
Rachel's superannuation interest is valued at $5,000 (tax free
component). She makes a $10,000 personal contribution in
March 2008 which would be counted against the tax free component of
her superannuation interest at the time it is received. Her total
superannuation account balance is $15,000.
In June 2008, Rachel requests to roll-over $6,000 leaving her with a
balance of $9,000. She then lodges a notice in September 2008
advising that she intends to claim a deduction on the $10,000
contribution made in the 2007-08 income year.
As her account balance is only $9,000, all of the $10,000 contribution
is no longer held by the trustee and therefore the notice is not valid.
However, if Rachel were to lodge a notice for $9,000, this would be
valid. The trustee would then convert the $9,000 from a tax free
component to a taxable component and include this amount in the
fund's assessable income.
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Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
1.55 If the trustee or RSA provider has merely transferred its tax
liability to a life insurance company or pooled superannuation trust under
new section 295-260, it will still hold the contribution.
1.56 The trustee or RSA provider will continue to be required to
acknowledge the receipt of a valid notice. [Schedule 1, item 1,
subsection 290-170(3)]
1.57 To ensure that other members of the superannuation fund are not
disadvantaged, the superannuation provider can refuse to acknowledge a
notice if the value of the person's superannuation interest is less than the
tax that the fund would pay if it acknowledged the notice. [Schedule 1,
item 1, subsection 290-170(4)]
Variation requirements
1.58 A notice cannot be revoked or withdrawn but may be varied to
reduce the amount covered by the notice (including to nil) before the
earlier of the time the person lodges their income tax return or the end of
the financial year following the year the contribution was made. After
this time, the notice cannot be varied unless a deduction is not allowable,
as demonstrated by the following examples. [Schedule 1, item 1,
section 290-180]
Example 1.3
John lodges a valid notice to claim a tax deduction for a personal
contribution of $5,000 made during the 2007-08 income year. His
superannuation fund acknowledges this notice and in his 2007-08
income tax return John claims a tax deduction for $5,000. John
satisfies all the conditions for claiming a deduction for his personal
contribution.
However, after lodging his income tax return, John requests an
amendment to vary the amount claimed as a tax deduction to $3,000.
As the $5,000 deduction is allowable to John, he will not be able to
vary the amount to $3,000.
Example 1.4
Samantha lodges a valid notice to claim a tax deduction for a personal
contribution of $8,000 made during the 2007-08 income year. Her
superannuation fund acknowledges this notice in her 2007-08 income
tax return and she claims a deduction for $8,000. Samantha satisfies
all the conditions for claiming a tax deduction for her personal
contribution.
20
Contribution rules
Samantha's assessable income for the year is $5,000. She has no other
deductions apart from the personal superannuation contribution
deduction. A deduction is not allowable for $3,000 of the contribution
since this is the amount by which the contribution exceeds her
assessable income. Samantha may apply to her superannuation fund to
vary her notice, reducing the amount covered by the notice to $5,000.
Spouse contributions
1.59 Taxpayers will continue to be entitled to claim an 18 per cent tax
offset on superannuation contributions of up to $3,000 made on behalf of
their low income spouse under the current arrangements. With the
receiving spouse's consent the contributing spouse may quote their tax
file number. [Schedule 1, item 1, sections 290-230 to 290-240]
1.60 The wording of these provisions has been modified to improve
readability. This rewording does not modify the operation of the existing
law.
Tax on excess contributions
Overview
1.61 Superannuation contributions will be subject to annual caps.
Contributions in excess of the relevant caps will be subject to additional
tax. This tax will be imposed on individuals. Where an excess
contributions tax liability arises, the individual will be able to, and in
some cases must, withdraw an amount equal to their tax liability from
their superannuation fund.
1.62 Transitional provisions have been put in place to accommodate the
commencement of the cap on non-concessional contributions from
10 May 2006. These include a cap of $1 million applying until 30 June 2007
for anyone eligible to contribute and a limited discretion being given to the
Commissioner to allow the removal of excess contributions made prior to
7 December 2006 without penalty.
Concessional contributions cap
1.63 A cap of $50,000 per person per year applies to concessional
contributions from 1 July 2007. This cap will be indexed. Excess
concessional contributions tax is payable on any concessional
contributions over the concessional contributions cap for a financial year.
[Schedule 1, item 1, sections 292-15 and 292-20]
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Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
What are concessional contributions?
1.64 An individual's concessional contributions in a financial year
are generally contributions made by or for that individual in that year that
are included in the assessable income of a superannuation provider. The
contributions do not have to be included in the assessable income of the
superannuation provider in the same year as the contribution is made.
[Schedule 1, item 1, section 292-25]
1.65 An individual's concessional contributions do not include:
· roll-over superannuation benefits to the extent that they
consist of an element untaxed in the fund of the taxable
component in the transferring fund [Schedule 1, item 1,
subparagraph 292-25(2)(c)(ii)];
· up to $1 million of directed termination payments specified
in employment contracts as at 9 May 2006, provided the
payment is made prior to 1 July 2012. The $1 million is
reduced by any earlier transitional termination payments that
are received [Schedule 1, item 25, section 292-25];
· the amount of a superannuation benefit transferred from a
foreign superannuation fund to which an election under
subsection 307-50(2) applies. This component generally
reflects investment earnings on overseas superannuation
benefits while the individual was an Australian resident
[Schedule 1, item 1, subparagraph 292-25(2)(c)(i)]; or
· any contributions made to constitutionally protected
superannuation funds. The taxable component of a
superannuation benefit paid by a constitutionally protected
superannuation fund can only consist of an element untaxed
in the fund which is subject to separate taxation arrangements
(see Chapter 2) [Schedule 1, item 1, subparagraph 292-25(2)(c)(iii)].
1.66 To ensure the integrity of the concessional contributions cap,
regulations may contain rules specifying that additional amounts allocated
to an individual by the superannuation provider can also be included.
These amounts will be included in an individual's concessional
contributions cap if they exceed an amount that reasonably reflects the
contribution made by, or on behalf of, the individual and investment
earnings in relation to the individual's superannuation interest. For
example, large amounts paid into reserves and then allocated to members
in an attempt to circumvent the cap will be counted in the year that they
are allocated. [Schedule 1, item 1, subsection 292-25(3)]
22
Contribution rules
1.67 Contributions excluded from the assessable income of
superannuation providers, including the transfer of taxation liabilities and
the application of pre-1 July 1988 funding credits (under
Subdivision 295-D of the ITAA 1997) do not reduce the amount of
assessable contributions included in a person's concessional contributions
cap for the purposes of this Subdivision. [Schedule 1, item 1,
subsection 292-25(4)]
1.68 Whilst payments from the Commissioner under the
Superannuation Guarantee Administration Act 1992 or the
Small Superannuation Accounts Act 1995 are assessable, and therefore
concessional contributions if contributed after 1 July 2007, a person will
be able to apply to the Commissioner to exercise discretion to disregard
those amounts to the extent that they relate to employer contributions that
should have been made before 1 July 2007. [Schedule 1, item 1,
sections 292-25 and 292-465]
Transitional arrangements for concessional contributions
1.69 A transitional concessional contributions cap of $100,000 per
person per year will apply in the financial years 2007-08 to 2011-12 for
individuals aged 50 or over at any time in a transitional financial year.
This cap will not be indexed. [Schedule 1, item 25, section 292-20 of the
Income Tax (Transitional Provisions) Act 1997]
Example 1.5
Jeremy turns 50 on 5 October 2009 (in the 2009-10 financial year). At
this time, he becomes entitled to the higher transitional cap of
$100,000 per year. His annual concessional contributions caps for the
years 2007-08 to 2011-12 are set out in the table below.
Financial 2007-08 2008-09 2009-10 2010-11 2011-12
year (age) (48) (49) (50) (51) (52)
Annual $50,000 $50,000 $100,000 $100,000 $100,000
concessional
contributions
cap
Modifications to concessional contributions for defined benefit interests
1.70 Separate arrangements for calculating concessional contributions
in relation to defined benefit superannuation interests are necessary
because employer contributions made into these interests are not always
attributable to individual members.
1.71 A defined benefit interest exists where all or part of the
superannuation benefits payable are defined by reference to the salary or
23
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Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
average salary of the person (or of another person), a specified amount or
specified conversion factors. [Schedule 1, item 1, subsection 292-175(1)]
1.72 Some superannuation plans may pay death or disability benefits
that are referenced to the member's salary. However, a superannuation
interest is not a defined benefit interest if the only benefits payable in
reference to a salary (or other matters outlined above) are death or
disability benefits. [Schedule 1, item 1, subsection 292-175(2)]
1.73 The concessional contributions amount for a defined benefit
interest will be referred to as notional taxed contributions. The method
for calculating notional taxed contributions will be set out in the
regulations to this legislation. The regulations may allow for different
methods depending on various matters and may specify circumstances
where the notional taxed contributions amount for a financial year is nil.
[Schedule 1, item 1, section 292-170]
1.74 Where only part of an interest is a defined benefit interest, the
concessional contributions cap includes notional taxed contributions in
respect of the defined benefit part of the interest and contributions covered
under section 292-25 in respect of the rest of the interest. [Schedule 1,
item 1, section 292-165]
Grandfathering certain defined benefit interests
1.75 Given the unique nature of defined benefit interests, and the
difficulty for members to reduce their contributions or notional taxed
contributions, certain arrangements will be grandfathered so that these
members are not unfairly taxed under the excess concessional
contributions cap. [Schedule 1, item 1, subsection 292-170(6)]
1.76 Special arrangements will apply to members with a defined
benefit interest on 5 September 2006 with notional taxed contributions for
that interest that exceed the concessional contributions cap. In this case,
the notional taxed contributions for that interest will be taken to be at the
maximum level of the cap. This arrangement will cease to apply if the
scheme amends their rules to increase the member's benefits. [Schedule 1,
item 1, subsection 292-170(6)]
1.77 However, the regulations may allow for some changes to the
rules of the superannuation fund to be permitted, even if they increase
member benefits. For example, schemes may be able to amend their rules
to meet requirements in other legislation without members losing access
to this grandfathered arrangement. [Schedule 1, item 1, paragraph 292-170(6)(d)]
24
Contribution rules
Example 1.6
Some employers are currently able to pay lower SG contributions for
their employees as a result of pre-21 August 1991 earnings bases.
From 1 July 2008, the use of a pre-21 August 1991 earnings base to
calculate the employer's contribution for SG will no longer be allowed.
From that date the employer must use ordinary times earnings to
determine their SG liability. Although this will result in the
employee's benefit increasing it will not result in the member losing
access to the grandfathering arrangements.
1.78 In addition, the grandfathered arrangement will continue to
apply if the defined benefit interest is transferred to a successor
superannuation fund that retains equivalent rights for members.
[Schedule 1, item 1, subsection 292-170(7)]
Non-concessional contributions cap
1.79 A cap of $150,000 per person per year on non-concessional
contributions will apply from 1 July 2007. Rather than being separately
indexed, this cap will remain fixed at three times the ongoing
concessional contributions cap. Excess non-concessional contributions
tax is payable on non-concessional contributions over the
non-concessional contributions cap for a financial year. [Schedule 1, item 1,
section 292-80 and subsections 292-85(1) and (2)]
1.80 A person who qualifies for the transitional concessional cap of
$100,000 per year will not have a non-concessional cap of $300,000.
[Schedule 1, item 25, subsection 292-20(3)]
What are non-concessional contributions?
1.81 An individual's non-concessional contributions in a financial
year are generally contributions made by or for that individual in that year
that are not included in the assessable income of a superannuation
provider. [Schedule 1, item 1, section 292-90]
1.82 Contributions made directly by an individual into their spouse's
account will be counted against the receiving spouse's non-concessional
contributions cap.
1.83 In addition, the following amounts are also included:
· excess concessional contributions. This ensures that people
cannot circumvent the caps by making excess concessional
contributions [Schedule 1, item 1, paragraph 292-90(1)(b)]; and
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
· contributions made to a constitutionally protected fund that,
had the constitutionally protected fund been a taxed fund,
would not have been taxed in the fund anyway [Schedule 1,
item 1, subparagraph 292-90(2)(c)(iv)].
1.84 However, an individual's non-concessional contributions do not
include:
· a Government co-contribution [Schedule 1, item 1,
subparagraph 292-90(2)(c)(i)];
· certain contributions relating to personal injury payments and
amounts from the disposal of certain small business assets
[Schedule 1, item 1, subparagraphs 292-90(2)(c)(ii) and (iii)];
· contributions that are paid out as a superannuation benefit in
the same year that they are contributed as an element untaxed
in the fund [Schedule 1, item 1, subparagraph 292-90(2)(c)(v)];
· a roll-over superannuation benefit [Schedule 1, item 1,
subparagraph 292-90(2)(c)(vi)]; and
· amounts not included in a provider's assessable income
because of Subdivision 295-D. These amounts are included
in a person's concessional contributions cap [Schedule 1, item 1,
subsection 292-90(3)].
Bring forward
1.85 As a concession, to accommodate larger contributions, people
under age 65 in a financial year will be able to bring forward future
entitlements to two years worth of non-concessional contributions. This
means a person under age 65 will be able to contribute non-concessional
contributions totalling $450,000 over three financial years without
exceeding their non-concessional contributions cap. [Schedule 1, item 1,
subsections 292-85(3) and (4)]
1.86 The bring forward will be triggered automatically when
contributions in excess of the annual non-concessional contributions cap
are made in a financial year by a person who is under age 65 at any time
in the year where a bring forward has not already commenced. [Schedule 1,
item 1, subsection 292-85(3)]
1.87 Where a bring forward has been triggered, the two future years'
entitlements are not indexed. [Schedule 1, item 1, subsection 292-85(4)]
26
Contribution rules
1.88 Table 1.1 sets out the operation of the bring forward. For
simplicity, the effect of indexation (where relevant) is not reflected in the
table.
Table 1.1
Year Scenario 1 Scenario 2 Scenario 3 Scenario 4
Year 1 Less than Between $450,000 More than
$150,000 $150,001 and $450,000
Entire bring
$449,999
Bring forward A tax liability
forward not Bring forward entitlement used for the excess in
triggered in triggered in in this year. this year.
this year. this year.
Year 2 Up to Up to the Additional Additional
$150,000 difference non-concessiona non-concessiona
per year or between l contributions l contributions
$450,000 contributions before Year 4 before Year 4
over in Year 1 and will exceed the will exceed the
three years. $450,000 over cap and result in cap and result in
Years 2 and 3. a tax liability. a further tax
liability.
Year 3
Year 4 Up to Up to $150,000 Up to $150,000
$150,000 per per year or per year or
year or 450,000 over $450,000 over
$450,000 over three years. three years.
three years.
1.89 To simplify the operation of the non-concessional contributions
cap, people aged 63 and 64 who take advantage of the bring forward will
not be required to meet the work test in either of the following two
financial years.
1.90 People aged 65 to 74 will have a non-concessional contributions
cap of $150,000 per year provided they satisfy the work test set out in the
Superannuation Industry (Supervision) Regulations 1994. Not allowing
people over 65 to bring forward entitlements to non-concessional
contributions will ensure people do not inadvertently breach the cap by
failing to meet the work test in the following two financial years.
Example 1.7
Linda is 64 years old and makes contributions of $450,000 to her
superannuation funds in the 2007-08 financial year. Linda does not
have to satisfy the work test in either of the following two financial
27
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
years in respect of the $450,000 contributions made under the bring
forward arrangements.
From 2008-09, being 65, Linda will have to satisfy the work test in
order to make contributions. Any additional non-concessional
contributions Linda makes before 1 July 2010 will be in excess of her
cap and will result in a tax liability.
If Linda satisfies the work test in the 2010-11 financial year she will
have a non-concessional contributions cap for that year of $150,000.
Contributions in excess of $150,000 will exceed her cap and will result
in a tax liability. Being over 65, she will not be able to bring forward
future entitlements to increase her cap (as she did in 2007-08).
Example 1.8
Glenn, aged 49, makes contributions totalling $160,000 in a year.
Having not already triggered the bring forward in the previous
two years, a bring forward would now be triggered.
Glenn can make additional contributions of $390,000 over the
following two years without having excess contributions. However, if
contributions in that period exceed $390,000 Glenn will be taxed on
the excess contributions at 46.5 per cent.
If Glenn makes contributions of less than $390,000 in those two years
he will lose the entitlement to them. That is, they can not be carried
forward for use in future years.
Exemptions to the non-concessional contributions cap
1.91 In conjunction with the commencement of the non-concessional
contributions cap from 10 May 2006, there are two ongoing exemptions to
the cap. These relate to contributions arising from certain payments for
personal injuries that result in permanent incapacity and amounts from the
disposal of qualifying small business assets.
Payments for personal injury
1.92 Contributions made from certain personal injury payments are
exempt from the non-concessional contributions cap when contributed to
superannuation if no tax deduction is claimed. [Schedule 1, item 1,
section 292-95]
1.93 The personal injury payment must be in the form of a structured
settlement, an order for a personal injury payment, or lump sum workers
compensation payment. [Schedule 1, item 1, paragraph 292-95(1)(a)]
28
Contribution rules
1.94 Two legally qualified medical practitioners must certify that the
person is unlikely to ever be able to be gainfully employed in a capacity for
which they are reasonably qualified as a result of the injury. [Schedule 1,
item 1, paragraph 292-95(1)(c)]
1.95 The individual must notify the superannuation provider that the
contribution is being made under this exemption before, or when, making
the contribution. This will ensure that the superannuation provider is able
to accept the contribution and that it is not reported against the
non-concessional contributions cap. [Schedule 1, item 1,
paragraph 292-95(1)(d)]
1.96 The contribution must be made to a superannuation fund within
90 days of the payment being received or the structured settlement or
order coming into effect, whichever is later. [Schedule 1, item 1,
paragraph 292-95(1)(b)]
1.97 The exemption from the non-concessional contributions cap
only applies to the extent that the payment received relates to an amount
for personal injury. [Schedule 1, item 1, subsection 292-95(5)]
Amounts from the disposal of qualifying small business assets
1.98 Contributions made from certain amounts arising from the
disposal of qualifying small business assets are exempt from the
non-concessional contributions cap of a person up to a lifetime limit of
$1 million (indexed) where the amount is not included in the assessable
income of the superannuation provider (ie, it must be a personal
contribution for which no deduction is claimed). This amount is referred
to as the capital gains tax (CGT) cap. [Schedule 1, item 1, section 292-105]
1.99 Contributions allowed under the CGT cap are:
· up to $500,000 of capital gains that are disregarded under the
CGT exemption in Subdivision 152-D [Schedule 1, item 1,
subsection 292-100(7)]. This supports the underlying CGT
exemption which requires that capital gains which are
disregarded under Subdivision 152-D be contributed to
superannuation if the person is under preservation age;
· capital proceeds from the disposal of assets that qualify for
the CGT exemption in Subdivision 152-B [Schedule 1, item 1,
subsection 292-100(2)]; and
· capital proceeds from the disposal of assets that would have
qualified for the CGT exemption in Subdivision 152-B but
for:
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Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
- the disposal of the asset resulting in no capital gain or a
capital loss [Schedule 1, item 1, subsection 292-100(2)];
- the asset being a pre-CGT asset [Schedule 1, item 1,
subsection 292-100(5)]; or
- the asset being disposed of before the required 15-year
holding period had elapsed because of the permanent
incapacity of the person (which occurred after the asset
was purchased) [Schedule 1, item 1, subsections 292-100(3)
and (6)].
1.100 This exemption recognises that many small business people
invest in their business rather than make regular contributions into
superannuation and later use the equity in their business to fund their
retirement.
1.101 A person's CGT cap is reduced by the amount of each
contribution they elect to be covered by the exemption from the
non-concessional contributions cap. This includes elections made for
contributions made between 10 May 2006 and 30 June 2007 (the deemed
2006-07 year). [Schedule 1, item 1, subsection 292-105(2) and Schedule 1, item 25,
paragraph 292-80(3)(h) of the Income Tax (Transitional Provisions) Act 1997]
1.102 A contribution will only count towards the CGT cap if the
person notifies their superannuation provider before, or when, the
contribution is made. This will ensure that the superannuation provider is
able to accept the contribution and that it is not reported against the
non-concessional contributions cap but is instead reported correctly
against the CGT cap. It also provides the person with the choice as to
whether all or part of a contribution uses their non-concessional
contributions cap or their CGT cap. [Schedule 1, item 1, subsection 292-100(9)]
1.103 Where the person has the CGT event, the contribution must be
made no later than the day the person is required to lodge their tax return
for the financial year in which the CGT event occurred or 30 days after
the day the person received the capital proceeds, whichever is later.
Where the capital proceeds are received and contributed in instalments,
each instalment is a separate contribution which must be made within the
above timeframes. [Schedule 1, item 1, paragraphs 292-100(2)(b) and (7)(b)]
1.104 A CGT concession stakeholder of an entity that had a capital
gain disregarded under Subdivision 152-B (or would have if certain
conditions were met) is also entitled to use the CGT cap in the above
circumstances. However, the entity must make a payment to that person
within two years of the CGT event and that person must make a
30
Contribution rules
contribution within 30 days of that payment for the contribution to qualify
for the CGT cap. The amount of the contribution is limited to the
person's stakeholder's control percentage of the capital proceeds up to the
CGT cap amount. [Schedule 1, item 1, subsection 292-100(4)]
1.105 A CGT concession stakeholder of an entity that had a capital
gain disregarded under Subdivision 152-D is also entitled to use the CGT
cap in the above circumstances. However, the entity must make a
payment to that person that satisfies the conditions in section 152-325.
Subject to meeting those conditions, the contribution must be made within
30 days of that payment for the contribution to qualify for the CGT cap.
The amount of the contribution can be no more than the capital gain and
can not exceed the amount of this payment from the entity. [Schedule 1,
item 1, subsection 292-100(8)]
Example 1.9
Ruth, aged 59, sells an active asset used in her small business which
she has owned continuously for over 15 years. The proceeds from the
sale are $1.1 million. She qualifies for the CGT exemption in
Subdivision 152-B and disregards the capital gain of $390,000 on this
basis. Ruth would like to contribute the entire proceeds to her
superannuation fund.
Assuming Ruth has not previously made any contributions or used her
CGT cap, she may elect to contribute $1 million under the cap
exemption and have the remaining $100,000 count towards her
non-concessional contributions cap. This would allow her to make an
additional $50,000 worth of non-concessional contributions in the year
without exceeding her annual cap.
Alternatively, as she is under 65, she may use the bring forward to
contribute $450,000 and only use her CGT cap for the remaining
$650,000. This will leave Ruth with a CGT cap of $350,000 for use in
the future. However, any further non-concessional contributions made
in that year, and the following two years, will exceed her
non-concessional contributions cap and result in an excess
contributions tax liability.
Note that if Ruth had her capital gain disregarded under the
Subdivision 152-D exemption instead she would have only been able
to contribute the capital gain (ie, up to $390,000) and not the capital
proceeds under the cap exemption.
31
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
Transitional arrangements for the non-concessional contributions cap
Application of the non-concessional contributions cap between
10 May 2006 and 30 June 2007 -- the deemed 2006-07 financial year
1.106 All individuals who are eligible to contribute (eg, those aged
65 to 74 must satisfy the work test set out in the Superannuation Industry
(Supervision) Regulations 1994) will have a cap of $1 million for
non-concessional contributions between 10 May 2006 and 30 June 2007.
This period will be treated as the 2006-07 financial year for the purposes
of the cap. [Schedule 1, item 25, subsection 292-80(1) and paragraph 292-80(3)(c ) of
the Income Tax (Transitional Provisions) Act 1997]
1.107 Excess non-concessional contributions tax and the associated
administration arrangements will apply with the following modifications:
· the bring forward arrangements will not apply until 1 July 2007
[Schedule 1, item 25, paragraph 292-80(3)(d) of the Income Tax (Transitional
Provisions) Act 1997];
· contributions in excess of a person's age-based deduction
limit will be counted as a non-concessional contribution (as
these contributions are undeducted employer contributions)
[Schedule 1, item 25, subsections 292-80(5) and (6) of the Income Tax
(Transitional Provisions) Act 1997)];
· the person's CGT cap amount will be $1 million at
10 May 2006 and any contributions made during this period
will reduce their CGT cap from 1 July 2007 [Schedule 1,
item 25, paragraphs 292-80(3)(e) and (3)(h) of the Income Tax
(Transitional Provisions) Act 1997]; and
· the choice to use the personal injury or CGT cap exemption
from the non-concessional contributions cap must be given to
the superannuation provider by 31 July 2007 [Schedule 1,
item 25, paragraphs 292-80(3)(f) and (g) of the Income Tax
(Transitional Provisions) Act 1997].
Transitional release authorities
1.108 A person who has non-concessional contributions in excess of
$1 million for the period 10 May 2006 to 6 December 2006 can apply to
the Commissioner for a transitional release authority. This application
must be made before 1 July 2007. [Schedule 1, item 25, section 292-80A of the
Income Tax (Transitional Provisions) Act 1997]
32
Contribution rules
1.109 The transitional release authority may be given to a
superannuation provider within 21 days of receipt and authorises the
person's superannuation provider to release the amount of the excess
non-concessional contributions. [Schedule 1, item 25, section 292-80B of the
Income Tax (Transitional Provisions) Act 1997]
1.110 The superannuation provider must pay the amount to the person
within 30 days of receipt. A superannuation provider will be required to
give to the Commissioner a statement under section 390-65 of the
Taxation Administration Act 1953 (TAA 1953) in relation to this payment.
[Schedule 1, item 25, paragraph 292-80(2)(c) of the Income Tax (Transitional
Provisions) Act 1997]
1.111 If a transitional release authority is given to a superannuation
provider, and an amount is released, the person's non-concessional
contributions for the year will be reduced by any amounts returned to
them. These amounts are non-assessable, non-exempt income to the
extent they do not exceed the total amount that is authorised for release.
[Schedule 1, item 25, paragraph 292-80(3)(i) of the Income Tax (Transitional
Provisions) Act 1997 and item 1, subsections 304-15(2) and (3)]
1.112 Where a person accesses more than the amount authorised for
release, that amount will be included in their assessable income and
subject to income tax at marginal rates. In addition, they will be liable for
an administrative penalty. [Schedule 1, item 1, subsection 304-15(4) and item 23,
section 288-100 of the TAA 1953]
1.113 If a transitional release authority is not actioned, and the excess
contributions are not removed from the superannuation system, those
contributions will continue to be included in the calculation of a person's
excess non-concessional contributions tax liability for the year.
[Schedule 1, item 25, paragraph 292-80(3)(i) of the Income Tax (Transitional
Provisions) Act 1997]
Example 1.10
Pat makes a contribution of $1.3 million on 11 May 2006. Not wanting to
breach the cap on non-concessional contributions he applies to the
Commissioner for a transitional release authority on 3 May 2007. The
Commissioner issues the transitional release authority for $300,000 on
2 June 2007.
Pat gives the transitional release authority to his superannuation provider
within 21 days. His fund is obligated to return the excess to him within
30 days. Pat's non-concessional contributions for the year will be reduced
by the amounts returned to him by his fund under the transitional release
authority.
33
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
Commissioner's discretion to disregard or reallocate contributions
1.114 A person can apply to the Commissioner for a written
determination that, for the purposes of working out their excess
contributions for a financial year, all or part of the contributions should be
either disregarded or allocated to another financial year. [Schedule 1, item 1,
subsection 292-465(1)]
1.115 A person must request the exercise of the discretion within
60 days of receiving an excess contributions tax assessment, although a
longer period may be allowed by the Commissioner. [Schedule 1, item 1,
subsection 292-465(2)]
1.116 The Commissioner may make the determination only if he or
she considers that there are special circumstances and making the
determination is consistent with the object of Division 292. [Schedule 1,
item 1, subsection 292-465(3)]
1.117 The courts have considered what `special circumstances' means
in many different contexts. It is clear from the case law that special
circumstances are unusual circumstances, or circumstances out of the
ordinary. Whether circumstances are special will vary from case-to-case
as the context requires, but in this context they must make it unjust,
unreasonable or inappropriate to impose the liability for excess
contributions tax.
1.118 However, in making the determination, the Commissioner may
have regard to certain matters specified in the law. These are whether:
· the contributions made in a particular financial year would be
allocated more appropriately to another year; and
· it was reasonably foreseeable a particular contribution would
result in a person having an excess contribution when the
contribution was made.
[Schedule 1, item 1, subsections 292-465(5) and (6)]
1.119 When considering whether an excess is reasonably foreseeable,
the Commissioner may consider the terms of any agreement or
arrangement between the individual and another person where those terms
affect the amount or timing of the contribution. For example, where
contributions are made by an employer under a workplace agreement,
industrial award or an effective salary sacrifice agreement the
Commissioner will need to consider the terms of those agreements. The
Commissioner may also consider the extent to which the individual has
control over the making of the contribution. For example, a person who is
34
Contribution rules
making a contribution towards the end of a financial year should ensure
that the fund receives the contribution before the end of the financial year
to ensure it is taken into account in that year and not the subsequent one.
[Schedule 1, item 1, subsection 292-465(4)]
1.120 If the Commissioner determines that contributions can be
disregarded or reallocated, for the purposes of working out a person's
excess contributions for a financial year, the Commissioner must give the
person a copy of the determination. [Schedule 1, item 1, subsection 292-465(7)]
1.121 The Commissioner may exercise the discretion in relation to any
assessment made for a financial year commencing after 30 June 2007. He
or she may also exercise the discretion in relation to an assessment made
under the special transitional rules that apply to the period from
10 May 2006 to 30 June 2007. [Schedule 1, item 25, subsection 292-80(2) of the
Income Tax (Transitional Provisions) Act 1997)]
Example 1.11
Barbara has entered into an effective salary sacrifice arrangement with
her employer to sacrifice 20 per cent of her salary into superannuation.
This results in a contribution of $45,000 for the year. However, during
the same year, the ATO collects an SG charge from Barbara's previous
employer for quarters in an earlier financial year and pays $20,000 to
her superannuation fund. As a result, Barbara's fund reports to the
ATO $65,000 in concessional contributions for the financial year.
Barbara is issued a concessional contributions tax assessment for an
excess of $15,000. Barbara applies to the Commissioner to use his
discretion. The Commissioner may exercise his discretion as $20,000
of her concessional contributions are properly referrable to a previous
financial year. It may be unreasonable to assess Barbara to the excess
contributions tax where it is clear that but for her previous employer's
failure to provide superannuation support to Barbara in a timely way,
Barbara would not have had excess concessional contributions for the
year. If the discretion is exercised, Barbara's concessional
contributions for the year would be reduced to $45,000. The
Commissioner may also reallocate the $20,000 concessional
contributions to Barbara's concessional contributions for the previous
year.
35
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
Example 1.12
Jaylee is 63 and makes a $750,000 contribution to superannuation in
the 2009-10 financial year, for which she cannot claim a deduction.
After receiving an excess non-concessional contributions tax
assessment, Jaylee applies for the Commissioner to exercise his
discretion to re-allocate $300,000 of the contributions to earlier
financial years in which she did not make contributions, arguing that
they should be counted under the bring forward provisions.
The Commissioner will not exercise the discretion in this case as
Jaylee's circumstances are not exceptional and the outcome would not
be consistent with the object of the Division. The contributions caps
operate on a `use it or lose it' basis. That is, non-concessional
contributions are subject to annual limits with the ability for those
under age 65 to bring forward future entitlements to two years worth of
non-concessional contributions. Past years' entitlements can not be
carried forward in this manner.
Example 1.13
George's employer contributes $50,000 each year to his
superannuation plan under the terms of an effective salary sacrifice
agreement. However, his employer's contribution for Year 1 was
made on 3 July of Year 2. The employer's contribution for Year 2 was
then made on 29 June of that same year (again during Year 2). This
resulted in George having no concessional contributions in Year 1 but
concessional contributions of $100,000 in Year 2.
The Commissioner may exercise his discretion in this case, to allocate
$50,000 to Year 1 as the first contribution is more appropriately
allocated to Year 1. Reallocating the amount to Year 1 would be
consistent with the object of the excess contributions taxes and fairly
matches the employer's contributions to the financial year in which
they should have been made to George's fund.
36
Contribution rules
Example 1.14
Antoni is a member of an employer sponsored superannuation plan.
Under the terms of the plan Antoni is required to contribute 5 per cent
of his salary ($5,000) to the fund each year. Each of his contributions
will be a non-concessional contribution. However, in one particular
year, Antoni also contributes $450,000 from an inheritance. Antoni is
subsequently issued a tax assessment for his excess non-concessional
contributions of $5,000. Antoni applies to the Commissioner for an
exercise of the discretion.
The Commissioner may decide not to exercise his discretion in this
case, as it was reasonably foreseeable that Antoni would exceed his
non-concessional contribution cap in that year as a result of making a
contribution of $450,000.
Example 1.15
Helen instructs her overseas superannuation provider to pay an amount
to her Australian superannuation provider on 15 August 2007. At the
time of giving her instructions Helen tried to specify an amount in the
foreign currency that would not exceed $450,000, taking into account
the prevailing exchange rate. However, the amount actually paid on
19 August 2007 was $454,500, the exchange rate having changed more
than she expected.
The Commissioner may exercise his discretion and disregard the
amount of $4,500. It was not reasonably foreseeable that Helen would
exceed her non-concessional contribution cap for that year and it may
be unjust to impose the tax in circumstances in which Helen attempted
to contribute an amount less than the non-concessional contributions
cap.
Release authorities
1.122 Generally, the superannuation preservation rules restrict the
ability of individuals to withdraw money from superannuation until after
they have attained preservation age, and retired.
1.123 However, from 1 July 2007, where an excess contributions tax
liability arises, the individual will be able to, and in some cases must,
withdraw an amount equal to their tax liability from their superannuation
provider.
1.124 The Commissioner will provide individuals liable for excess
contributions tax with a release authority, that is, a written notice
authorising an individual to withdraw money from a superannuation fund
provider. Separate release authorities will be issued for each of the taxes
(where applicable) as different arrangements apply. [Schedule 1, item 1,
section 292-405]
37
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
1.125 Release authorities can be presented to any of a person's
superannuation providers, other than those that only hold a defined benefit
interest for the individual. [Schedule 1, item 1, subsection 292-410(1)]
1.126 The amount a superannuation provider is required to release is
the lesser of:
· the amount specified by the person;
· the amount of excess contributions tax stated on the release
authority; or
· the sum of the values of every superannuation interest (other
than a defined benefit interest) held for the person.
[Schedule 1, item 1, subsections 292-415(1) and (2)]
1.127 Superannuation providers will be required to pay the amount
within 30 days. These amounts are non-assessable, non-exempt income to
the extent they do not exceed the total amount that is authorised for
release. [Schedule 1, item 1, subsections 292-415(1), 304-15(2) and (3)]
1.128 A person can direct their superannuation provider to release
money either to themselves or directly to the ATO. Payments made
directly to the ATO by a superannuation provider are taken to be made in
satisfaction of the person's excess contributions tax liability. [Schedule 1,
item 1, subsection 292-415(3)]
1.129 The proportioning rule does not apply to amounts paid under a
release authority. [Schedule 1, item 1, subsection 292-415(5)]
1.130 Where a person accesses more than the amount authorised for
release, that amount will be included in their assessable income and
subject to income tax at marginal rates. In addition, they will be liable for
an administrative penalty. [Schedule 1, item 1, subsection 304-15(4)]
Excess concessional contributions
1.131 Individuals will have a choice as to whether or not to withdraw
the amount equal to all, or part, of their excess concessional contributions
tax liability from superannuation. [Schedule 1, item 1, subsection 292-410(1)]
1.132 A release authority for excess concessional contributions will
expire after 90 days. The time limit on providing release authorities for
excess concessional contributions tax is necessary to maintain the
integrity of the superannuation preservation rules. [Schedule 1, item 1,
subsection 292-410(1)]
38
Contribution rules
Excess non-concessional contributions
1.133 Individuals must withdraw the amount equal to their excess
non-concessional contributions tax liability from superannuation by
providing the release authority to their superannuation provider/s within
21 days. Individuals who fail to comply with this requirement will be
liable for an administrative penalty. [Schedule 1, item 1, subsection 292-410(2)
and item 23, section 288-90 of the TAA 1953]
1.134 Where a person fails to withdraw the required amount, the
Commissioner is able to present release authorities directly to
superannuation providers on behalf of that person. [Schedule 1, item 1,
subsections 292-410(3) and (4)]
1.135 Excess contributions tax may be offset or added to other income
tax debits or credits of the individual. However, a person will still be
required to withdraw the amount equal to their excess non-concessional
contributions tax liability from superannuation. That is, they can not
withdraw the net tax liability owing where this differs from their excess
non-concessional contributions tax liability.
Penalties
On the individual
1.136 An individual will be liable for an administrative penalty of
20 penalty units where:
· they fail to give a release authority for non-concessional
contributions tax to a superannuation provider within 21 days
after the date of the release authority [Schedule 1, item 23,
section 288-90 of the TAA 1953]; or
· the total amount paid by their superannuation providers
exceeds the amount authorised to be released [Schedule 1,
item 23, section 288-100 of the TAA 1953].
Example 1.16
Shaz receives a compulsory release authority in relation to her excess
non-concessional contributions tax. She presents her compulsory release
authority to multiple funds and, in doing so, accesses more than the total
authorised for release. Shaz will be liable for an administrative penalty.
In addition, the amount over what should have been released will be
included in her assessable income in the year it was released and subject to
income tax at marginal rates.
39
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
On the superannuation provider
1.137 A superannuation provider will be liable for an administrative
penalty of 20 penalty units where they fail to comply with a release
authority within 30 days. [Schedule 1, item 23, section 288-95 of the TAA 1953]
Excess contributions tax liabilities
Assessments
1.138 The Commissioner must make an assessment of excess
contributions tax if a person has excess concessional contributions or
excess non-concessional contributions for a financial year. The
Commissioner will not make an assessment if a person does not have
excess concessional contributions or excess non-concessional
contributions for a financial year. [Schedule 1, item 1, subsections 292-230(1)
and (2)]
1.139 The Commissioner must give the person a notice of the excess
contributions tax assessment (or amended assessment) as soon as
practicable. [Schedule 1, item 1, subsections 292-230(3) and 310(2)]
1.140 Excess contributions tax assessments may be issued by the
Commissioner as part of an individual's income tax assessment notice, or
any other assessment notice. [Schedule 1, item 1, subsections 292-230(4)
and 310(3)]
1.141 Consistent with the arrangements applying to an individual's
other income tax liabilities, excess contributions tax will be payable
21 days after the Commissioner has given the person the notice of
assessment. Amounts that remain unpaid after that period will attract the
general interest charge (GIC). The Commissioner may remit the GIC
under existing remission guidelines. [Schedule 1, item 1, sections 292-385 and
292-390]
1.142 The Commissioner may issue a part-year assessment and treat
the period as if it is a financial year. This would occur in circumstances
where the Commissioner is of the opinion a part-year assessment is
justified. In these cases the Commissioner will also be required to make
an assessment in relation to the actual financial year as soon as possible
after the end of that year unless the assessment would not differ in a
material way from the part-year assessment. A part-year assessment does
not provide more than one cap for either the excess concessional
contributions cap or the excess non-concessional contributions cap.
[Schedule 1, item 1, section 292-235]
40
Contribution rules
1.143 The validity of assessments will not be affected through
non-compliance with provisions in the ITAA 1936 and the ITAA 1997.
[Schedule 1, item 1, section 292-240]
1.144 Objections to assessments can be made under Part IVC of the
TAA 1953. [Schedule 1, item 1, section 292-245]
1.145 Evidence requirements in section 177 of the ITAA 1936 will
apply to these assessments. [Schedule 1, item 1, section 292-250]
1.146 The Commissioner has the same powers to obtain information as
provided by section 264 of the ITAA 1936. [Schedule 1, item 1,
section 292-470]
1.147 The reporting obligations on superannuation providers to enable
the Commissioner to make excess contributions tax assessments are
contained in Division 390 in Schedule 1 to the TAA 1953.
Amended assessments
1.148 At any time up to four years after an original excess contribution
tax assessment has been given to a person for a financial year the
Commissioner can issue an amended excess contribution tax assessment
that either increases or decreases the excess contribution tax liability. An
amended assessment can be issued by the Commissioner to the person in a
similar way as the original assessment. [Schedule 1, item 1, sections 292-305
and 292-310]
1.149 The day on which the Commissioner first gives a notice of
assessment to the person for a financial year is the original excess
contribution assessment day. [Schedule 1, item 1, subsection 292-305(2)]
1.150 Assessments can be amended by the Commissioner after the end
of the four years of being made if an individual has requested an
amendment and provided any necessary information within the four year
amendment period. [Schedule 1, item 1, section 292-315]
1.151 Amended assessments can only be further amended within
four years of the particular amended assessment. [Schedule 1, item 1,
section 292-325]
1.152 The assessment can be amended at any time if the
Commissioner is of the opinion that a person or provider has not given a
full and true disclosure, or an under-assessment has been made and the
under-assessment has been as a result of fraud or evasion. [Schedule 1,
item 1, section 292-320]
41
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Concessional Contributions Tax) Bill 2006
Superannuation (Excess Non-concessional Contributions Tax) Bill 2006
1.153 An assessment (or amended assessment) can be amended at any
time to give effect to a review or appeal decision or to be reduced pending
such a decision, or as a result of an objection if the Commissioner
considers it just to do so. [Schedule 1, item 1, section 292-330]
1.154 Where an amended assessment results in a refund it will be paid
in accordance with the existing guidelines. [Schedule 1, item 1,
section 292-395]
42
Chapter 2
Taxation of benefit payments
Outline of chapter
2.1 Schedule 1 to this Bill establishes a new, simplified regime for
the taxation of superannuation benefits. It also removes significant
complexity from the taxation arrangements that apply to the payment of
superannuation benefits from 1 July 2007. Under this simplified regime:
· the payment of superannuation benefits, whether in the form
of a superannuation lump sum or a superannuation income
stream, to persons aged 60 and over is tax free where those
benefits have been subject to tax in the fund;
· where a superannuation benefit contains an amount that has
not been subject to tax in the fund, it will continue to be
subject to tax. However, where the benefit is paid to persons
aged 60 and over, a lower rate of tax applies than currently.
This is relevant generally to those people (eg, public
servants), who are members of a superannuation fund
established by the Australian Government or a state
government;
· simplified taxation arrangements apply to the payment of
superannuation benefits to persons below age 60, primarily
based on the existing taxation arrangements set out in the
Income Tax Assessment Act 1936 (ITAA 1936);
· reasonable benefit limits (RBLs) are abolished; and
· some existing provisions which are retained in the simplified
regime are rewritten in a simplified and modernised form to
improve the readability of the law.
2.2 A higher rate of tax on transfers over $1 million from untaxed to
taxed schemes is introduced separately in the Superannuation (Excess
Untaxed Roll-over Amounts Tax) Bill 2006 to ensure that each Bill deals
with a separate object of taxation. In addition, the Superannuation
(Departing Australia Superannuation Payments Tax) Bill 2006 replaces
the Income Tax (Superannuation Payments Withholding Tax) Act 2002 to
43
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
reflect the new components of superannuation benefits while retaining the
same rates of taxation.
2.3 All legislative amendments are to the Income Tax Assessment
Act 1997 (ITAA 1997) unless otherwise indicated.
Context of amendments
2.4 The taxation of superannuation is currently complex, with
different arrangements applying to the taxation of contributions, earnings
and benefits.
2.5 The report of the Taskforce on Reducing Regulatory Burdens on
Business, Rethinking Regulation recommended that high priority be given
to comprehensive simplification of the tax rules for superannuation
benefits.
2.6 The taxation of superannuation benefits is determined by
reference to the following factors:
· the age of the member;
· the form of the superannuation benefit, that is, whether it is a
superannuation lump sum or superannuation income stream
benefit; and
· the taxation arrangements that apply to each component that
comprise the superannuation benefit.
2.7 A superannuation benefit may comprise up to eight different
components. Each component is subject to different taxation
arrangements.
2.8 Superannuation benefits are subject to RBLs that limit the
amount of superannuation benefits a person may receive on a
concessionally taxed basis. Amounts in excess of the RBL are subject to
a higher rate of tax.
2.9 The complexity of these arrangements affects the ability of
individuals to make decisions relating to their retirement and adds to the
administration costs for superannuation funds.
44
Taxation of benefit payments
Summary of new law
2.10 Schedule 1 establishes a new regime for the taxation of
superannuation benefits in the ITAA 1997.
2.11 Schedule 1 simplifies the taxation of superannuation benefits by
removing the tax payable upon a superannuation benefit where it is paid
to a person aged 60 and above and the benefit has already been subject to
tax on contributions and earnings. The taxation arrangements that apply
to the payment of a superannuation benefit to persons below age 60 are
also streamlined.
Taxation of a superannuation benefit
2.12 A superannuation benefit may comprise the following:
· a tax free component;
· a taxable component which includes:
- an element taxed in the fund; and / or
- an element untaxed in the fund.
2.13 The tax free component of a superannuation benefit is generally
made up of contributions from a person's post-tax income and by amounts
which represent the portion of a superannuation benefit that accrued
before 1 July 1983.
2.14 The tax free component is, uniformly, not assessable income and
not exempt income. That is, it is paid tax free.
2.15 The taxable component of a superannuation benefit is the total
value of the superannuation benefit less the tax free component. The
taxable component is usually made up of tax deductible contributions
made to the superannuation fund by the person and / or by the employer
on the person's behalf, as well as earnings on all contributions. For most
people the taxable component is entirely made up of an element taxed in
the fund, that is, a part that has been subject to tax at the time that
contributions were made and upon earnings.
2.16 In comparison, an element untaxed in the fund usually arises in
public sector superannuation plans where tax has not been paid on
contributions or earnings, or from unfunded schemes.
45
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
2.17 Different taxation arrangements apply to the element taxed in
the fund and the element untaxed in the fund. These arrangements are
summarised in Tables 2.1 and 2.2. The tax rates specified in the tables are
maximum rates of tax. The Medicare levy is also payable upon any
superannuation benefit where a tax rate greater than zero per cent applies.
Table 2.1: Superannuation member benefit -- element taxed in the
fund (a)
Age Superannuation lump sum Superannuation income stream
Aged 60 and Tax free (not assessable, not Tax free (not assessable, not
above exempt income). exempt income).
Preservation age Zero per cent tax up to low rate Marginal tax rates and
to age 59 cap of $140,000 (indexed). 15 per cent tax offset.
Any amount above low rate cap
is subject to 15 per cent tax.
Below Taxable component is subject to Marginal tax rates (no tax
preservation age 20 per cent tax. offset) (b).
(a) Tax free component is always tax free.
(b) A disability superannuation income stream also receives a 15 per cent offset.
46
Taxation of benefit payments
Table 2.2: Superannuation member benefit -- element untaxed in the
fund (a)
Age Superannuation lump sum Superannuation income stream
Aged 60 and 15 per cent up to the untaxed Marginal tax rates and
above cap amount of $1 million 10 per cent tax offset.
(indexed) per superannuation
plan.
The top marginal rate applies to
amounts above this cap.
Preservation age 15 per cent up to the low rate Marginal tax rates (no tax
to age 59 cap amount of $140,000 offset).
(indexed).
30 per cent on those amounts up
to the untaxed plan cap of
$1 million (indexed).
The top marginal tax rate
applies to any amount above the
untaxed plan cap.
Below 30 per cent up to untaxed plan Marginal tax rates (no tax
preservation age cap of $1 million (indexed). offset).
The top marginal rate applies to
amounts above this cap.
(a) Tax free component is always tax free.
Disability benefit
2.18 Where a person receives a disability superannuation income
stream before reaching his or her preservation age, he or she is entitled to
claim a 15 per cent tax offset in respect of the element taxed in the fund.
Superannuation death benefit
2.19 Where a person dies, his or her superannuation benefit may be
paid to another person (or to the trustee of a deceased estate). This person
may be a dependant or a non-dependant of the deceased person for tax
purposes. For tax purposes, a dependant may include any spouse or
former spouse of the deceased, his or her children under the age of 18 and
any other person who was dependant upon the deceased.
2.20 Different taxation arrangements apply to the payment of a
superannuation death benefit to a person that is a dependant of the
47
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
deceased person for tax purposes in comparison to a person that is not a
dependant of the deceased for tax purposes. The taxation arrangements
also differ depending on whether the amount is paid as a lump sum or an
income stream and, in the case of an income stream, the age of the
deceased person and the recipient.
2.21 From 1 July 2007, a person who is not a dependant of the
deceased will not be able to receive a superannuation income stream
under amendments to be made to the Superannuation Industry
Supervision Regulations 1994. Non-dependants for whom a death benefit
superannuation income stream commenced prior to 1 July 2007 will be
taxed in the same manner as dependants.
2.22 Tables 2.3 and 2.4 summarise the taxation arrangements that
apply to the payment of a superannuation death benefit from 1 July 2007.
The tax rates specified in the tables are maximum rates of tax. The
Medicare levy is also payable upon any superannuation benefit where a
tax rate greater than zero per cent applies.
48
Taxation of benefit payments
Table 2.3: Superannuation death benefits paid to a dependant (a)
Age of Superannuation Age of Taxation
deceased death benefit recipient
Any age Lump sum Any age Tax free (not assessable, not
exempt income).
Aged 60 and Income stream Any age Taxable component --
above element taxed in the fund is
tax free (not assessable, not
exempt income).
Taxable component --
element untaxed in the fund is
subject to marginal tax rates
and the person is entitled to a
10 per cent tax offset upon
this amount.
Below age Income stream Above age 60 Taxable component --
60 element taxed in the fund is
tax free (not assessable, not
exempt income).
Taxable component --
element untaxed in the fund is
subject to marginal tax rates
and the person is entitled to a
10 per cent tax offset upon
this amount.
Below age 60 Taxable component --
element taxed in the fund is
subject to marginal tax rates
and the person is entitled to a
15 per cent tax offset upon
this amount.
Taxable component --
element untaxed in the fund is
subject to marginal tax rates.
(a) Tax free component is always tax free.
49
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
Table 2.4: Superannuation death benefits paid to a
non-dependant (a)
Age of Superannuation Age of Taxation
deceased death benefit recipient
Any age Lump sum Any age Taxable component --
element taxed in the fund is
subject to 15 per cent tax.
Taxable component --
element untaxed in the fund is
subject to 30 per cent tax.
Any age Income stream Any age Not applicable.
Income streams that had
commenced prior to
1 July 2007 will be taxed as if
received by a dependant.
(a) Tax free component is always tax free.
Supporting Bills
2.23 A higher rate of tax on transfers over $1 million from untaxed to
taxed schemes is introduced separately by the Superannuation (Excess
Untaxed Roll-over Amounts Tax) Bill 2006 to ensure each Bill deals with
a separate object of taxation. The Superannuation (Departing Australia
Superannuation Payments Tax) Bill 2006 replaces the Income Tax
(Superannuation Payments Withholding Tax) Act 2002 to reflect the new
components of superannuation benefits while retaining the same rates of
taxation.
2.24 The taxation of certain other amounts at the top marginal tax rate
will be achieved by consequential amendments that will be made to the
Income Tax Rates Act 1986.
50
Taxation of benefit payments
Comparison of key features of new law and current law
New law Current law
Taxation of benefit payments
Superannuation lump sum benefits
Superannuation benefits which have
paid from a taxed source comprise
been subject to tax on contributions
up to eight different components that
and earnings are tax free for all
are each subject to different taxation
people aged 60 and over from
arrangements.
1 July 2007.
Five per cent of the pre-July 1983
component is subject to marginal tax
rates.
Five per cent of the concessional
component is subject to marginal tax
rates.
All undeducted contributions,
post-June 1994 invalidity payments
and capital gains tax exempt
components are tax free.
The non-qualifying component is
subject to marginal tax rates.
The excessive component is subject
to 38 per cent tax.
Superannuation income stream
benefits paid from a taxed source are
included in assessable income with a
15 per cent tax offset applying after
age 55.
Element untaxed in the fund
Where a person aged 55 and over
Where a person aged 60 and over
receives a superannuation income
receives a superannuation income
stream that contains an element
stream that contains an element
untaxed in the fund, this amount is
untaxed in the fund (ie, no
included as part of the person's
contributions or earnings tax has
assessable income and subject to
been paid on this element), he or she
marginal tax rates.
is entitled to a 10 per cent tax offset
upon this amount.
Where a person aged 55 and over
Where a person aged 60 and over
receives a superannuation lump sum
receives a superannuation lump sum
that contains a post-June 1983
that contains an element untaxed in
untaxed element, this amount is
the fund, a 15 per cent tax is imposed
subject to 15 per cent tax up to a low
on the element untaxed in the fund
rate threshold ($135,590 in 2006-07).
up to the untaxed plan cap of
Amounts above this amount are
$1 million (indexed) and the top
subject to 30 per cent tax and
marginal tax rate applies to amounts
amounts above the RBL are subject
above this cap.
to the top marginal tax rate.
51
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
New law Current law
Reasonable benefit limits
RBLs are abolished. The RBL system determines the
maximum amount of superannuation
benefits that a person may receive
during his or her lifetime on a
concessionally taxed basis.
Where a superannuation lump sum or
superannuation income stream
exceeds the lump sum RBL or
pension RBL, excess amounts are
taxed at a higher rate.
Superannuation death benefits
A lump sum death benefit paid to a A lump sum death benefit paid to a
dependant is tax free. dependant is tax free up to the
deceased's pension RBL.
A lump sum death benefit paid to a
non-dependant is taxed at 15 per cent A lump sum death benefit paid to a
(element taxed in the fund) or non-dependant is taxed at 15 per cent
30 per cent (element untaxed in the (element taxed in the fund) or
fund). 30 per cent (element untaxed in the
fund) up to the deceased's pension
A superannuation income stream
RBL.
death benefit is tax free (element
taxed in the fund) or taxed at A superannuation income stream
marginal rates less a 10 per cent tax death benefit is taxed at marginal
offset (element untaxed in the fund) rates and receives the same rebate as
if either the deceased or recipient is the original pension (if any).
over the age of 60.
All other superannuation income
stream death benefits are taxed at
marginal rates and receive a
15 per cent offset (element taxed in
the fund) or no offset (element
untaxed in the fund).
52
Taxation of benefit payments
Detailed explanation of new law
Overall structure
2.25 The structure of this Division is based on the following outline,
and addresses `superannuation member benefits' (including
`superannuation lump sums' and `superannuation income streams') from
`complying superannuation plans', `superannuation death benefits',
`superannuation benefits' paid from `non-complying superannuation
plans', `roll-overs' and key concepts that are used throughout this Bill.
Division 301 Superannuation member benefits paid from a complying plan
Subdivision 301-B Member benefits: general rules
Subdivision 301-C Member benefits: elements untaxed in the fund
Subdivision 301-D Departing Australia superannuation payments
Subdivision 301-E Superannuation lump sum member payments less than $200
Division 302 Superannuation death benefits paid from a complying plan
Subdivision 302-B Death benefits to dependants
Subdivision 302-C Death benefits to non-dependants
Subdivision 302-D Definitions relating to dependants
Division 303 Superannuation benefits paid in special circumstances
Division 304 Superannuation benefits in breach of statutory requirements
Division 305 Superannuation benefits from non-complying superannuation
plans
Subdivision 305-A Superannuation benefits paid from resident non-complying
superannuation plans
Subdivision 305-B Superannuation benefits paid from foreign superannuation
funds
Division 306 Roll-overs
Division 307 Key concepts
Subdivision 307-A Superannuation benefits generally
Subdivision 307-B Superannuation lump sums and income streams
Subdivision 307-C Components of superannuation benefit
Subdivision 307-D Superannuation interests
Subdivision 307-E Elements taxed and untaxed in the fund of the taxable
component of a superannuation benefit
Subdivision 307-F Low rate cap and untaxed plan cap
Subdivision 307-G Other concepts
53
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
Superannuation member benefits paid from complying plans
2.26 Division 301 sets out the taxation arrangements that apply to
superannuation `member benefits' paid from a complying superannuation
plan. Member benefits are broadly all superannuation benefits other than
benefits paid after the death of the member.
2.27 The tax arrangements differ in accordance with the age of the
person that receives the superannuation benefit and whether the
superannuation benefit is a superannuation lump sum or a superannuation
income stream. It is also relevant to consider whether the `taxable
component' of the superannuation benefit includes an `element taxed in
the fund' and / or an `element untaxed in the fund'. The Division also sets
out taxation arrangements that apply to `departing Australia
superannuation payments' and certain superannuation lump sum member
benefit payments that are less than $200. [Schedule 1, item 1, section 301-5]
2.28 Superannuation death benefits are taxed under separate
arrangements and are dealt with in paragraphs 2.68 to 2.80 of this chapter.
Member benefits: general rules
2.29 Subdivision 301-B sets out the tax treatment of the most
common superannuation benefits, that is, benefits which do not include an
element untaxed in the fund.
2.30 A superannuation benefit paid to a person aged 60 and over as a
superannuation lump sum or superannuation income stream benefit is not
assessable income and is not exempt income. `Non-assessable
non-exempt income' is defined under section 6-23 of the ITAA 1997 and
it means that the person does not have to pay income tax on it -- in
simple terms it is tax free. [Schedule 1, item 1, section 301-10]
2.31 If the superannuation benefit includes an element untaxed in the
fund, this Subdivision must be read with Subdivision 301-C. Elements
untaxed in the fund generally only apply to members of public sector
superannuation plans.
Member benefits: person below age 60 and above preservation age
2.32 The `tax free component' of a superannuation member benefit
paid to a person who has reached his or her preservation age and is below
age 60 is not assessable income and is not exempt income. The
superannuation benefit may be a superannuation lump sum or
superannuation income stream benefit. A person's preservation age
depends on his or her birth date and is determined in accordance with
54
Taxation of benefit payments
Regulation 6.01 of the Superannuation Industry (Supervision)
Regulations 1994. [Schedule 1, item 1, section 301-15]
2.33 The taxable component of a superannuation lump sum benefit
paid to a person who has reached his or her preservation age and is below
age 60 is assessable income. The element taxed in the fund and the
element untaxed in the fund combine to form the taxable component;
however, each element is subject to different income tax treatment.
[Schedule 1, item 1, section 302-20]
2.34 Different income tax rates are payable on the element taxed in
the fund of a superannuation lump sum. Up to a certain threshold, known
as the `low rate cap' amount, an offset applies which ensures that the tax
rate on the element taxed in the fund does not exceed zero per cent. Any
amount greater than the low rate cap amount is subject to income tax at a
maximum rate of 15 per cent. [Schedule 1, item 1, section 301-20]
2.35 Different taxation arrangements, outlined under
paragraphs 2.46 to 2.55, apply where the taxable component of a
superannuation benefit contains an element untaxed in the fund.
2.36 Both the element taxed in the fund and the element untaxed in
the fund (if any) can utilise the low rate cap amount. The low rate cap
amount is calculated in accordance with section 307-345 and is $140,000
for 2007-08 and indexed thereafter.
Example 2.1
Michelle received two superannuation lump sum benefits from two
different superannuation plans at age 58. The first superannuation
lump sum benefit amount was $150,000. The tax free component was
$40,000, the taxable component included an element taxed in the fund
of $60,000 and an element untaxed in the fund of $50,000. Her second
superannuation lump sum was for $600,000; the tax free component
was $250,000 and the taxable component (which was completely
comprised of an element taxed in the fund) was $350,000.
The low rate cap amount applies first to elements taxed in the
superannuation fund received in an income year. Michelle therefore
did not pay tax on $140,000 of the element taxed in the fund of the two
superannuation lump sum benefits.
Michelle paid a maximum 30 per cent tax (plus the Medicare levy) on
the element untaxed in the fund of $50,000 and a maximum 15 per
cent tax (plus the Medicare levy) on the remaining element taxed in the
fund.
55
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
2.37 The taxable component of a superannuation income stream
benefit paid to a person who has reached his or her preservation age and is
below age 60 is assessable income. He or she is entitled to a tax offset
equal to 15 per cent of the taxable component of the superannuation
income stream benefit. Different taxation arrangements apply to an
element untaxed in the fund that forms part of the taxable component
under Subdivision 301-C. [Schedule 1, item 1, section 301-25]
Member benefits -- recipient under preservation age
2.38 The tax free component of a superannuation member benefit,
whether a superannuation lump sum or superannuation income stream
benefit, is not assessable income and not exempt income where it is paid
to a person below his or her preservation age. [Schedule 1, item 1,
section 301-30]
2.39 The taxable component of a superannuation lump sum paid to a
person below his or her preservation age is assessable income. The
person is entitled to a tax offset so that the income tax payable on the
element taxed in the fund of the lump sum is not greater than 20 per cent.
The taxable component may include an element untaxed in the fund and
the taxation of this element is addressed under Subdivision 301-B.
[Schedule 1, item 1, section 302-35]
2.40 The taxable component of a superannuation income stream is
assessable income where it is paid to a person who is below his or her
preservation age. [Schedule 1, item 1, subsection 302-40(1)]
Disability superannuation benefits
2.41 A person receives a disability superannuation benefit if he or
she has suffered physical or mental ill-health and two legally qualified
medical practitioners certify that the person is unlikely to be gainfully
employed again in a position for which he or she is reasonably qualified,
due to his or her education, experience or training. [Schedule 10, item 19]
2.42 A person is gainfully employed where he or she is employed or
self-employed for gain in a business, trade, profession, vocation, calling,
occupation or employment. This definition extends access to disability
superannuation benefits to the self-employed. [Schedule 10, item 36]
2.43 Where a person receives a disability superannuation benefit, he
or she is entitled to a 15 per cent tax offset on the taxable component if it
is paid as a superannuation income stream. If the person receives the
disability superannuation benefit as a lump sum, the tax free component
of the benefit is increased to broadly reflect the period where they would
56
Taxation of benefit payments
have expected to have been gainfully employed. [Schedule 1, item 1,
subsection 301-40(2) and section 307-145]
Application of the tax offset
2.44 Sections 301-20, 301-35, 301-95, 301-105 and 301-115 set out
different tax offsets that apply to the taxable component of a
superannuation lump sum benefit in accordance with the age of the
member and the elements of the component. These tax offsets reduce the
amount of tax payable on the benefit. In practice, these sections specify
the maximum income tax rates applicable to the element(s) that form part,
or all, of the taxable component. Where a person would be subject to a
lower rate of tax than the maximum rate specified by the offset in the
relevant section, the lower rate applies.
2.45 Sections 301-25, 301-40 and 301-100 set out different tax
offsets that apply to the taxable component of a superannuation income
stream benefit in accordance with the age of the member. These tax
offsets reduce the amount of tax payable on the benefit.
Member benefits: element untaxed in the fund
2.46 Where the taxable component of a superannuation benefit is
wholly or partly made up of an element untaxed in the fund, the tax free
component, and that part of the taxable component comprising an element
taxed in the fund, if any, are treated on the same basis as outlined above.
The taxation arrangements that apply to the tax free component and the
element taxed in the fund are not affected by the taxation arrangements
that apply specifically to the element untaxed in the fund. [Schedule 1,
item 1, section 301-90]
Member benefits (element untaxed in the fund) -- recipient aged 60 or
above
2.47 Where a person aged 60 or over receives a superannuation lump
sum benefit that contains an element untaxed in the fund, that amount is
assessable income. [Schedule 1, item 1, subsection 301-95(1)]
2.48 The person is entitled to a tax offset to ensure that the tax rate
that he or she is liable to pay on the element untaxed in the fund, up to the
untaxed plan cap amount, is not greater than 15 per cent. Where the
element untaxed in the fund is greater than this amount, the top marginal
tax rate is applied in accordance with consequential amendments that will
be made to the Income Tax Rates Act 1986. The person is entitled to a
separate untaxed plan cap for each plan they receive superannuation lump
sum benefits from. [Schedule 1, item 1, subsections 301-95(2) and (3)]
57
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
Example 2.2
Jenny is a public servant and receives a superannuation lump sum of
$500,000 at age 60. Her superannuation lump sum includes an
element untaxed in the fund of $300,000, an element taxed in the fund
of $100,000 and a tax free component of $100,000.
Jenny receives the element taxed in the fund and the tax free
component tax free. The element untaxed in the fund is taxed at her
marginal tax rates up to a maximum rate of 15 per cent (plus the
Medicare levy).
2.49 Where a person aged 60 or above receives a superannuation
income stream benefit, the element untaxed in the fund is assessable
income and subject to marginal tax rates. The person is also entitled to a
10 per cent tax offset on this amount. [Schedule 1, item 1, section 301-100]
Example 2.3
Vern receives a superannuation income stream of $56,000 which
commenced prior to 1 July 2007. The superannuation income stream
has a deductible (tax free) amount of $6,000 (for contributions made
from his post-tax income) and the remainder is an element untaxed in
the fund.
Vern will continue to receive the deductible amount of $6,000 as the
tax free component. He will also continue to be assessed on the
remaining $50,000 at marginal rates, but will receive a tax offset of
10 per cent of $50,000 (ie, $5,000). The amount of tax Vern pays will
therefore be reduced by up to $5,000.
Member benefits (element untaxed in the fund) -- recipient aged over
preservation age and below 60
2.50 Where a person who is below age 60 and has reached his or her
preservation age receives a superannuation lump sum benefit, the element
untaxed in the fund is assessable income and is subject to different rates of
tax:
· up to the low rate cap amount (if any) -- a maximum of
15 per cent;
· up to the `untaxed plan cap' amount for each `superannuation
plan' (excluding any low rate cap amount) -- a maximum of
30 per cent; and
· above the untaxed plan cap amount -- the top marginal tax
rate set out in the Income Tax Rates Act 1986.
58
Taxation of benefit payments
[Schedule 1, item 1, section 301-105]
Example 2.4
Jack is 58 years of age when he receives a superannuation lump sum of
$180,000 which is completely comprised of an element untaxed in the
fund. Jack has not previously received a superannuation lump sum.
The amount up to Jack's low rate cap of $140,000 is taxed at his
marginal tax rates up to a maximum rate of 15 per cent (plus the
Medicare levy). The remaining $40,000 is taxed at Jack's marginal tax
rates up to a maximum rate of 30 per cent (plus the Medicare levy).
2.51 Where a person who has reached his or her preservation age but
is below age 60 commences receiving a superannuation income stream
benefit, the element untaxed in the fund is assessable income and
marginal tax rates apply. [Schedule 1, item 1, section 301-110]
Member benefits (element untaxed in the fund) -- recipient aged under
preservation age
2.52 Where a superannuation lump sum benefit is paid to a person
below his or her preservation age that includes an element untaxed in the
fund, this amount forms part of his or her assessable income. [Schedule 1,
item 1, subsection 301-115(1)]
2.53 The person is entitled to a tax offset on the element untaxed in
the fund up to the untaxed plan cap amount for the superannuation plan to
ensure that the maximum rate of tax that can apply is 30 per cent. The top
marginal tax rate applies to any amount greater than the untaxed plan cap
amount, in accordance with the Income Tax Rates Act 1986. [Schedule 1,
item 1, subsections 301-115(2) and (3)]
2.54 Where a person receives more than one superannuation lump
sum benefit that includes an element untaxed in the fund from two
different superannuation plans, he or she is entitled to a separate untaxed
plan cap in respect of each superannuation plan. [Schedule 1, item 1,
subsection 301-115(3)]
2.55 Where a person who is below his or her preservation age
receives a superannuation income stream benefit that includes an element
untaxed in the fund, this forms part of his or her assessable income and is
taxed at marginal tax rates. [Schedule 1, item 1, section 301-120]
59
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
Departing Australia superannuation payments
2.56 A departing Australia superannuation payment must be paid as a
superannuation lump sum benefit to a person that has departed Australia.
This payment must comply with one of the following:
· regulations under the Superannuation Industry (Supervision)
Act 1993 or the Retirement Savings Account Act 1997;
· section 67A of the Small Superannuation Accounts Act 1995;
or
· the rules of the fund that apply to the operation of an exempt
public sector superannuation scheme provided that these
rules are substantially similar to the regulations set out above.
[Schedule 1, item 1, section 301-170]
2.57 Where a person receives a departing Australia superannuation
payment, the benefit is not assessable and is not exempt income and,
therefore, the person is not liable to pay income tax. This restates existing
provisions set out in section 27GA of the ITAA 1936. [Schedule 1, item 1,
subsection 301-175(1)]
2.58 The benefit is however subject to a final withholding tax in
accordance with the Superannuation (Departing Australia
Superannuation Payments Tax) Act 2006. [Schedule 1, item 1,
subsection 301-175(2)]
2.59 The Superannuation (Departing Australia Superannuation
Payments Tax) Bill 2006 replaces the Income Tax (Superannuation
Payments Withholding Tax) Act 2002 to reflect the new components of
superannuation benefits while retaining the same rates of taxation. The
rates are nil for the tax free component, 30 per cent for the element taxed
in the fund and 40 per cent for the element untaxed in the fund.
[Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006]
Superannuation lump sum member benefits less than $200
2.60 Where a person receives a member benefit that is less than $200
in value and the requirements specified in the regulations are met, he or
she receives this benefit tax free provided that it is paid as a
superannuation lump sum and it is the person's entire benefit in the plan.
Regulations are able to specify that this will apply to certain types of
payments, for example, those relating to otherwise lost members.
[Schedule 1, item 1, section 301-225]
60
Taxation of benefit payments
Low rate cap and untaxed plan cap amounts
Low rate cap
2.61 The low rate cap reflects the low rate threshold for eligible
termination payments (ETPs) calculated under former section 159SA of
the ITAA 1936. It is being retained to maintain the existing tax treatment
of superannuation payments between preservation age and age 60.
2.62 The low rate cap for the 2007-08 income year is $140,000. This
cap is indexed annually in accordance with section 960-285. [Schedule 1,
item 1, section 307-345]
2.63 As it reflects current arrangements, the low rate cap is reduced
by any amount previously applied to the low rate threshold. In these
cases, the first cap amount for the 2007-08 income year is calculated by
adding together:
· the person's closing balance for the 2006-07 income year that
is calculated in accordance with former
subsection 159SF(2) of the ITAA 1936; and
· $4,410, that is, the difference between $140,000 and the
upper limit for the 2006-07 income year calculated in
accordance with section 159SG of the ITAA 1936.
[Schedule 1, item 25, section 307-345 of the Income Tax (Transitional Provisions)
Act 1997]
2.64 The low rate cap is a lifetime limit. The low rate cap is therefore
reduced by any amount for which a person has received a tax offset under
subsection 301-20(4) or 301-105(4) which applies a tax offset to those
payments or amounts that are counted towards the low rate cap amount.
[Schedule 1, item 1, subsection 307-345(2)]
Untaxed plan cap amount
2.65 The untaxed plan cap amount ensures that the concessionality of
benefits that have not been subject to contributions or earnings tax in a
superannuation fund is targeted appropriately. The untaxed plan cap
amount is necessary as the caps that operate so as to limit the amount of
superannuation contributions that a person can make (or an employer can
make upon his or her behalf) do not apply to those employer contributions
that are included as part of an element untaxed in the fund.
61
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
2.66 The untaxed plan cap amount for the 2007-08 income year is
$1 million. This cap is indexed annually in accordance with
section 960-285. [Schedule 1, item 1, section 307-350]
2.67 The untaxed plan cap amount is a per plan limit, that is, a
separate untaxed plan cap applies to each superannuation plan from which
a person receives superannuation lump sum member benefits. The
untaxed plan cap amount for each superannuation plan is reduced by the
total amount of each element untaxed in the fund of a superannuation
lump sum that a person has received, including roll-overs. [Schedule 1,
item 1, subsection 307-350(2)]
Superannuation death benefits
Superannuation death benefits paid from complying plans
2.68 Division 302 sets out the taxation arrangements that apply to the
payment of `superannuation death benefits'. These arrangements depend
on whether the person that receives the superannuation death benefit is a
dependant of the deceased or not and whether the amount is paid as a
`lump sum superannuation death benefit' or a `superannuation income
stream death benefit'. The current definition of a dependant for tax
purposes, which includes individuals in an interdependency relationship,
is being maintained. In the case of a superannuation income stream death
benefit, it is also relevant to consider the age of the deceased person and
the recipient. [Schedule 1, item 1, sections 302-5, 302-195 and 302-200]
2.69 From 1 July 2007, a person who is not a dependant of the
deceased will not be able to receive a superannuation income stream
under amendments to be made to the Superannuation Industry
Supervision Regulations 1994. Non-dependants for whom a death benefit
superannuation income stream commenced prior to 1 July 2007 will be
taxed in the same manner as dependants.
Superannuation death benefits paid to a trustee of a deceased estate
2.70 A superannuation death benefit may be received by a person
acting as a trustee of a deceased estate. The taxation arrangements that
apply to this superannuation death benefit are determined in accordance
with the taxation arrangements that would otherwise apply to the person
or persons otherwise intended to benefit from the estate [Schedule 1, item 1,
section 302-10].
· This means that where a dependant of the deceased is
expected to receive part or all of a superannuation death
benefit, it will be subject to tax as if it were paid to a
62
Taxation of benefit payments
dependant of the deceased. However, it is also clear that the
dependant is not presently entitled to this superannuation
death benefit at this time and it therefore does not form part
of his or her assessable income [Schedule 1, item 1,
subsection 302-10(2)].
· Where a person that is not a dependant is expected to receive
part or all of a superannuation death benefit, it will be subject
to tax as if it were paid to a non-dependant of the deceased to
that extent. However, it is also clear that the non-dependant
is not presently entitled to this superannuation death benefit
at this time and it therefore does not form part of his or her
assessable income [Schedule 1, item 1, subsection 302-10(3)].
2.71 This is to ensure that the superannuation death benefit is not
subject to double taxation.
Death benefits to a dependant
2.72 Where a person receives a superannuation lump sum death
benefit and that person was a dependant of the deceased, it is not
assessable income and is not exempt income. This means the person is
not liable to pay tax on this amount. [Schedule 1, item 1, section 302-60]
Superannuation income stream
2.73 A person may receive a superannuation income stream upon the
death of a person upon whom he or she was dependent. This income is
tax free income where the dependant is aged 60 or above or the deceased
was aged 60 or above at the time when he or she died. [Schedule 1, item 1,
section 302-65]
2.74 Where a dependant of the deceased is under age 60 at the time
he or she receives the benefit and the deceased died before he or she
turned age 60:
· the tax free component of a superannuation income stream is
tax free income [Schedule 1, item 1, section 302-70];
· the element taxed in the fund is assessable income and the
dependant is entitled to a tax offset equal to 15 per cent of the
element taxed in the fund [Schedule 1, item 1, section 302-75]; and
· when the recipient turns 60 the superannuation income
stream becomes tax free.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
2.75 Where a child of the deceased under age 25 receives a death
benefit superannuation income stream, he or she will be required to
commute this benefit upon turning age 25 in accordance with payment
standards prescribed under subsection 31(1) of the Superannuation
Industry Supervision Act 1993. This commutation is treated as
non-assessable and non-exempt income. [Schedule 1, item 1, section 303-5]
An element untaxed in the fund
2.76 Where the taxable component of a superannuation income
stream benefit includes an element untaxed in the fund, the tax free
component is still tax free. Further, the person that receives the benefit is
entitled to either the 15 per cent tax offset under section 302-75 or the tax
free arrangements set out under section 302-65 in respect of the element
taxed in the fund. The element untaxed in the fund is treated differently in
accordance with section 302-80 or 302-85 depending upon the age of the
deceased and the dependant. [Schedule 1, item 1, section 302-80]
2.77 Where a superannuation income stream is paid to a dependant of
the deceased who is age 60 or over when he or she receives the benefit or
the deceased was age 60 or over at the time of his or her death, the
dependant is entitled to a tax offset equal to 10 per cent of the element
untaxed in the fund. [Schedule 1, item 1, section 302-85]
2.78 In the event that a superannuation income stream is paid to a
dependant under age 60 and the deceased died before he or she turned
age 60, the element untaxed in the fund is part of the dependant's
assessable income. When the dependant turns 60 they will receive a
10 per cent tax offset. [Schedule 1, item 1, section 302-90]
Death benefits to a non-dependant
2.79 A non-dependant of the deceased may receive a superannuation
lump sum. The tax free component of this lump sum is not assessable and
is not exempt income and therefore the person is not liable to pay tax on
this amount. [Schedule 1, item 1, section 302-140]
2.80 Different taxation arrangements apply to the element taxed in
the fund and the element untaxed in the fund that makes up the taxable
component. An offset is available to ensure the tax rate on the element
taxed in the fund is not greater than 15 per cent. The person is also
entitled to a tax offset to ensure that the tax payable on the element
untaxed in the fund does not exceed 30 per cent. [Schedule 1, item 1,
section 302-145]
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Taxation of benefit payments
Superannuation benefits if there is a breach of statutory requirements
2.81 The taxation arrangements set out in relation to superannuation
benefits paid from a complying superannuation fund do not apply where a
superannuation fund has not adhered to requirements set out in section 62
of the Superannuation Industry Supervision Act 1993. [Schedule 1, item 1,
section 304-5]
2.82 Further, these arrangements do not apply where a person
receives an amount or benefit that does not meet the payment standards
prescribed under subsection 31(1) or 32(1) of the Superannuation Industry
Supervision Act 1993 relating to the operation of regulated superannuation
funds and regulated approved deposit funds respectively. This means that
where a person receives a superannuation benefit that does not meet these
requirements, it must be included as part of his or her assessable income
and is therefore subject to marginal tax rates. [Schedule 1, item 1,
subsections 304-10(1) and (2)]
2.83 A person must also include as part of his or her assessable
income any benefit received from a retirement savings account (RSA) that
is in breach of the Retirement Savings Accounts Act 1997, regulations
made under the Act or payment standards prescribed under
subsection 38(2) of the Retirement Savings Accounts Act 1997 relating to
the operating standards applying to an RSA. [Schedule 1, item 1,
subsection 304-10(3)]
2.84 The Commissioner of Taxation (Commissioner) retains
discretion to provide that an amount may be excluded from a person's
assessable income and treated as a superannuation benefit where the
Commissioner is satisfied that it would be unreasonable not to do so. The
Commissioner may have regard to the nature of the superannuation fund,
where relevant, and any other matter that he or she may consider to be
relevant. [Schedule 1, item 1, subsection 304-10(4)]
2.85 Where a payment is made from a superannuation plan regarding
a release authority in relation to excess contributions tax, the amount
specified in the release authority is not assessable and not exempt income.
Anything above this amount must be included as part of the person's
assessable income in the year it is released and is subject to income tax at
the person's marginal tax rates. [Schedule 1, item 1, section 304-15]
65
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
Superannuation benefits paid from non-complying superannuation plans
2.86 The existing tax treatment of superannuation benefits paid from
non-complying superannuation plans will be maintained, however the
terminology applying to these benefits will be simplified. In summary:
· Superannuation benefits paid from `non-complying
Australian superannuation funds' are exempt income as these
superannuation funds do not receive tax concessions. These
funds were formerly known as eligible resident
non-complying superannuation funds [Schedule 1, item 1,
Subdivision 305-A].
· Superannuation lump sum benefits paid from `foreign
superannuation funds' continue to be taxed on the earnings
while the person was an Australian resident. These funds
were formerly known as eligible non-resident non-complying
superannuation funds [Schedule 1, item 1, Subdivision 305-B].
· Superannuation income streams paid from foreign
superannuation funds continue to be taxed at marginal rates
under existing provisions set out in the ITAA 1936.
Roll-overs
2.87 Generally a `roll-over superannuation benefit' is a lump sum
superannuation member benefit that can be paid from, and to, a complying
superannuation plan. It may also be paid to an entity to purchase a
superannuation annuity. A person is taken to have received a roll-over
superannuation benefit when a payment is made for his or her benefit or
where he or she has made a direction or request that a payment be made.
[Schedule 1, item 1, sections 306-10 and 307-15]
2.88 Regulations may specify those superannuation benefits that are
not roll-over superannuation benefits. [Schedule 1, item 1, paragraph 306-10(b)]
2.89 A roll-over superannuation benefit is not assessable income and
not exempt income at the time that it is made. In most cases a roll-over
superannuation benefit is not taxed at the time that the roll-over occurs.
[Schedule 1, item 1, section 306-5]
2.90 A person may have more than one superannuation plan with a
superannuation provider. It is therefore possible that a superannuation
benefit may be rolled over from one superannuation plan to another
superannuation plan held by the same superannuation provider.
A superannuation plan may also contain more than one superannuation
66
Taxation of benefit payments
interest. Therefore a superannuation interest in a superannuation plan can
be paid into another superannuation interest in the same plan and qualifies
as a roll-over. [Schedule 1, item 1, subsection 307-5(8)]
2.91 A person may have a benefit that is a roll-over superannuation
benefit that consists wholly or partly of an amount paid from an element
untaxed in the fund (an untaxed roll-over amount). If the untaxed
roll-over amount exceeds the person's untaxed plan cap amount for a
superannuation plan tax is payable on the amount of the excess.
[Schedule 1, item 1, section 306-15]
2.92 The tax on the `excess untaxed roll-over amount' is introduced
under the Superannuation (Excess Untaxed Roll-over Amounts Tax)
Bill 2006. [Schedule 1, item 1, section 306-15]
2.93 A higher rate of tax on transfers over $1 million from untaxed
plans is introduced separately in the Superannuation (Excess Untaxed
Roll-over Amounts Tax) Bill 2006. The rate of tax is the top marginal tax
rate plus the Medicare levy. This tax will be levied on the person on
whose behalf the roll-over was made and withheld by the originating
superannuation fund. [Superannuation (Excess Untaxed Roll-over Amounts Tax)
Bill 2006]
2.94 The Commissioner or a state or territory authority (as defined
by the Superannuation (Unclaimed Money and Lost Members) Act 1999)
may receive a superannuation benefit on behalf of a person where they
cannot be found. The person is not subject to income tax on this amount
as it is not assessable income and it is not exempt income. [Schedule 1,
item 1, section 306-20]
Key concepts
Types of superannuation benefits
What is a superannuation benefit?
2.95 Superannuation benefits are typically paid from superannuation
funds, RSAs, approved deposit funds or superannuation annuities. A
`superannuation annuity' will be defined in regulations to cover
superannuation income streams purchased from life insurance companies
and other similar providers. [Schedule 1, item 1, section 307-5]
2.96 Government agencies also make a range of payments which are
superannuation benefits. These include payments by the Australian
Taxation Office (ATO) as a result of the administration of the
superannuation co-contribution and superannuation guarantee (SG), and
payments from unclaimed money registers. [Schedule 1, item 1, section 307-5]
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
2.97 In order to maintain the current tax treatment, the following
payments are not superannuation benefits:
· Payments under an income stream because a person is
temporarily unable to perform his or her normal duties as an
employee. These are considered to be replacement of regular
income, and are therefore taxable at marginal rates.
· Payments received from a commutation of a superannuation
income stream and wholly applied to pay a superannuation
contributions surcharge liability are tax free.
[Schedule 1, item 1, section 307-10]
Types of superannuation benefits
2.98 As outlined above the tax treatment of a superannuation benefit
differs depending on the form in which it is paid and to whom it is paid.
2.99 A superannuation benefit can be paid as either a lump sum or as
an income stream. A `superannuation income stream' will be defined in
regulations. [Schedule 1, item 1, sections 307-65 and 307-70]
2.100 A superannuation benefit can be paid as either a member
superannuation benefit or a death superannuation benefit. [Schedule 1,
item 1, section 307-5]
2.101 A superannuation benefit is a superannuation member benefit if
it is paid to the member, including if:
· the member requests that it be paid to another person or to an
entity;
· it is paid as a `contributions splitting benefit'; or
· it is paid to the member as a result of a `family law
superannuation payment'. Such payments will not be a
superannuation benefit to the spouse originally entitled to the
superannuation but rather will be a superannuation benefit for
the receiving spouse.
[Schedule 1, item 1, subsections 307-5(5) to (7)]
2.102 A superannuation benefit is a superannuation death benefit if it
is paid to you as a result of the death of another person. [Schedule 1, item 1,
section 309-5]
68
Taxation of benefit payments
2.103 If a superannuation income stream was originally payable to the
deceased, a commutation of this income stream will be a member benefit
if paid after six months has passed since the person died, or three months
after the will or letters of administration that relate to the person's estate
has been granted probate, which ever is the later in time. This reflects
existing arrangements. [Schedule 1, item 1, subsection 307-5(3)]
Components of a superannuation benefit
2.104 A superannuation benefit comprises two components: the tax
free component and the taxable component. [Schedule 1, item 1,
section 307-120]
The tax free component
2.105 The tax free component of a superannuation interest is the total
value of the following segments:
· the `contributions segment'; and
· the `crystallised segment'.
[Schedule 1, item 1, section 307-210]
What is the contributions segment?
2.106 The contributions segment generally includes all contributions
made from 1 July 2007 that have not been included in the assessable
income of the superannuation provider. Typically these would be the
person's non-concessional contributions. [Schedule 1, item 1,
subsection 307-220(1)]
2.107 Roll-over superannuation benefits (other than roll-overs from an
untaxed to a taxed superannuation scheme) are not included in the
assessable income of the receiving superannuation provider. The taxable
component of a roll-over is therefore specifically excluded from the
definition of the contributions segment. However, amounts that have
been subject to excess untaxed roll-over tax are included in the
contributions segment as tax has been withheld on these amounts at the
top marginal tax rate (plus the Medicare levy). [Schedule 1, item 1,
subsections 307-220(2) and (3)]
2.108 The definition of the contributions segment also excludes a
number of contributions which would otherwise have been included in a
superannuation provider's assessable income, but are excluded due to the
operation of other aspects of the superannuation system, such as the
application of pre-1 July 1988 funding credits. [Schedule 1, item 1,
subsection 307-220(2)]
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
What is the crystallised segment?
2.109 The crystallised segment includes existing components of an
interest that are being consolidated into the tax free component:
undeducted contributions, the pre-July 1983 component, the capital gains
tax (CGT) exempt component, the concessional component and the post-
June 1994 invalidity component. The segment is calculated by assuming
that an ETP representing the full value of the superannuation interest is
paid just before 1 July 2007. [Schedule 1, item 1, section 307-225]
2.110 The pre-July 1983 component relates to superannuation benefits
accrued or accumulated before 1 July 1983. The crystallisation of the
pre-July 1983 component is discussed in further detail in paragraphs 2.140
to 2.145. [Schedule 1, item 1, section 307-225]
2.111 A CGT exempt component and a post-June 1994 invalidity
component would only exist if such a component had been rolled into a
superannuation interest prior to 1 July 2007. The value of these
components is set, or crystallised, on 30 June 2007 based on the amount
of the interest attributable to that component on that date. [Schedule 1,
item 1, section 307-225]
2.112 Similarly, a concessional component would only exist in a
superannuation interest if a redundancy, early retirement or invalidity
payment that was made before 1 July 1994 was rolled over into
superannuation. The value of the concessional component is set, or
crystallised, on 30 June 2007 based on the amount of the interest
attributable to that component on that date. [Schedule 1, item 1,
section 307-225]
Taxable component
2.113 The taxable component of the superannuation interest is
calculated by subtracting the tax free component from the total value of
the superannuation interest. The taxable component of a superannuation
benefit paid from a superannuation interest consists of two elements:
· the element taxed in the fund; and / or
· the element untaxed in the fund.
[Schedule 1, item 1, section 307-215]
2.114 Consistent with the existing arrangements, the taxable
component of a superannuation benefit consists of an element taxed in the
fund except in a limited number of circumstances. While these provisions
70
Taxation of benefit payments
have been rewritten, changes only in wording or style are not intended to
change the meaning of these provisions. [Schedule 1, item 1, section 307-275]
2.115 The taxable component of superannuation benefits paid from
untaxed superannuation schemes contain an element untaxed in the fund
to the extent that no contributions and earnings tax has been paid. These
schemes are generally run by the Australian Government and the state and
territory governments, generally only apply to public servants, and fall
into two broad categories:
· constitutionally protected funds which are specifically
exempted from tax on all contributions and earnings
[Schedule 1, item 1, section 307-280]; and
· superannuation funds which pay tax on contributions and
earnings but are partially unfunded [Schedule 1, item 1,
section 307-295].
2.116 Some superannuation funds finance their benefits by making
large one-off contributions. The trustee of the fund, with the consent of
the contributor, can then elect for these contributions not to be taxable.
Some funds also allow their members to elect whether the taxable
component of their benefit is paid as an element taxed in the fund or an
element untaxed in the fund. These arrangements will continue but will
not be available for plans established after 5 September 2006. [Schedule 1,
item 1, section 307-285]
2.117 If a superannuation provider has claimed a tax deduction in
respect of an insurance premium, the element untaxed in the fund of a
lump sum superannuation death benefit is increased to broadly reflect the
insurance component of the superannuation death benefit. The
deductibility of insurance premiums broadly results in no contributions or
earnings tax having been paid on this component of the superannuation
death benefit. [Schedule 1, item 1, section 307-290]
2.118 The taxable component of small superannuation account
payments and SG payments only contain an element untaxed in the fund
as these payments are made directly from the ATO and have therefore not
been subject to tax in a superannuation fund. [Schedule 1, item 1,
subsection 307-275(3)]
Service periods
2.119 Service periods are used to calculate the pre-July 1983 amounts
and adjust the tax free component of lump sum disability superannuation
benefit payments and the element untaxed in the fund of superannuation
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
death benefit payments. The definition of a `service period' reflects the
existing arrangements. [Schedule 1, item 1, section 307-400]
Proportioning rule
2.120 When part of a `superannuation interest' is paid out, the benefit
will include both tax free and taxable components with the relevant
portions of each reflecting the proportions such components make up of
the total value of the superannuation interest. [Schedule 1, item 1,
section 307-125]
2.121 The proportioning rule applies to both superannuation lump
sums paid after 1 July 2007 (including roll-overs) and superannuation
income streams which commence after 1 July 2007. [Schedule 1, item 1,
section 307-125]
Step 1 -- proportions of the underlying superannuation interest
2.122 The first step in applying the proportioning rule is to determine
the proportion of the tax free component and the taxable component of the
superannuation interest from which the superannuation benefit is being
paid. [Schedule 1, item 1, subsection 307-125(3)]
2.123 The tax free and taxable components of a superannuation lump
sum are determined based on the value of the superannuation interest at
the time just before the lump sum is paid. [Schedule 1, item 1,
subsection 307-125(3)]
2.124 The tax free and taxable components of a superannuation
income stream are calculated based on the value of the superannuation
interest at the time that the superannuation income stream is created.
[Schedule 1, item 1, subsection 307-125(3)]
What is the value of a superannuation interest?
2.125 The value of a superannuation interest is the total amount of all
superannuation lump sums that could be paid to the person at that time.
[Schedule 1, item 1, section 307-205]
2.126 This general definition may not be appropriate for a minority of
superannuation plans with more complex arrangements. Methods for
determining the value of superannuation interests in these plans will be
specified in the regulations. [Schedule 1, item 1, section 307-205]
72
Taxation of benefit payments
Step 2 -- proportions of the superannuation benefit
2.127 These proportions must then be applied to the superannuation
benefit. [Schedule 1, item 1, subsection 307-125(2)]
Example 2.5
Peter is age 56 and has a superannuation interest with a value of
$400,000. The interest includes a tax free component of $100,000 and
a taxable component of $300,000. Peter uses all of his superannuation
interest to purchase an income stream on 1 August 2007.
The tax free percentage of Peter's superannuation interest when the
superannuation income stream commenced would be:
tax free component = $100,000 = 25%
value of the interest $400,000
The taxable percentage of Peter's superannuation interest would
therefore be 75 per cent.
Peter receives a superannuation income stream benefit of $2,000 on
1 September 2007. The tax free component of this superannuation
benefit would be:
$2,000 × 25% = $500
The taxable component of this superannuation benefit would therefore
be $1,500 ($2,000 $500).
Transitional arrangements
2.128 Recipients of existing superannuation income streams as at
1 July 2007 will retain the current `deductible amount' on their
superannuation income stream unless a trigger event occurs
(see paragraphs 2.131 to 2.133). The deductible amount of a
superannuation income stream is currently tax free. [Schedule 1, item 25,
section 309-37 of the Income Tax (Transitional Provisions) Act 1997]
How are deductible amounts applied?
2.129 The amendments move the tax treatment of superannuation
income stream benefits from an annual basis to a per payment basis. As a
result, the annual deductible amount needs to be converted into a
`per benefit' figure to maintain the existing tax treatment. [Schedule 1,
item 25, subsection 309-37(2) of the Income Tax (Transitional Provisions) Act 1997)]
2.130 This will be achieved by apportioning the annual deductible
amount across each superannuation income stream according to the value
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
of each superannuation income stream benefit received in the income
year. The portion of the deductible amount applying to a particular
superannuation income stream benefit will be the tax free component for
that superannuation income stream benefit. [Schedule 1, item 25,
subsection 309-37(2) of the Income Tax (Transitional Provisions) Act 1997]
Example 2.6
Vernon is age 58 and is receiving a superannuation pension which
commenced before 1 July 2007. Vernon receives monthly
superannuation income stream benefits of $2,000 and his annual
deductible amount is $6,000. The tax free component of the $2,000
superannuation income stream benefit is calculated as follows:
Step 1: Calculate the proportion of the superannuation income stream
benefit to the benefits from that superannuation income stream
received in the year:
$2,000 = 8.33%
$2,000 × 12 months
Step 2: Multiply the annual deductible amount by the percentage
calculated in Step 1:
$6,000 × 8.33% = $500
The tax free component of the superannuation income stream benefit is
$500. The taxable component of the superannuation income stream
benefit is $1,500 ($2,000 $500).
What are trigger events?
2.131 If the superannuation income stream does not contain an element
untaxed in the fund, the proportional approach applies once the person
turns age 60 or has died. The benefits become tax free in any case once
the person turns age 60 or if a death benefit is paid to a dependant. As a
result, this trigger event will only have a practical impact in calculating
components of death benefits to non-dependants. [Schedule 1, item 25,
subsection 309-37(3) of the Income Tax (Transitional Provisions) Act 1997]
2.132 In all other cases, the proportional approach does not apply
unless the superannuation income stream is commuted. [Schedule 1, item 25,
subsection 309-37(3) of the Income Tax (Transitional Provisions) Act 1997]
2.133 Once a trigger event has occurred, the tax free amount is the sum
of the unused undeducted purchase price and a pre-July 1983 amount
where relevant. Both of these amounts are calculated under existing
legislative provisions. The crystallisation of the pre-July 1983 component
74
Taxation of benefit payments
is discussed in further detail in paragraphs 2.139 to 2.144. [Schedule 1,
item 25, subsection 309-37(4) of the Income Tax (Transitional Provisions) Act 1997]
Application of the proportioning rule to special cases
2.134 A proportioning rule applies to family law superannuation
payments under the existing arrangements so as to ensure that the various
components of the superannuation interest are divided fairly between each
spouse. A specific proportioning rule is no longer required as family law
superannuation payments are covered by the general proportioning rule.
2.135 The proportioning rule does not affect SG payments and
contributions splitting superannuation benefits (under changes that will
apply from 1 July 2007) as these payments only contain a taxable
component. Similarly, superannuation co-contribution payments only
contain a tax free component. [Schedule 1, item 1, sections 307-130, 307-135 and
307-140]
2.136 Regulations may specify an alternative method for determining
the tax free and taxable components of a superannuation benefit.
Alternatively, the Commissioner may either:
· make a determination, by legislative instrument, for one or
more alternative methods to be used to determine those
components of the benefit; or
· consent in writing to the use of another method.
[Schedule 1, item 1, subsections 307-125(4) and (5)]
2.137 In addition, regulations may specify circumstances where
superannuation interests could be combined or separated and rules that
determine how to allocate the tax free component, the taxable component,
the element taxed in the fund and the element untaxed in the fund between
superannuation interests. [Schedule 1, item 1, section 307-200]
2.138 These regulations may be required to modify the application of
the proportioning rule in certain circumstances, such as:
· where appropriate allowing existing arrangements which may
not strictly comply with the proportioning rule to continue;
and
· addressing arrangements designed to evade the proportioning
rule.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006
Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006
Crystallising the pre-July 1983 component
2.139 Five per cent of the pre-July 1983 component is currently
included in a person's assessable income and taxed at marginal rates. The
`pre-July 1983 amount' forms part of the new tax free component, and is
therefore tax free for lump sums paid after 1 July 2007 (including
commutations of superannuation income streams).
2.140 The mechanism for including the pre-July 1983 amount in the
tax free component varies depending on the status of the superannuation
interest.
2.141 For most superannuation interests, a pre-July 1983 amount will
be calculated as at 30 June 2007 using the existing legislative formula.
This amount will become a fixed amount and form part of the tax free
component. [Schedule 1, item 1, section 307-225]
2.142 Superannuation providers will have until 30 June 2008 to
calculate the crystallised pre-July 1983 segment. Superannuation
providers that do not calculate this amount by this date for all affected
superannuation interests, are subject to an administrative penalty of
5 penalty units. [Schedule 1, item 23, section 288-105 of the TAA 1953]
2.143 As outlined above, the tax free component of superannuation
income streams in existence as at 1 July 2007 will be calculated based on
the current `deductible amount' concept. A pre-July 1983 amount is
therefore not calculated until a trigger event occurs to move the
superannuation income stream into the new arrangements.
2.144 Separate arrangements apply to superannuation benefits that
have not been subject to contributions or earnings tax within the fund.
This reflects existing arrangements. The pre-July 1983 segment for an
element untaxed in the fund is only calculated when a lump sum
superannuation benefit is withdrawn from a superannuation plan or rolled
over into a taxed superannuation scheme. [Schedule 1, item 1, section 307-150]
Example 2.7
Bessie has a superannuation interest of $100,000 on 30 June 2007 and
a service period of 30 years (six years of which reflect pre-July 1983
service). Bessie's superannuation interest comprises a tax free
component of $15,000, an element taxed in the fund of $10,000 and an
element untaxed in the fund of $75,000.
The pre-July 1983 amount for Bessie's superannuation interest is
calculated as at 30 June 2007 under the existing legislative formula,
disregarding the value of the element untaxed in the fund:
76
Taxation of benefit payments
($15,000 + $10,000) × 6 = $5,000
30
As a result, the crystallised segment of the tax free component of
Bessie's superannuation interest is increased by $5,000 and the
element taxed in the fund is decreased by $5,000.
Example 2.8
Bessie subsequently makes a non-concessional contribution of $20,000
on 1 July 2007 and receives a superannuation lump sum of her entire
interest of $120,000. The lump sum initially comprises a tax free
component of $40,000 ($20,000 from Example 2.7 plus the
non-concessional contribution of $20,000), an element taxed in the
fund of $5,000 and an element untaxed in the fund of $75,000.
The pre-July 1983 amount for this lump sum is calculated by
disregarding any element taxed in the fund, any crystallised segment of
the tax free component and any part of the tax free component used in
the earlier crystallisation. The calculation is as follows:
($20,000 + $75,000) × 6 = $19,000
30
As a result, the tax free component of Bessie's superannuation lump
sum is increased by $19,000 and the element untaxed in the fund is
decreased by $19,000.
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Chapter 3
Taxation of superannuation entities
Outline of chapter
3.1 Schedule 1 to this Bill incorporates the provisions of Part IX of
the Income Tax Assessment Act 1936 (ITAA 1936) that deal with the
taxation of superannuation entities into the Income Tax Assessment
Act 1997 (ITAA 1997). The rewritten provisions in Division 295 of the
ITAA 1997 do not change the law as it currently operates under Part IX of
the ITAA 1936.
3.2 Schedule 1 also includes some new rules in relation to the
taxation of superannuation entities which are a part of the Simplified
Superannuation reforms.
3.3 This Schedule amends the ITAA 1936 to ensure that when an
individual makes a tax file number (TFN) declaration in relation to a
payer (their employer) the individual is also authorising their employer to
provide their TFN to their superannuation fund.
3.4 This Schedule also amends the ITAA 1997 and the
Income Tax Rates Act 1986 to assess `no-TFN contributions income',
impose income tax on no-TFN contributions income, provide a particular
rate of tax on that income and provide a way to refund no-TFN
contributions tax when a TFN is later quoted within the required time
period.
3.5 This Schedule amends the Superannuation Industry
(Supervision) Act 1993 to allow the Commissioner of Taxation
(Commissioner) to regulate an employer's legal responsibilities to quote
TFNs to superannuation entities.
Context of amendments
3.6 One of the main objectives of the Simplified Superannuation
reforms is to reduce complexity in Australia's superannuation system,
which has arisen as a result of changes that have occurred over the last
two decades.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
3.7 Given the extent of the legislative changes to the taxation of
superannuation required as a result of the Simplified Superannuation
reforms it is appropriate that Part IX be rewritten and brought together
with all other taxation of superannuation provisions in the ITAA 1997.
Summary of new law
3.8 Changes to the wording or the style used in the rewritten
provisions in Division 295 do not change the law as it currently operates
under Part IX of the ITAA 1936.
3.9 The provisions relating to the non-disclosure of TFNs will
encourage individuals making superannuation contributions to provide
their TFNs to their superannuation entities. This is required to administer
the excess contributions caps as it is necessary for a member's TFN to be
attached to their account. Under the current law if the individual has not
provided their TFN no additional tax is levied on contributions or
earnings. Accordingly many superannuation accounts and retirement
savings accounts (RSAs) do not have a TFN attached. Without the new
provisions relating to TFNs there is scope for abuse of the superannuation
contributions cap and for people to gain unlimited access to
superannuation concessions.
3.10 New provisions impose a tax on a new category of income based
on superannuation contributions (where a TFN is not attached to the
receiving member's account) and provide a way to have tax paid refunded
to the superannuation fund or RSA provider when a TFN is later quoted
within the required time period.
3.11 New provisions in the Income Tax Rates Act 1986 provide a
particular rate of tax for the tax on no-TFN contributions income which is
imposed on the superannuation fund or RSA provider.
3.12 New provisions also amend the law relating to TFN declarations
so that when an individual makes a TFN declaration to their employer
they are also authorising their employer to provide the TFN to their
superannuation fund.
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Taxation of superannuation entities
3.13 New provisions also move the regulation of an employer's
responsibilities to quote an individual's TFN to their superannuation fund
or RSA provider from the Australian Prudential Regulation Authority
(APRA) to the Australian Taxation Office (ATO).
Comparison of key features of new law and current law
New law Current law
No-TFN contributions tax Contributions tax
Contributions are included in a Contributions are included in a
superannuation fund or superannuation fund or
RSA provider's assessable income RSA provider's assessable income
where a deduction is available. where a deduction is available.
Where a TFN is not attached to an Contributions are taxed at the same
individual's account, deductible rate irrespective of whether a TFN
contributions are included in the has been attached to the member's
superannuation fund or account.
RSA provider's no-TFN
contributions income.
Where a TFN is subsequently
provided within a four year period a
superannuation fund or RSA
provider is entitled to claim a tax
offset for the amount of tax paid on
the no-TFN contributions income.
TFN declaration form
Individuals making a TFN Individuals make a TFN declaration
declaration in relation to a payer in relation to a payer (their
(their employer) are taken to also employer).
provide authority for their employer On that declaration individuals can
to quote their TFN to the also provide a separate authority for
superannuation provider to which the their employer to quote their TFN to
employer makes superannuation the superannuation provider to which
contributions. the employer makes superannuation
contributions.
Employer obligations
The ATO is responsible for APRA is responsible for
administering an employer's administering an employer's
responsibilities to quote an responsibilities to quote an
individual's TFN to the individual's TFN to the
superannuation fund or RSA superannuation fund or RSA
provider under Division 1 of provider under Division 1 of
Part 25A of the Superannuation Part 25A of the Superannuation
Industry (Supervision) Act 1993. Industry (Supervision) Act 1993.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Detailed explanation of new law
Provisions rewritten and transferred from Part IX of the ITAA 1936 to
Division 295 of the ITAA 1997
3.14 The rewritten provisions of Division 295 do not change the law
as it currently operates under Part IX of the ITAA 1936. A finding table
at the end of this chapter matches an old provision and the relevant new
provision, and vice versa.
3.15 In the rewrite, each of the income and deduction rules relating to
an entity's superannuation activities are stated only once.
3.16 The existing law addresses each entity type specifically
(eg, complying superannuation funds, non-complying superannuation
funds) and states all the rules for that entity. This results in repetition as
most rules apply to more than one entity. It also interferes with the logical
arrangement of the provisions. The rewrite logically follows the steps in
determining taxable income, that is, income included, income excluded,
allowable deductions and deductions not allowed. The entities to which
the rule applies are listed beside it.
3.17 The benefits of this approach are seen most clearly in the rewrite
of the provisions that include certain contributions in assessable income.
The existing law lists the assessable contributions for each entity. This
approach obscures the fact that source of a contribution and its tax
treatment in the hands of the contributor are important in determining its
assessability. A person can make contributions on behalf of someone else
(eg, an employer can make one in respect of their employee) or for the
person's own benefit. For the most part, they are assessable if deductible
in the hands of the contributor. The rewrite groups assessable
contributions according to their source.
Subdivision 295-A: Provisions of general operation
3.18 Subdivision 295-A lists the superannuation entities to which the
Division applies, gives an overview of how the Division assists in
working out tax payable for these entities and sets out some general rules
used in applying the Division.
3.19 The Division applies to:
· superannuation funds;
· approved deposit funds;
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Taxation of superannuation entities
· pooled superannuation trusts; and
· companies (other than life insurance companies) that provide
a superannuation product known as an RSA.
[Schedule 1, item 1, section 295-5]
3.20 Superannuation funds and approved deposit funds that comply
with the Superannuation Industry (Supervision) Act 1993 receive
concessional tax treatment. Pooled superannuation trusts and
RSA providers are also taxed concessionally.
Liability to tax for a fund, an approved deposit fund or a pooled
superannuation trust
3.21 The trustee of a fund, an approved deposit fund or pooled
superannuation trust is liable to pay tax on the entity's taxable income.
[Schedule 1, item 1, subsections 295-5(2) and (3)]
3.22 A complying superannuation fund, non-complying
superannuation fund or RSA provider is also liable to pay tax on no-TFN
contributions income. [Schedule 1, item 1, subsection 295-5(2)]
3.23 The reference to trustee also includes the manager of an entity
when there is no trustee. [Schedule 10, item 10, new definition of `trustee of a
superannuation fund' in subsection 995-1(1)]
3.24 Taxable income is worked out using the general income and
deduction rules as modified by Division 295. Specific income and
deduction rules dealing solely with superannuation activities also apply.
[Schedule 1, item 1, section 295-10]
3.25 The arm's length income of complying funds, complying
approved deposit funds and pooled superannuation trusts is taxed at a
concessional rate. The Commissioner can make an assessment in
anticipation of a notice being issued by APRA, confirming that the fund
or approved deposit fund complies with the Superannuation Industry
(Supervision) Act 1993 or that the trust is a pooled superannuation trust.
[Schedule 1, item 1, section 295-25]
Liability to tax for an RSA provider
3.26 An RSA provider is a company and, like other companies, is
liable to pay tax on its taxable income (section 4-1 of the ITAA 1997).
3.27 There are some specific income and deduction rules for RSAs,
including how to isolate the part of the provider's taxable income
attributable to providing RSAs. [Schedule 1, item 1, section 295-10]
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
3.28 That part is taxed at the same concessional rate as that applying
to complying funds. The remainder of the provider's taxable income is
taxed at the general company rate.
Exempt entities
3.29 Public sector funds or schemes established under a state Act
listed in the Income Tax Regulations 1936 are exempt. They are known
as `constitutionally protected funds'. [Schedule 1, item 8, section 50-25]
3.30 Tax does not apply to the property of a state. This may be
relevant to state funds or schemes not listed in the Income Tax
Regulations 1936. [Schedule 1, item 1, section 295-15]
3.31 Another Commonwealth law can only exempt a superannuation
entity if it does so expressly. [Schedule 1, item 1, section 295-20]
3.32 The Commissioner may make an assessment for a fund or trust
that is not complying or a pooled superannuation trust on the basis that it
is likely that a notice will be given having the effect that it will become
such an entity. [Schedule 1, item 1, section 295-25]
Superannuation Industry (Supervision) Act 1993 notice revoked
3.33 Some of the specific income and deduction provisions depend
on notices being issued by APRA under the Superannuation Industry
(Supervision) Act 1993 or its regulations. APRA is responsible for
ensuring the prudent management of funds, approved deposit funds and
pooled superannuation trusts.
3.34 If a notice is revoked, or the decision to give it is subsequently
set aside, it is taken never to have been given [Schedule 1, item 1,
section 295-30]. As a result, any assessment made on the basis of the notice
can be amended (consequential amendments that will be made to
subsection 170(10AA) of the ITAA Act 1936).
Acronyms used in tables
3.35 Many of the specific income and deduction rules are set out in
tables. The entities to which the rule applies are listed in one column and
the rule in the next. The entities are referred to by acronyms to simplify
the tables. Section 295-35 explains the acronyms. [Schedule 1, item 1,
section 295-35]
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Taxation of superannuation entities
Subdivision 295-B: Modifications of provisions of the ITAA 1997
3.36 Subdivision 295-B modifies the application of some other
provisions of the ITAA 1997 about income and deductions.
Capital gains tax to be a primary code for calculating gains and losses
3.37 Only the capital gains tax (CGT) provisions (and not the general
income provisions) apply if a CGT event happens involving a CGT asset
owned by a complying fund, a complying approved deposit fund or a
pooled superannuation trust. [Schedule 1, item 1, subsections 295-85(1) and (2)]
3.38 But this rule does not apply to:
· a gain or loss attributable to currency exchange rate
fluctuations;
· the disposal of a security; or
· some cases where the CGT provisions disregard the gain or
loss.
[Schedule 1, item 1, subsections 295-85(3) and (4)]
CGT rules for pre-30 June 1988 assets
3.39 The CGT provisions also apply to assets which a trustee (or
former trustee) of a complying fund, a complying approved deposit fund
or a pooled superannuation trust owned when section 295-90 commenced.
The assets are deemed to have been acquired on 30 June 1988. [Schedule 1,
item 1, section 295-90]
General deduction provisions extended
3.40 Superannuation entities can deduct amounts incurred in
obtaining contributions even if the contributions are not assessable.
[Schedule 1, item 1, section 295-95]
3.41 Complying funds and complying approved deposit funds can
deduct amounts for investing in pooled superannuation trusts even though
the income from those investments is not assessable. [Schedule 1, item 1,
section 295-100]
Distributions to pooled superannuation trust unit holders
3.42 Income received by a complying fund, a complying approved
deposit fund or a pooled superannuation trust as a result of holding units
in a pooled superannuation trust is not assessable [Schedule 1, item 1,
85
Tax Laws Amendment (Simplified Superannuation) Bill 2006
They are also not subject to tax when they dispose of the
section 295-105].
units. Any CGT gain or loss is disregarded (and CGT is the primary code
in this situation) [Schedule 1, item 1, sections 295-85 and 118-350 of the
ITAA 1997].
Subdivision 295-C: Contributions included
3.43 Subdivision 295-C explains the contributions that are assessable.
It is subject to Subdivision 295-D, which gives complying funds and
complying approved deposit funds the option of excluding some
contributions.
3.44 There are three types of contributions:
· those made on behalf of someone else;
· those made for the contributor's own benefit; and
· those transferred from other funds.
3.45 The Superannuation Industry (Supervision) Act 1993 and
regulations outline the types of contributions particular superannuation
entities are entitled to receive. This explains why particular contributions
are made assessable in the hands of some entities only.
3.46 The tables in Subdivision 295-C, which set out what is included
in assessable income, apply to RSA providers only to the extent that
amounts are paid to RSAs they provide. [Schedule 1, item 1, section 295-205]
Contributions on behalf of someone else
3.47 Generally, contributions on behalf of someone else will be made
by an employer on behalf of an employee. They may be paid directly to
the fund by the employer or by the Commissioner who has collected them
from the employer under the Superannuation Guarantee (Administration)
Act 1992 or the Small Superannuation Accounts Act 1995.
3.48 They are assessable in the hands of the superannuation entity to
which they are made [Schedule 1, item 1, section 295-160]. However,
contributions made on behalf of a spouse or temporary resident of
Australia are generally not assessable [Schedule 1, item 1, sections 295-165,
295-175 and 295-185]. Government co-contributions and contributions for a
child are also generally not assessable [Schedule 1, item 1, section 295-170].
3.49 A complying superannuation fund can, with the agreement of
the contributor, choose not to include contributions made directly to it by
an employer in its assessable income. This effectively shifts liability to
86
Taxation of superannuation entities
pay the tax on those contributions to the recipient of the benefit when it is
paid out. [Schedule 1, item 1, section 295-180]
Personal contributions and roll-over amounts
3.50 Only personal contributions for which the contributor has
provided a valid notice of intent to deduct are assessable. These are
generally contributions made by self-employed persons who receive less
than 10 per cent of their income as an employee. [Schedule 1, item 1,
section 295-190, item 1 in the table]
3.51 These contributions are included in assessable income in the
income year in which the fund or RSA provider receives a notice from the
contributor saying they will be claiming a deduction. [Schedule 1, item 1,
subsections 295-190(2) and (3)]
3.52 If the amount of the contributor's deduction is reduced, an
adjustment is made to the taxable income calculation of the
superannuation provider. If the superannuation provider is notified of the
reduction after it has lodged its return, it is entitled to a deduction in the
income year in which it is notified [Schedule 1, item 1, subsection 295-490(1),
item 2 in the table]. Alternatively, the fund or RSA provider has the option
to amend its return to exclude the reduction amount, but only if that would
result in a greater reduction in tax for that year than the reduction that
would occur for the income year in which the notice is received
[Schedule 1, item 1, section 295-195]. This alternative option is currently at the
Commissioner's discretion, but is now essentially a self-assessing
provision for the fund or RSA provider. This change is in line with the
Review of Self Assessment which recommended that all discretions which
go to the determination of a taxpayer's liability be reviewed, and where
practicable be replaced with tests that a taxpayer can apply at the time of
lodgement.
3.53 The untaxed element of a superannuation benefit that is rolled
over into a complying fund or RSA provider is also assessable in the
income year in which the roll-over occurs, but only to the extent that it is
not an `excess untaxed roll-over amount'. An amount will be an excess
untaxed roll-over amount if it exceeds $1 million. [Schedule 1, item 1,
subsection 295-190(1), item 2 in the table and subsection 295-190(4)]
Transfers from foreign funds
3.54 An Australian (resident) superannuation fund may be assessable
on an amount transferred to it from a non-resident superannuation fund.
[Schedule 1, item 1, section 295-200]
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Former constitutionally protected funds
3.55 A complying superannuation fund that was previously a
constitutionally protected fund may be assessable on certain amounts of
rolled over superannuation benefits. [Schedule 1, item 1, section 295-210]
Subdivision 295-D: Contributions excluded
3.56 Subdivision 295-D gives complying funds and approved deposit
funds the option of reducing the contributions included in their assessable
income.
Transferring liability to an investment vehicle
3.57 The superannuation provider in relation to a complying
superannuation fund or a complying approved deposit fund can agree with
a life insurance entity or a pooled superannuation trust to transfer
contributions to it. The trustee must hold sufficient investments in the
transferee to cover the tax payable by the transferee as a result of the
transfer. [Schedule 1, item 1, sections 295-260 and 295-320, item 1 in the table,
item 13, paragraph 320-15(1)(i)]
Applying pre-1 July 1988 funding credits against contributions
3.58 The superannuation provider in relation to a complying
superannuation fund can choose to reduce the contributions otherwise
included in its assessable income by applying its available funding credits
to the contributions. These credits represent the fund's unfunded liability
for benefits accrued prior to funds becoming taxable on 1 July 1988.
[Schedule 1, item 1, section 295-265]
3.59 The superannuation provider in relation to a complying
superannuation fund can also reduce the contributions otherwise included
in its assessable income in anticipation of APRA confirming the amount
of credits available as at 1 July 1988. However the credits will not be
considered available for the income year to the extent that the notice
received differs from the amount anticipated. [Schedule 1, item 1,
section 295-270]
Subdivision 295-E: Other income amounts
3.60 Subdivision 295-E includes some amounts in assessable income
and excludes other amounts.
Amounts included
3.61 These amounts are included in assessable income:
88
Taxation of superannuation entities
· contributions transferred to a pooled superannuation trust by
a complying fund or complying approved deposit fund
[Schedule 1, item 1, section 295-320, item 1 in the table];
· an amount worked out by reference to the market value of the
assets of a superannuation fund that changes its status from
complying to non-complying or from non-resident to resident
[Schedule 1, item 1, section 295-320, items 2 and 3 in the table,
sections 295-325 and 295-330]; and
· the recoupment by a complying superannuation fund or an
RSA provider of an insurance premium that it has deducted
[Schedule 1, item 1, section 295-320, items 4 and 5 in the table].
Amounts excluded
3.62 These amounts are excluded from assessable income:
· a bonus on a life insurance policy received by a complying
superannuation fund, a complying approved deposit fund or a
pooled superannuation trust (other than a reversionary bonus)
[Schedule 1, item 1, section 295-335, item 1 in the table];
· income derived by a pooled superannuation trust that is
attributable to an investment in it by a constitutionally
protected fund [Schedule 1, item 1, section 295-335, item 2 in the
table]; and
· a bonus on a life insurance policy that is an RSA received by
an RSA provider (other than a reversionary bonus)
[Schedule 1, item 1, section 295-335, item 3 in the table].
Subdivision 295-F: Exempt income
3.63 Subdivision 295-F exempts some amounts from income tax.
Amounts used to fund current pension liabilities
3.64 The following is exempt income:
· income derived by a complying superannuation fund from
assets dedicated to funding its current pension liabilities
[Schedule 1, item 1, section 295-385];
· income derived by a complying superannuation fund needed
to fund current pension liabilities for which assets have not
89
Tax Laws Amendment (Simplified Superannuation) Bill 2006
been dedicated [Schedule 1, item 1, sections 295-390 and 295-395];
and
· income derived by a pooled superannuation trust attributable
to the current pension liabilities of unitholders that are
complying superannuation funds [Schedule 1, item 1,
section 295-400]. A formula is used to determine the proportion
that is considered exempt. The trustee can however elect to
use an alternative amount for determining the proportion of
exempt income in certain situations [Schedule 1, item 1,
subsection 295-400(3)]. This alternative option is currently at
the Commissioner's discretion, but is now essentially a
self-assessing provision for the trustee.
Other exempt income
3.65 The following income is also exempt:
· a grant of financial assistance under Part 23 of the
Superannuation Industry (Supervision) Act 1993 [Schedule 1,
item 1, section 295-405, item 1 in the table]; and
· amounts credited to an RSA from which a pension is being
paid [Schedule 1, item 1, section 295-405, items 2 and 3 in the table and
section 295-410].
Subdivision 295-G: Deductions
3.66 Subdivision 295-G deals with deductions relating specifically to
an entity's superannuation activities. It specifies amounts that are
deductible and amounts that are not.
Death or disability benefits payable
3.67 A complying superannuation fund can deduct part of the
premiums it pays on insurance policies to cover its liability to pay death or
disability benefits to fund members. It can also deduct the amount it
could reasonably expect to pay for such a policy if it does not have one.
[Schedule 1, item 1, sections 295-460, 295-465 and 295-480]
3.68 Alternatively, the fund can choose to deduct an amount for its
future liability to pay death or disability benefits. [Schedule 1, item 1,
section 295-470]
3.69 An RSA provider can also deduct premiums it pays on insurance
policies to cover its liability to pay death or disability benefits. [Schedule 1,
item 1, section 295-475]
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Taxation of superannuation entities
Increased amount of superannuation lump sum death benefits
3.70 A complying superannuation fund or a complying approved
deposit fund can deduct an amount to ensure that the amount of death
benefits paid to a spouse, former spouse or child is not reduced as a result
of contributions being taxed. It is not appropriate to allow the deduction
if those individuals cannot reasonably be expected to benefit from the
estate. Therefore, the deduction is only available to the extent that the
spouse, former spouse or child of the deceased can reasonably be expected
to benefit from the estate. [Schedule 1, item 1, section 295-485]
3.71 Where a death benefit is paid to a deceased estate the deduction
is reduced to the extent that the intended recipient cannot reasonably be
expected to benefit [Schedule 1, item 1, subsection 295-485(4)]. The deduction
available is currently at the discretion of the Commissioner, who has
regard to the extent to which the recipient can be expected to benefit from
the payment. This is replaced with an objective test of reasonableness.
Other deductions
3.72 These amounts can also be deducted:
· contributions included in assessable income that are fringe
benefits (because they will be taxed as fringe benefits in the
hands of the contributor);
· personal contributions to the extent the contributor's
deduction for them has been reduced (but only if the
superannuation fund or RSA provider has not exercised the
option in section 295-195);
· a levy imposed under the Superannuation (Financial
Assistance Funding) Levy Act 1993; and
· contributions paid back to an employer by a superannuation
fund that has never complied with the Superannuation
Industry (Supervision) Act 1993 (to ensure overall
consistency with payments of benefits by such funds to their
members).
[Schedule 1, item 1, section 295-490]
Amounts that cannot be deducted
3.73 These amounts cannot be deducted:
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
· benefits paid by superannuation funds or RSA providers
[Schedule 1, item 1, section 295-495, items 1 to 3 in the table];
· amounts credited to RSAs [Schedule 1, item 1, section 295-495,
item 4 in the table]; and
· a repayment of financial assistance under the
Superannuation Industry (Supervision) Act 1993
[Schedule 1, item 1, section 295-495, item 5 in the table].
Subdivision 295-H: Components of taxable income
3.74 Subdivision 295-H works out the components of the taxable
income of complying funds, complying approved deposit funds, pooled
superannuation trusts and RSA providers for the purpose of applying tax
rates.
Complying superannuation funds, complying approved deposit funds and
pooled superannuation trusts
3.75 The income of a complying superannuation fund, complying
approved deposit fund or pooled superannuation trust is split into a
`non-arm's length component' and a `low tax component'. [Schedule 1,
item 1, section 295-545]
3.76 The non-arm's length component comprises non-arm's length
dividends received from private companies, non-fixed interest trust
distributions, and any income derived from transactions where the parties
are not dealing with each other at arm's length [Schedule 1, item 1,
subsection 295-545(2) and section 295-550]. This component is reduced by any
deductions attributable to that income and is then taxed at the highest
marginal rate. `Derived' in this context is applicable to both ordinary and
statutory income.
3.77 The remaining part of the entity's taxable income is the low tax
component which is taxed at a concessional rate (currently 15 per cent).
[Schedule 1, item 1, subsection 295-545(3)]
3.78 In Part IX of the ITAA 1936, the Commissioner has a discretion
to decide that it is unreasonable that a dividend from a private company be
treated as `special income' (or `non-arm's length income') where it is
derived by a complying superannuation fund, complying approved deposit
fund, or a pooled superannuation trust. This is replaced with an objective
test that the amount be consistent with an `arm's length dealing'.
[Schedule 1, item 1, subsections 295-545(2) and (3)]
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Taxation of superannuation entities
RSA providers
3.79 RSA providers must work out the assessable income attributable
to providing RSAs (the `RSA component') so it can be taxed at the same
concessional rate as applies to complying funds. The balance of their
income (the `standard component') is taxed at the standard company rate.
[Schedule 1, item 1, section 295-555]
3.80 RSA providers are effectively taxed as if their RSA activities
and their other activities are carried on by two separate entities. This
ensures they are treated consistently with funds and pooled
superannuation trusts which only have superannuation activities.
3.81 RSA income cannot be offset against a loss from the provider's
other activities. So if the RSA component is more than the provider's
total taxable income it will have both a taxable income and a loss. Its
taxable income will equal the RSA component but it will also be entitled
to carry forward a loss in relation to its other activities. [Schedule 1, item 1,
subsection 295-555(3)]
New Dictionary terms
3.82 Section 995-1 of the ITAA 1997 will be amended to insert
additional definitions in the Dictionary. The definitions, and their
equivalents in the old law, are identified and commented on in Table 3.1.
Table 3.1
New term Current term Commentary
low tax Standard component. Describes the component of taxable
component income taxed concessionally.
non-arm's Special component. Describes the component of taxable
length income taxed at the top marginal
component rate.
non-arm's Special income. Describes the income included in
length income the high tax component.
Australian Resident Describes what funds will be
superannuation superannuation fund. considered Australian residents for
fund tax purposes.
foreign Non-resident Describes what funds will be
superannuation superannuation fund. considered foreign residents for tax
fund purposes.
3.83 The Dictionary in the ITAA 1997, will also be amended to
include terms previously defined in Part IX of the ITAA 1936.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Provisions of Part IX of the ITAA 1936 that have been changed for clarity
3.84 The minor changes in various provisions that are made for
clarity do not change how the law operates under Part IX of the
ITAA 1936 in regard to those provisions. The changes simply clarify how
the provisions currently operate.
Section 295-90: Deductions for contributions
3.85 Superannuation entities can deduct amounts incurred in
obtaining contributions even if the contributions are not assessable.
3.86 The rewritten section (section 295-90) clarifies that the
provision applies to all contributions that are not assessable.
3.87 The way the section is worded in Part IX of the ITAA 1936 is
unclear in regard to this, as it refers to contributions mentioned in specific
sections. There is doubt about whether those sections refer to
contributions such as non-deductible personal contributions.
Section 295-195: Exclusions of personal contributions
3.88 Superannuation funds and RSA providers do not include
contributions in their assessable income unless the contributor advises
they will be claiming a deduction.
3.89 The rewritten section states expressly that a notice from the
contributor reducing the amount of a deduction has the effect of reducing
the assessable income of the fund or provider if the reduction notice is
received before the fund or provider lodges its return for the income year
to which the contribution relates.
3.90 This is implicit in the current law but only the effects of a
reduction notice received after lodgement are dealt with specifically.
Provisions amended for minor policy changes
3.91 The definition of `Australian superannuation fund' replaces the
existing definition of `resident superannuation fund' in section 6E of the
ITAA 1936 with the scope of the definition dealt with in a much simpler
way. The main change is that there is no longer a specific temporary
absence rule for trustees of the fund as an alternative condition to the
requirement that the central management and control of the fund be in
Australia.
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Taxation of superannuation entities
3.92 The alternative test to the central management and control test
(the two-year temporary absence rule) is generally satisfied if:
· the trustees of the fund (or a director or directors of the
corporate trustee) were temporarily absent from Australia;
· the central management and control of the fund would have
been in Australia if the trustees (or directors) were in
Australia; and
· the continuous period for which the trustee (or directors) had
been outside Australia at that time did not exceed two years.
3.93 The definition of Australian superannuation fund does not use
this alternative test. It deals with temporary absences of trustees by
requiring that the central management and control of the fund ordinarily
be in Australia. Satisfying the current two-year temporary absence rule
described above (set out in subsections 6E(1A) and (1B) of the
ITAA 1936) would normally satisfy the ordinarily requirement. That is,
the trustee's time outside Australia does not exceed two years.
Example 3.1
A married couple are trustees of their self-managed superannuation
fund that was established in 2001. In July 2007 the husband accepts a
two year employment contract to work for an overseas government,
intending to return to Australia after the contract is fulfilled. His wife
joins him for the term of his contract. They make no contributions to
the fund after leaving Australia.
In these circumstances it is accepted that the central management and
control of the self-managed superannuation fund is ordinarily in
Australia and the self-managed superannuation fund will be treated as
an Australian superannuation fund. If the husband's employment
contract was continually extended so that the couple remained overseas
for a period considerably in excess of two years, central management
and control of the self-managed superannuation fund would not
ordinarily be in Australia and the self-managed superannuation fund
would not be treated as an Australian superannuation fund.
Provisions of Part IX of the ITAA 1936 that have been inserted or
amended due to the Simplified Superannuation reforms
Subdivision 295-I: No TFN contributions income
3.94 Subdivision 295-I provides a new category of income for
superannuation and RSA providers that receive superannuation
95
Tax Laws Amendment (Simplified Superannuation) Bill 2006
contributions which are included in assessable income where no TFN is
attached to the receiving member's account.
3.95 Subdivision 295-I does not apply to RSA providers which are
life insurance companies as they are taxed under Division 320 of the
ITAA 1997. [Schedule 1, item 1, section 295-5]
3.96 Superannuation and RSA providers are liable to pay tax on
no-TFN contributions income. The tax applies to contributions made to a
complying superannuation fund, non-complying superannuation fund or
an RSA. [Schedule 1, item 1, section 295-605]
3.97 Tax is imposed by the Income Tax Rates Act 1986.
3.98 A particular rate of tax is imposed on no-TFN contributions
income. [Schedule 1, item 18, section 29 of the Income Tax Rates Act 1986]
3.99 Section 169 of the ITAA 1936 allows the Commissioner to
make an assessment of the amount of no-TFN contributions income tax.
3.100 No-TFN contributions income applies to contributions included
in the superannuation provider's assessable income by Subdivision 295-C
for the income year in which 1 July 2007 occurs (or later income years)
only if the contributions are made on or after 1 July 2007 and no TFN has
been quoted by the end of the income year in which the contribution is
made. [Schedule 1, item 1, subsection 295-610(1)]
3.101 Where no TFN has been quoted by the last day of the income
year and a contribution is withdrawn or transferred out of the
superannuation fund or RSA provider prior to the end of the income year,
the individual will be taken not to have quoted his or her TFN.
3.102 Contributions will not form part of the no-TFN contributions
income if the superannuation interest or RSA existed prior to 1 July 2007
and the total contributions included in the superannuation fund or
RSA provider's assessable income for an income year is $1,000 or less.
[Schedule 1, item 1, subsection 295-610(2)]
3.103 An individual will be taken to have quoted their TFN to the
superannuation provider if they have quoted or are taken to have quoted
their TFN for superannuation purposes under the ITAA 1997, the
Superannuation Industry (Supervision) Act 1993 or the Retirement
Savings Account Act 1997. [Schedule 1, item 1, section 295-615]
3.104 A superannuation fund or RSA provider cannot reduce their
no-TFN contributions income using any of the provisions in
Subdivision 295-D. [Schedule 1, item 1, section 295-620]
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Taxation of superannuation entities
3.105 Where the Commissioner makes an assessment of no-TFN
contributions income tax, the notice of assessment may be included in a
notice of any other assessment under the ITAA 1997. [Schedule 1, item 1,
subsection 295-625(1)]
3.106 Where certain conditions are met the Commissioner is taken to
have made a no-TFN contributions income tax assessment. [Schedule 1,
item 1, subsection 295-625(2)]
3.107 The assessment conditions are met where a superannuation
provider first provides the Commissioner with an income tax return for an
income year and the Commissioner has not already made a no-TFN
contributions income tax assessment for the provider for that year.
[Schedule 1, item 1, subsection 295-625(3)]
3.108 The no-TFN contributions income tax assessment is taken to
have been made on the day of the return and is taken to be an assessment
of the amount of income tax payable on the no-TFN contributions income
of the provider. [Schedule 1, item 1, subsection 295-625(4)]
3.109 A return is considered to be a notice of assessment signed by the
Commissioner and given to the provider on the day of the return.
[Schedule 1, item 1, subsection 295-625(5)]
Division 295-J: No-TFN income tax offset
3.110 Subdivision 295-J allows a superannuation provider to obtain a
refund of no-TFN contributions income tax paid where a TFN is
subsequently quoted.
3.111 A superannuation provider may obtain a tax offset for amounts
of tax paid on no-TFN contributions income for an income year
commencing on or after 1 July 2007. [Schedule 1, item 1, subsection 295-675(1)]
3.112 The tax offset can only be claimed for tax paid on no-TFN
contributions income of an earlier year. A provider cannot pay no-TFN
contributions income tax for a contribution and claim a tax offset for that
same contribution in the same income year. [Schedule 1, item 1,
subsection 295-675(1)]
3.113 The tax offset is only available if an individual quotes their TFN
in the current year, and no-TFN contributions income tax of that
individual's contribution was payable in one of the three most recent
income years. [Schedule 1, item 1, subsection 295-675(2)]
3.114 For example, if a contribution was no-TFN contributions income
for the 2007-08 income year the tax offset can only be claimed in the year
97
Tax Laws Amendment (Simplified Superannuation) Bill 2006
the individual first quotes their TFN up until the end of the 2010-11
income year.
3.115 While the superannuation provider is entitled to claim the tax
offset, the amount of the offset is to be credited to the individual's
account.
3.116 The tax offset is a refundable tax offset and the rules contained
in Division 67 of the ITAA 1997 apply.
3.117 The amount of the tax offset for an income year is the sum of the
amount of tax payable on no-TFN contributions income for which a TFN
has subsequently been quoted. [Schedule 1, item 1, section 295-680]
3.118 Contributions which do not satisfy the conditions specified in
section 295-675 do not count towards the sum of the tax offset.
Part IIG: Interest on certain offsets relating to no-TFN contributions
income of superannuation funds and RSA providers
3.119 In certain circumstances interest will be payable to a
superannuation provider under the Taxation (Interest on Overpayments
and Early Payments) Act 1993 where an individual quotes a TFN to the
provider resulting in a tax offset under Subdivision 295-J of the
ITAA 1997.
3.120 Where:
· an individual has quoted their TFN to their employer before
the end of an income year;
· their employer failed to comply with the requirements set out
in section 299C of Superannuation Industry (Supervision)
Act 1993 which requires them to inform the superannuation
provider to which they make contributions of the individual's
TFN before the end of the income year;
· due to the employers failure to comply with section 299C of
the Superannuation Industry (Supervision) Act 1993
contributions made to that superannuation provider formed
part of its no-TFN contributions income;
· tax payable on that no-TFN contributions income counted
towards the no-TFN contributions tax offset of the
superannuation provider for the current year; and
98
Taxation of superannuation entities
· the tax offset has been applied in an assessment in respect of
the superannuation provider for the current year,
then interest will be payable. [Schedule 1, item 36, section 8ZD of the Taxation
(Interest on Overpayments and Early Payments) Act 1993]
3.121 The interest is payable for a period from the day the no-TFN
contributions income tax was paid or the day the tax was required to be
paid (whichever is the later) until the day on which the assessment of the
no-TFN income tax offset is made. [Schedule 1, item 36, section 8ZE of the
Taxation (Interest on Overpayments and Early Payments) Act 1993]
3.122 The interest rate is the base interest rate in section 8AAD of the
Taxation Administration Act 1953. [Schedule 1, item 36, section 8ZF of the
Taxation (Interest on Overpayments and Early Payments) Act 1993]
3.123 Interest payable under the Taxation (Interest on Overpayments
and Early Payments) Act 1993 is assessable income under section 15-35
of the ITAA 1997.
Treatment of late contributions
3.124 Some superannuation funds finance benefits by making large
one-off contributions. As mentioned above, the `trustee' of a complying
superannuation fund can, with the consent of the contributor, elect for
these contributions not to be included in assessable income. This
effectively shifts liability to tax on those contributions to the recipient of
the benefit when it is finally paid out. [Schedule 1, item 1, section 295-180]
3.125 Some funds also allow their members to elect whether their
benefits are paid from a taxed or untaxed source. Trustees will not be able
to make this election (and therefore will not be able to offer this choice)
where the superannuation plan comes into operation after
5 September 2006. [Schedule 1, item 1, subsection 295-180(5)]
Transitional arrangements for employment termination payments
existing at 9 May 2006
3.126 As part of the Simplified Superannuation reforms the taxation of
employment termination payments are changed to reflect the removal of
the reasonable benefit limits system and benefits tax. Employment
termination payments will have two components (tax free and taxable).
The taxable component is taxed at no more than 15 per cent for amounts
up to $140,000, the excess up to $1 million is taxed at the top marginal
rate (plus the Medicare levy).
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
3.127 Since superannuation benefits paid to those over age 60 are tax
free, employment termination payments will not be able to be rolled over
into superannuation. Allowing roll-overs would have enabled people to
put in place arrangements to avoid the intent of other parts of the reforms,
namely the caps on contributions.
3.128 There are transitional arrangements in place for individuals with
an entitlement to a payment on termination of employment specified in
existing employment contracts as at 9 May 2006, provided payment is
made prior to 1 July 2012. These payments are able to be directed into
superannuation until 1 July 2012. Amounts of the taxable component of a
directed termination payment paid into a superannuation fund are included
in the assessable income of the fund [Schedule 1, item 1, section 295-190, item 3
in the table]. If the value of the taxable component of the directed
termination payment exceeds $1 million then the excess is subject to
additional taxation at the top marginal tax rate plus the Medicare levy.
Deductions for future liability to pay benefits
3.129 As mentioned above, complying superannuation funds can
deduct part of their insurance premiums covering liability to pay death or
disability benefits to fund members or choose to deduct an amount for
their future liability to pay death or disability benefits. [Schedule 1, item 1,
sections 295-460, 295-465, 295-470 and 295-480]
3.130 A complying superannuation fund's choice to deduct an amount
for the future liability to pay a death or disability benefit is limited to
employees. The concessional tax treatment of employee invalidity
benefits is extended to the self-employed. Consistent with this extension
to the self-employed, the choice to deduct an amount for the future
liability to pay a death or disability benefit is similarly extended to the
self-employed.
Provisions of Part IX of the ITAA 1936 that have not been rewritten
3.131 Some provisions of the ITAA 1936 have not been rewritten into
the ITAA 1997 for various reasons. The various provisions, what they are
about, and the reason for their omission are commented on in Table 3.2.
Table 3.2
Provision Subject Reason for omission
267(1) Definition of actuary's certificate. Included in the operative rule.
267(1) Definition of arm's length premium. Included in the operative rule.
267(1) Definition of certificate date. Included in the operative rule.
100
Taxation of superannuation entities
Provision Subject Reason for omission
267(1) Definition of continuously complying Included in the operative rule.
approved deposit fund.
267(1) Definition of continuously complying Included in the operative rule.
superannuation fund.
267(1) Definition of continuously Included in the operative rule.
non-complying superannuation fund.
267(1) Definition of current pension Included in the operative rule.
liability.
267(1) Definition of death or disability Included in the operative rule.
benefit.
267(1) Definition of dependant. Included in the operative rule.
267(1) Definition of eligible approved The form of the rewritten
deposit fund. provisions makes it
unnecessary.
267(1) Definition of eligible entity. The form of the rewritten
provisions makes it
unnecessary.
267(1) Definition of eligible superannuation The form of the rewritten
fund. provisions makes it
unnecessary.
267(1) Definition of non-current pension Included in the operative rule.
liability.
267(1) Definition of non-reversionary bonus. Included in the operative rule.
267(1) Definition of normal assessable Included in the operative rule.
income.
267(1) Definition of specified roll-over Included in the operative rule.
amount.
267(1) Definition of superannuation liability. Included in the operative rule.
267(1) Definition of superannuation policy. Redundant. References to this
term were removed in 1989.
267(1) Definition of taxable contribution. Included in the operative rule.
267(1) Definition of unit trust. The form of the rewritten
provisions makes it
unnecessary.
267(4) A reference to section 342 of the Redundant. References to
Superannuation Industry section 342 of the
(Supervision) Act 1993 includes Superannuation Industry
section 15D of the repealed (Supervision) Act 1993 in the
Occupational Superannuation rewritten law are prospective.
Standards Act 1987.
101
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Provision Subject Reason for omission
268 Trustees of funds not constituted as The definition of `trustee' in
trusts are taken to be trustees of the section 995-1 now
fund for the purposes of Part IX. incorporates this idea.
269B Nothing in the general exemption Not required.
provisions exempts the trustee of a Section 960-100 of the
fund or a pooled superannuation trust ITAA 1997 clarifies that the
from a liability to pay tax in relation trustee in this capacity is a
to its superannuation activities. separate entity. Liability is
imposed by section 4-1 of the
ITAA 1997.
274(10)(a), Contributions received by a Redundant. They were
274(10)(b) non-complying superannuation fund relevant when complying
from another fund are assessable. funds could not retain excess
benefits, but that is no longer
the case.
275(2)(a) Contributions transferred to a life To be included in the
insurance company are included in consequential amendments to
their assessable income. Division 320 of the
ITAA 1997 (Life insurance
companies).
276(5) The section about the consequences Unnecessary. The
for the fund of a contributor's contributor's deduction
deduction being reduced applies once entitlement and their notice
only for a particular contribution. obligations are fully set out in
other provisions.
279D(1)(a)(ii) Life insurance companies are allowed To be included in
a deduction to ensure that benefits consequential amendments to
paid on certain annuity policies are Division 320 of the
not reduced as a result of taxing ITAA 1997 (Life insurance
contributions transferred to them. companies).
282 Amounts accrued to a complying The rewritten provisions apply
superannuation fund prior to prospectively.
1 July 1988 are not assessable.
290A Exempts income of approved deposit To go into the Income Tax
funds attributable to 25 May 1988 (Transitional Provisions) Act
deposits. 1997 with ongoing
application.
291 Amounts accrued to a complying The rewritten provisions apply
approved deposit fund prior to prospectively.
1 July 1988 are not assessable.
297 Amounts accrued to a pooled The rewritten provisions apply
superannuation trust prior to prospectively.
1 July 1988 are not assessable.
102
Taxation of superannuation entities
Provision Subject Reason for omission
300(1)(a), Superannuation funds, approved Redundant. The rebate is for
300(2)(a) deposit funds and pooled interest on monies borrowed
superannuation trusts are entitled to before 1 November 1968 and
the rebate provided by section 160AB is no longer applicable.
of the ITAA 1936.
300(1)(b), Superannuation funds, approved Redundant.
300(2)(b) deposit funds and pooled
superannuation trusts are not entitled
to the dividend rebate under
section 46 or 46A of the ITAA 1936.
308, 309, 310, CGT rules for assets held by To go into the Income Tax
311 superannuation entities when they (Transitional Provisions) Act
became taxable in 1988. 1997 with ongoing
application.
Provisions of Part VA of the ITAA 1936 that have been inserted due to the
Simplified Superannuation reforms
Section 202DHA: A TFN quoted for Division 3 purposes is taken to
have been quoted for superannuation purposes
3.132 When an individual makes a TFN declaration to their payer
(their employer) they are also authorising their employer to provide their
TFN to the superannuation provider to which their employer is making
contributions.
3.133 Under subsection 202C(1) of the ITAA 1936 an individual who
is a recipient of eligible pay as you go (PAYG) payments may make a
TFN declaration under Division 3, Part VA of the ITAA 1936, thus
quoting their TFN to their payer (their employer).
3.134 If that individual is also a beneficiary of an `eligible
superannuation entity' or of a `regulated exempt public sector
superannuation scheme', by completing a TFN declaration, they are also
authorising their payer (their employer) to quote their TFN to the trustee
of their superannuation fund to which their employer is making
contributions. [Schedule 1, item 27, section 202DHA]
3.135 For example, if an individual completes a TFN declaration in
relation to their employment and they are a member of a superannuation
fund, and their employer is making superannuation contributions for their
benefit, the individual is also authorising their employer to quote their
TFN to the trustee of the superannuation fund to which their employer
makes contributions.
103
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Provisions of the Superannuation Industry (Supervision) Act 1993 that
have been amended due to the Simplified Superannuation reforms
Subsection 6(1): Administration of Divisions 1 and 3A of Part 25A
3.136 Section 6 has been amended to allow the Commissioner to
regulate a payer's (employer's) legal responsibilities to quote TFNs to
superannuation entities.
3.137 APRA has the general administration of the listed provisions to
the extent that administration of the provisions is not conferred on the
Commissioner by paragraphs (e) or (g). [Schedule 1, item 28,
paragraph 6(1)(a)]
3.138 APRA has the general administration of Part 25A except
Division 1 which relates to the quotation of employees' TFNs. [Schedule 1,
item 29, subparagraph 6(1)(a)(xii)]
3.139 The Commissioner has the general administration of the Part 24
and Divisions 2 to 5 of Part 25A to the extent that they relate to
self-managed superannuation funds. [Schedule 1, item 30,
subparagraph 6(1)(e)(v)]
3.140 The Commissioner has general administration of Division 1 of
Part 25A relating to the quotation of an individual's TFN by their payer
(their employer) and Division 3A of Part 25A relating to the incorrect
quotation of TFNs. [Schedule 1, item 31, paragraph 6(1)(g)]
3.141 An employee can quote their TFN to their payer (their
employer) in connection with the operation or the possible future
operation of the Superannuation Industry (Supervision) Act 1993 and the
other `Superannuation Acts' or after 1 July 2007 in connection with the
operation of Division 3 of Part VA of the ITAA 1936. If the other
conditions in section 299C are satisfied the employer must then inform the
trustee of the entity to which they make contributions, of the employee's
TFN. [Schedule 1, item 32, paragraph 299C(1)(a)]
3.142 For example, where an employee quotes their TFN in
connection with PAYG payments it is also taken to have been quoted in
connection with the Superannuation Industry (Supervision) Act 1993.
Accordingly, where this quotation has occurred an employer has a
responsibility, subject to the other conditions in section 299C, to quote the
employee's TFN to the superannuation entity to which they make
employer contributions, for the employee.
Paragraph 299P(a): Methods of quoting a TFN
104
Taxation of superannuation entities
3.143 An individual is taken to have quoted their TFN to another
person if the individual informs the other person of the number in a
manner approved by the regulator or in the specified approved form, or
the individual is taken to have quoted their TFN in relation to the
Superannuation Industry (Supervision) Act 1993 and the `Superannuation
Acts' under any of the provisions in Division 3 of the Superannuation
Industry (Supervision) Act 1993. [Schedule 1, item 34, paragraph 299P(a)]
Division 3A: Incorrect quotation of a TFN
3.144 Where an assumed TFN recorded by a trustee is assessed by the
Commissioner to either be cancelled, withdrawn or wrong, and the
Commissioner can identify the beneficiary's TFN, the Commissioner may
give notice of the TFN to the trustee. [Schedule 1, item 35, subsection 299TA(1)]
3.145 Where the Commissioner provides the beneficiary's TFN to the
trustee, the beneficiary is taken to have quoted their TFN at the time and
in the way the assumed TFN was quoted to the trustee. [Schedule 1, item 35,
subsection 299TA(2)]
3.146 Where an assumed TFN recorded by a trustee is assessed by the
Commissioner to either be cancelled, withdrawn or wrong, and the
Commissioner is not satisfied that the beneficiary has a TFN, the
Commissioner may provide a notice to the trustee. [Schedule 1, item 35,
subsection 299TB(1)]
3.147 The notice provided to the trustee must identify the beneficiary
and state that the Commissioner is not satisfied that the beneficiary has a
TFN. [Schedule 1, item 35, subsection 299TB(2)]
3.148 The Commissioner must provide a copy of this notice to the
beneficiary. [Schedule 1, item 35, subsection 299TB(3)]
3.149 If a notice under section 299TB is given to a trustee, the
beneficiary is taken to have not quoted their TFN to the trustee at any
time.
Application and transitional provisions
Application
3.150 These amendments apply from the 2007-08 and later income
years. [Schedule 1, item 2]
105
Tax Laws Amendment (Simplified Superannuation) Bill 2006
3.151 These amendments to Part 4 apply to TFN declarations made on
or after 1 July 2007. [Schedule 1, item 37]
Transitional provisions
No-TFN contributions and no-TFN tax offset
3.152 Transitional provisions have been introduced for
Subdivisions 295-I and 295-J which apply to a superannuation fund or
RSA provider whose 2006-07 income year ends after 1 July 2007.
[Schedule 1, item 25, section 295-610]
3.153 For these entities, the period of their 2006-07 income year after
1 July 2007 will be taken to be part of their 2007-08 income year for the
purposes of Subdivisions 295-I and 295-J.
3.154 No-TFN contributions income for the 2006-07 income year
(received on or after 1 July 2007) will be included in their 2007-08
income year and treated as if they had actually been made in the
superannuation fund or RSA provider's 2007-08 income year.
Example 3.2
The XYZ superannuation fund's 2006-07 income year ends on
30 September 2007. It accumulates $100,000 of no-TFN contributions
income between 1 July 2007 and the end of its 2006-07 income year
on 30 September 2007.
As the XYZ superannuation fund's 2006-07 income year ends after
1 July 2007, the period between 1 July 2007 and 30 September 2007 is
taken to be part of its 2007-08 income year.
The $100,000 of no-TFN contributions made prior to
30 September 2007 (in its 2006-07 income year) will be taken to have
been contributed in its 2007-08 income year.
Consequential amendments
Income Tax Assessment Act 1936
3.155 An assessment under section 295-610 is intended to fall within
the definition of `assessment'. [Schedule 1, item 3, subsection 6(1)]
3.156 A full self assessment taxpayer must, in a return for an income
year specify its taxable income or its net income, the amount of tax
106
Taxation of superannuation entities
payable and the amount of interest payable by the taxpayer under
section 102AAM. If the full assessment taxpayer is a company and is a
superannuation fund or RSA provider the company must also specify its
no-TFN contributions income and the amount of the income tax payable
on that income. [Schedule 1, item 4, section 161AA]
Income Tax Assessment Act 1997
3.157 A consequential amendment is needed to include
constitutionally protected funds as exempt (Government) entities so as to
ensure all their income is exempt from income tax in the appropriate way
under the ITAA 1997, since it was exempt in Part IX of the ITAA 1936.
[Schedule 1, item 7, section 11-15 and item 8, section 50-25]
3.158 A number of consequential amendments are needed to replace
references to Part IX of the ITAA 1936 with the equivalent Division 295
provisions. [Schedule 1, Part 2, item 5, section 9-1, item 6, section 9-5, item 40,
subparagraph 320-15(1)(i), item 14, subsection 320-15(3)]
3.159 A number of consequential amendments are needed to
incorporate new definitional terms arising in the rewrite. [Schedule 1,
item 10, Subdivision 118-G, item 11, paragraph 118-515(1)(b), item 12, section 118-520,
item 50, section 995-1, definition of `Australian superannuation fund', item 55,
section 995-1, definition of `endowment policy', item 60, section 995-1, definition of
`foreign superannuation fund', item 65, section 995-1, definition of `non-arm's length
income', item 70, section 995-1, definition of `quoted (for superannuation purposes)',
item 75, section 995-1, definition of `RSA component', item 80, section 995-1, definition
of `segregated current pension assets', item 85, section 995-1, definition of `segregated
non-current assets', item 90, section 995-1, definition of `standard component', item 95,
section 995-1, definition of `superannuation fund for foreign residents', item 100,
section 995-1, definition of `whole of life policy']
3.160 A number of amendments are needed in Division 320 (relating
to life insurance companies), as some provisions applying to these entities
were in Part IX. However, when rewritten into the ITAA 1997, they are
more appropriately located in Division 320 which contains rules applying
to life insurance companies. [Schedule 1, item 13, paragraph 320-15(1)(i),
item 14, subsection 320-15(3), item 15, section 320-107]
3.161 The refundable rules for tax offsets apply to the tax offset in
respect of no-TFN contributions income under Subdivision 295-J.
[Schedule 1, item 9, section 67-25]
3.162 The definition of `quoted for superannuation purposes' has the
same meaning as in section 295-615.
107
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Income Tax Rates Act 1986
3.163 A separate rate of tax applies to no-TFN contributions income
(defined by section 295-675). [Schedule 1, item 18, subsection 29(1)]
3.164 The separate rate of tax is applicable to a trustee of a complying
superannuation fund, a non-complying superannuation fund or company
(other than a life insurance company) that is an RSA provider.
3.165 The rate of tax is calculated as the top marginal tax rate
(Column 2 of the table in Part I of Schedule 7 to the Income Tax Rates
Act 1986) plus the Medicare levy. The rate of tax generally payable on
contributions (under paragraph 26(1)(a), subsection 26(2) or
paragraph 23(4BA)(a)) is then subtracted from this rate. [Schedule 1,
item 18, subsection 29(2)]
3.166 For example, for the 2007-08 income year, Column 2 of the
table in Part I of Schedule 7 to this Act specifies a rate of tax at
45 per cent. The Medicare levy tax rate of 1.5 per cent is then added to
this amount, totalling 46.5 per cent. The rate of tax under paragraph
26(1)(b) for a complying superannuation fund (15 per cent) is then
subtracted from 46.5 per cent.
3.167 The rate of tax applicable to no-TFN contributions income is
31.5 per cent.
3.168 The amount of tax payable for no-TFN contributions income is
payable in addition to the ordinary income tax payable on contributions.
3.169 For example, for 2007-08 no-TFN contributions income will be
taxed at a rate of 31.5 per cent. This income will also form part of the
superannuation fund or RSA provider's assessable income and be taxed as
part of its taxable income (generally at a rate of 15 per cent). [Schedule 1,
item 1, paragraph 26(1)(a), subsection 26(2) or paragraph 23(4BA)(a) of the Income
Tax Rates Act 1986]
Finding Table 1 -- New law to old law
New law Current law
295-1 No equivalent
295-5(1) 270
295-5(2) 278, 286, 289, 294
295-5(3) 296(1)
108
Taxation of superannuation entities
New law Current law
295-5(4) 299A
295-10 272
295-15 271
295-20 269A
295-25 300A
295-30 269(2), 301
295-35 No equivalent
295-85 304
295-90 306
295-90(4) 315
295-95(1) 277, 277AA
295-95(2) 6E(1), (1A), (1B), (1C), (3)
295-95(3) 6E(4A), (4B)
295-100 279E, 289A
295-105 296(2)
295-155 No equivalent
295-160 item 1 274(1)(a)(i), (ba)(i)
295-160 item 2 274(1)(aa)
295-160 item 3 274(1)(b)(ii), (ba)(iv), (d)
295-160 item 4 274(1)(e)
295-165 274(1)(a)(i)(C), (ba)(i)(A)
295-170 274(1)(a)(i)(D), (E),
(ba)(i)(B), (C), (1)(e)
295-175 274(4), (5)
295-180(1), (2) 274(7)
295-180(3) 274(8)
295-180(4) 274(9)
295-180(5) No equivalent
295-185 274(1)(aa)
295-190(1) item 1 274(1)(b)(i), (ba)(iii)
295-190(1) item 2 274(1)(a)(ii), (ba)(ii), (c)
295-190(1), item 3 No equivalent
295-190(2), (3) 274(1)(b)(i), (ba)(iii), 274(2),
(3)
295-190(4) 274(1)(a)(ii), (ba)(ii), (c)
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
New law Current law
295-195(1) No equivalent
295-195(2), (3) 276(3)
295-200 274(10)(c), (10)(d)
295-205 No equivalent
295-210 281A
295-260 275
295-265(1), (5), (6), (7), (8) 275B
295-265(2), (3), (4) 275A
295-270 300B
295-320 item 1 275(2)(a)
295-320 item 2 288A
295-320 item 3 288B
295-320, item 4 279A
295-320, item 5 299F
295-325 288A
295-330 288B
295-335 item 1 282A, 291A, 297A
295-335 item 2 297C
295-335, item 3 No equivalent
295-385 273A, 282B
295-390 283
295-395 273B
295-400 297B
295-405 item 1 315C
295-405 items 2 and 3 299G
295-410 299C(6)
295-460 267(1) death or disability
benefit
295-465 279
295-470 279B
295-475 299E(1)
295-480(1) 267(1) whole of life policy
295-480(2) 267(1) endowment policy
295-485 279D
295-490(1) item 1 277A
110
Taxation of superannuation entities
New law Current law
295-490(1) item 2 276(1), (2)
295-490(1) item 3 315A, 315B
295-490(1) item 4 286A
295-490(2) 315E
295-490(3) 315F
295-495 item 1 280
295-495 item 2 287
295-495 item 3 299E(2)
295-495 item 4 299E(3)
295-495 item 5 315D
295-545(1) 284, 285, 292, 293, 298, 299
295-545(2) 267(1) special component,
284, 292, 298
295-545(3) 267(1) standard component,
285, 293, 299
295-550 273
295-555(1) 299D(1)
295-555(2) 267(1) RSA component,
299C, 299D(2)
295-555(3) 299CA
295-555(4) 267(1) standard component ,
299D(3)
295-605 No equivalent
295-610 No equivalent
295-615 No equivalent
295-620 No equivalent
295-625 No equivalent
295-675 No equivalent
295-680 No equivalent
Finding Table 2 -- Old law to new law
Current law New law
267(1) Interpretation
actuary 995-1(1)
actuary's certificate Omitted
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Current law New law
annuity Omitted
arm's length premium Omitted
certificate date Omitted
complying ADF 995-1(1) complying approved
deposit fund
complying superannuation 995-1(1)
fund
constitutionally protected fund 995-1(1)
continuously complying ADF Omitted
continuously complying Omitted
superannuation fund
continuously non-complying Omitted
superannuation fund
current pension liability Omitted
death or disability benefit Omitted
dependant Omitted
eligible ADF Omitted
eligible entity Omitted
eligible superannuation fund Omitted
eligible termination payment Omitted
endowment policy 295-480(2)
last retirement date 995-1(1), last retirement day
non-complying ADF 995-1(1) non-complying
approved deposit fund
non-complying 995-1(1)
superannuation fund
non-current pension liability Omitted
non-reversionary bonus Omitted
normal assessable income Omitted
pension Omitted
pooled superannuation trust 995-1(1)
post-June 83 component 995-1(1), 307-275 element
taxed in the fund
pre-July 83 component Omitted
registered organisation Omitted
RSA component 295-555(2)
112
Taxation of superannuation entities
Current law New law
segregated current pension 295-385(3)
assets
segregated non-current 295-395
pension assets
SIS Act 995-1(1)
special component 295-545(2) non-arm's length
component
special income 295-550 non-arm's length
income
specified roll-over amount Omitted
standard component 295-545(3) low tax component
superannuation liability Omitted
superannuation policy Omitted
taxable contribution Omitted
termination of employment Omitted
unit trust Omitted
whole of life policy 295-480(1)
267(3) Omitted
267(4) Omitted
268 995-1(1) trustee
269(2) 295-30
269(3) Consequential amendments
that will be made to
subsection 170(10AA) of the
ITAA 1936
269A 295-20
269B Omitted
270 295-5(1)
271 295-15
271A 50-25 item 5.3
272 295-10
273 295-550
273A 295-385(3)
273B 295-390
274(1)(a)(i) 295-160 item 1, 295-165,
295-170
274(1)(a)(ii) 295-190(1) item 2, 295-190(4)
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Current law New law
274(1)(aa) 295-160 item 2, 295-165
274(1)(b)(i) 295-190(1) item 1, 295-170(2)
274(1)(b)(ii) 295-160 item 3
274(1)(ba)(i) 295-160 item 1, 295-155,
295-156
274(1)(ba)(ii) 295-190(1) item 2, 295-170(4)
274(1)(ba)(iii) 295-190(1) item 1,
295-170(2), (3)
274(1)(ba)(iv) 295-150 item 3
274(1)(c) 295-190(1) item 2, 295-170(4)
274(1)(d) 295-160 item 3
274(1)(e) 295-160 item 4, 295-156
274(2) 295-190(2), (3)
274(3) 295-190(2), (3)
274(7) 295-180(1), (2)
274(8) 295-180(3)
274(9) 295-180(4)
274(10)(a) Omitted
274(10)(b) Omitted
274(10)(c) 295-200
274(10)(d) 295-200
275(2)(a) as it applies to a life 320-15(1)(i)
insurance company
275(2)(a) as it applies to a 295-320 item 1
PST
275 295-260
275A 295-265(2), (3), (4)
275B 295-265(1), (5), (6), (7), (8)
276(1) 295-490 item 2
276(2) 295-490 item 2
276(3) 295-195(2), (3)
276(4) 295-195(3)
276(5) Omitted
277 295-95
277AA 295-95
277A 295-490 item 1
114
Taxation of superannuation entities
Current law New law
278 295-5(2), 4-1
279 295-465
279A 295-320 item 4
279B 295-470
279D(1)(a)(ii) 320-107
279D 295-485
279E 295-100
280 295-495 item 1
281 Subdivision 295-C,
Subdivision 295-D
282 Omitted
282A 295-335 item 1
282B 295-385
283 295-390
284 295-545(1), (2)
285 295-545(1), (3)
286 295-5(2), 4-1
286A 295-490 item 4
287 295-495 item 2
288 Subdivision 295-C
288A 295-320 item 2, 295-325
288B 295-320 item 3, 295-330
289 295-5(2), 4-1
289A 295-100
290 Subdivision 295-C, 295-260
291 Omitted
291A 295-335 item 1
292 295-545(1), (2)
293 295-545(1), (3)
294 295-5(2), 4-1
295 Subdivision 295-C
296(1) 295-5(3), 4-1
296(2) 295-105(1), 4-1
297 Omitted
297A 295-335 item 1
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Current law New law
297B 295-400
297C 295-335 item 2
298 295-545(1), (2)
299 295-545(1), (3)
299A 295-5(4)
299B Subdivision 295-C
299C 295-410, 295-540(1), (2)
299CA 295-555(3)
299D(1) 295-555(1)
299D(2) 295-555(2)
299D(3) 295-555(4)
299E(1) 295-475
299E(2) 295-495 item 3
299E(3) 295-495 item 4
299F 295-320 item 5
299G 295-405 items 2 and 3
300(1)(a) Omitted
300(1)(b) Omitted
300(2)(a) Omitted
300(2)(b) Omitted
300A 295-25
300B 295-270
301 295-30
304 295-85
315A 295-490 item 3
315B 295-490 item 3
315C 295-405 item 1
315D 295-495 item 5
315E 295-490(2)
315F 295-490(3)
116
Chapter 4
Employment termination payments
Outline of chapter
4.1 Schedule 2 to this Bill establishes the taxation treatment of
employment termination payments as a result of the Government's
Simplified Superannuation reforms.
4.2 Currently, payments made in consequence of the termination of
employment are a subset of the existing eligible termination payment
(ETP) category of statutory income. ETPs will cease to exist from
1 July 2007, being replaced by employment termination payments and
superannuation lump sums (dealt with elsewhere in this Bill).
Employment termination payments will cover payments in consequence
of termination where such a payment is not made from a superannuation
entity.
4.3 Schedule 2 also contains a number of provisions to move
associated payments from the Income Tax Assessment Act 1936
(ITAA 1936) into the Income Tax Assessment Act 1997 (ITAA 1997).
These provisions retain the same effect as under existing law but have
been rewritten to reflect the current drafting style and to deliver legislative
simplification.
Context of amendments
4.4 Under current legislation, the concessional taxation treatment of
ETPs is in line with the taxation arrangements that apply to
superannuation benefits, including the application of the reasonable
benefit limits (RBLs).
Summary of new law
4.5 The reforms made as part of Simplified Superannuation mean
that it is no longer appropriate to continue to treat these payments as
having a retirement payment characteristic.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
4.6 The reforms will remove the current limits on the amount of
taxation concessions attached to these payments. The concessionality of
the tax treatment of employment termination payments is limited under
existing legislation through the operation of RBLs and end benefits tax.
The RBLs will be abolished from 1 July 2007 as part of the Government's
Simplified Superannuation reforms.
4.7 Under Simplified Superannuation, employment termination
payments received in a given year or relating to a single termination
(where the payment is split over more than one year) only receive
concessional tax treatment for amounts below the employment
termination payments cap. The cap will be $140,000 in 2007-08 and will
be indexed. As with the existing law, the Medicare levy is payable in
addition to the maximum rate of tax which applies to an employment
termination payment.
4.8 To access these tax concessions, employment termination
payments must generally be made within 12 months of the employment
termination.
4.9 As superannuation benefits paid to those over 60 will be tax
free, employment termination payments will no longer be able to be rolled
into superannuation. This would have allowed people to put in place
arrangements to avoid the intent of the caps on concessional and post-tax
contributions.
4.10 Transitional arrangements are available for certain termination
payments made as a result of employment entitlements in place before
10 May 2006. Payments made under these arrangements will attract tax
concessions designed to broadly mirror existing arrangements, including
the ability to roll these amounts into superannuation. To access the
transitional arrangements, payments will need to occur prior to
1 July 2012.
4.11 The amendments apply from 1 July 2007 and affect individuals
who receive a payment, other than from a superannuation plan, as a result
of their employment termination.
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Employment termination payments
Comparison of key features of new law and current law
New law Current law
Employment termination payments Payment may be made at any time
must be made within 12 months of following the termination of
the termination of employment or employment or office. Employees
office, unless the Commissioner of can currently elect to have all or part
Taxation (Commissioner) considers of a payment made into
that 12 months is too short in the superannuation.
circumstances.
Genuine redundancy payments and
early retirement scheme payments
are exempt from this requirement.
Employment termination payments,
with the exception of certain
transitional arrangements, will no
longer be able to be paid into
superannuation.
For recipients who reach For recipients aged 55 (the current
preservation age in the year a preservation age) and over, the
payment is received, the taxable post-June 1983 component is taxed
component of an employment at 15 per cent for amounts below the
termination payment is taxed at threshold ($135,590 in 2006-07) and
15 per cent for amounts below the 30 per cent for amounts above the
employment termination payments threshold up to the RBL. Amounts
cap ($140,000 from 2007-08, and above the RBL are effectively taxed
indexed annually) and at the top at the top marginal rate. Five per
marginal rate for amounts above the cent of the pre-July 1983 component
cap. The pre-July 1983 component is taxed at marginal rates.
will be tax free.
For recipients below preservation For recipients below age 55, the
age, the taxable component of an post-June 1983 component of an
employment termination payment is ETP is taxed at 30 per cent for
taxed at 30 per cent for amounts amounts below the RBL. Amounts
below the employment termination above the RBL are taxed at the top
payments cap and at the top marginal marginal rate. Five per cent of the
rate for amounts above the cap. The pre-July 1983 component is taxed at
pre-July 1983 component is tax free. marginal rates.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
New law Current law
Death benefit termination payments Death benefit termination payments
are tax free up to the employment are tax free up to the RBL for
termination payments cap for dependants.
dependants. The pre-July 1983 Death benefit termination payments
component is tax free. are taxed at a maximum of 30 per
Death benefit termination payments cent up to the RBL if paid to a
are taxed at a maximum of non-dependant. Five per cent of the
30 per cent up to the employment pre-July 1983 component is taxed at
termination payments cap if paid to a marginal rates.
non-dependant. The pre-July 1983
component is tax free.
In both cases, any amount above the
cap is taxed at the top marginal rate.
* The Medicare levy is payable in addition to the maximum rate.
Detailed explanation of new law
Employment termination payments
4.12 These amendments apply to payments to individuals who retire
or stop working provided that the payment is not made from a
superannuation plan. These payments are referred to as `employment
termination payments'.
4.13 As with the existing ETP arrangements, the concept of
employment has an expanded meaning in the employment termination
payment regime such that it includes the holding of an office. [Schedule 2,
item 1, section 80-5]
4.14 The circumstances in which a payment can arise in consequence
of the termination of employment (and can therefore be an employment
termination payment) include dismissal, resignation, retirement and death.
[Schedule 2, item 1, section 80-10]
What is an employment termination payment?
4.15 An `employment termination payment' is a lump sum payment
made in consequence of the termination of an individual's employment.
[Schedule 2, item 1, subsection 82-130(1)]
120
Employment termination payments
4.16 A life benefit termination payment is an employment
termination payment made in consequence of a person's termination of
employment, other than as a result of death. [Schedule 2, item 1,
subparagraph 82-130(1)(a)(i) and subsection 82-130(2)]
4.17 A death benefit termination payment is an employment
termination payment made to a person after another person's death.
[Schedule 2, item 1 subparagraph 82-130(1)(a)(ii) and subsection 82-130(3)]
4.18 To qualify as an employment termination payment, the payment
must be made within 12 months of the termination. However, provision is
made for the Commissioner to allow a payment made after this period to
be taxed under the concessional arrangements applying to employment
termination payments. The Commissioner may prepare determinations
covering a class of payments or recipients or in respect of an individual
taxpayer. [Schedule 2, item 1, paragraphs 82-130(1)(b) and 82-130(4)(a) and
subsections 82-130(5) to (8)]
4.19 The 12-month rule exists to prevent abuse of the tax concession
offered for these payments by using a series of payments over a number of
income years. The provisions dealing with the Commissioner's ability to
issue a determination are provided to allow flexibility where delays in
payment are reasonable and not constructed with the intent of delivering
taxation advantages. The following examples illustrate the circumstances
in which it is intended the Commissioner would, or would not, issue such
a determination.
Example 4.1
Stephen is dismissed from his employment. No employment
termination payment is made. Stephen commences legal action against
the employer to secure payment of amounts he believes he was entitled
to on termination and to seek damages for unfair dismissal.
After a lengthy court process, lasting more than 12 months, Stephen is
successful in his claim and a payment is made by his employer.
Stephen writes to the Commissioner to seek relief from the 12-month
rule. The Commissioner, having regard to the circumstances of the
payment, determines that the delay in payment is reasonable given that
it arose as a result of a legal dispute over entitlement.
Example 4.2
Rachel is employed in a company selling mining hardware. After a
period of declining sales, the company suffers financial difficulties out
of which it determines that it is unable to trade, and Rachel is
dismissed. An administrator is appointed and determines that the
company has no cash and must rely on the sale of its assets to meet its
outstanding liabilities.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
After 18 months all assets of the company are sold and the
administrator is ready to make payments to creditors. At this point
Rachel receives a payment in respect of the termination of her
employment. Rachel writes to the Commissioner to seek relief from
the 12-month rule (in so far as the payment is not a genuine
redundancy payment and hence exempt from the 12-month rule). The
Commissioner, having regard to the circumstances of the person
making the payment, determines that the delay in payment is
reasonable given that the payment could not be made earlier as a result
of the financial situation of the payer.
Example 4.3
Rithy is employed part-time by Erica. They have an agreement which
provides for a payment to Rithy on the termination of his employment.
Rithy is also employed part-time with Louise. They also have an
agreement which provides for a payment on the termination of
employment.
On 1 July Rithy terminates his employment with both employers in
order to take a holiday. At Rithy's request neither employer makes an
immediate payment. On 1 July the following year Louise pays Rithy
$140,000. Rithy then enters into an arrangement with Erica to defer
the payment of the amount she owes him for another year in order to
secure a better taxation outcome.
As the deferral of the payment would mean that it occurs more than
12 months after the termination of employment Rithy seeks the
Commissioner's agreement to determine that the 12-month rule does
not apply. Given the circumstances of the request and of the payment
the Commissioner declines to provide such a determination.
4.20 Genuine redundancy payments and early retirement scheme
payments (including amounts in excess of the tax free component) are
exempted from the operation of the 12-month rule. [Schedule 2, item 1,
paragraph 82-130(4)(b)]
4.21 Provision is made to ensure that the existing ability to receive an
ETP as a transfer of property is retained under the employment
termination payments regime. This will also apply to genuine redundancy
payments, early retirement scheme payments and foreign termination
payments. The value of such a payment is to be assessed as the market
value of the property less any consideration given for the transfer of the
property. [Schedule 2, item 1, section 80-15]
Payments that are not employment termination payments
4.22 Consistent with current legislation, certain payments are
prevented from qualifying as employment termination payments. The
122
Employment termination payments
following payments are expressly stated to not be employment
termination payments:
· superannuation benefits;
· payments from a pension or an annuity (to exclude from
these provisions an income stream which may be paid by an
employer);
· unused annual leave payments;
· unused long service leave payments;
· the part of a genuine redundancy payment or an early
retirement scheme payment that is tax free;
· foreign termination payments;
· advances or loans on arm's length terms;
· a payment that is deemed to be a dividend under
paragraph 109(1)(d) of the ITAA 1936;
· reasonable capital payments for personal injury;
· reasonable capital payments for restraint of trade; and
· payments resulting from the commutation of a
superannuation income stream that are wholly applied in
paying any superannuation contributions surcharge.
[Schedule 2, item 1, paragraph 82-130(1)(c) and section 82-135]
Payments for the individual's benefit or at the individual's direction or
request
4.23 Payments to which Divisions 82 and 83 apply are taxed as
though they were paid directly to the individual, even if the individual
directs their employer to make the payment to another person. However,
this does not mean that where a death benefit termination payment is
made, that the deceased is assessed as if they had received the payment.
[Schedule 2, item 1, section 80-20]
Tax treatment of life benefit termination payments
4.24 The concessionality of the tax treatment of employment
termination payments is limited under existing legislation through the
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
operation of RBLs and end benefits tax. The RBLs will be abolished
from 1 July 2007 as part of the Government's Simplified Superannuation
reforms. As a result, new taxation arrangements are required to ensure
that certain payments on the termination of employment continue to
receive more concessional taxation treatment than other forms of income
while preventing abuse of the system.
4.25 Under the new arrangements, an individual who receives an
employment termination payment after they reach their preservation age,
or in the year in which they will reach their preservation age, will pay less
tax on that payment than if it was received by an individual who is below
their preservation age for the whole income year in which the payment is
received.
4.26 The tax free component is the portion of an employment
termination payment that relates to invalidity or to pre-July 1983
employment. This portion of the payment will not be subject to tax and it
will not be exempt income (ie, it is tax free). [Schedule 2, item 1,
subsection 82-10(1) and section 82-140]
4.27 An employment termination payment contains an `invalidity
segment' if:
· the payment was made to a person because they can no
longer work because of physical or mental ill-health;
· the person stopped working before they reached their `last
retirement day'; and
· two legally qualified medical practitioners have certified that
it is unlikely the person can ever work again in a role for
which they are qualified by virtue of training, experience or
education.
[Schedule 2, item 1, subsection 82-150(1)]
4.28 The invalidity segment is calculated as the portion of the
payment that represents the period between termination and the person's
`last retirement day'. [Schedule 2, item 1, subsection 82-150(2)]
124
Employment termination payments
4.29 The pre-July 1983 segment is calculated as the portion of the
payment that represents the individual's service period prior to
1 July 1983. The methodology for calculating this is currently set out in
the ITAA 1936. The formula to be inserted into the ITAA 1997
effectively mirrors the existing calculation by apportioning the benefit
based on the number of days of service prior to 1 July 1983 divided by the
total number of days in the service period. [Schedule 2, item 1, section 82-155]
4.30 The taxable component is the part of an employment
termination payment that is not the tax free component (ie, the remainder
of the payment after the tax free component is calculated). [Schedule 2,
item 1, section 82-145]
Treatment of the taxable component
4.31 The taxable component of an employment termination payment
is included in an individual's assessable income for tax purposes.
[Schedule 2, item 1, subsection 82-10(2)]
4.32 Individuals who have reached their preservation age (or will do
so in the income year in which they receive the payment) will pay no
more than 15 per cent tax on the taxable component of the employment
termination payment that is within the employment termination payments
cap. [Schedule 2, item 1, paragraph 82-10(3)(a) and subsection 82-10(4)]
4.33 Individuals who are below their preservation age throughout an
income year will pay no more than 30 per cent tax on the taxable
component of the employment termination payment that is within the
employment termination payments cap. [Schedule 2, item 1,
paragraph 82-10(3)(b) and subsection 82-10(4)]
4.34 The employment termination payments cap for the 2007-08
financial year is $140,000. The amount of the cap will be indexed
annually. Details of the indexation arrangements can be found in
Chapter 7 of this explanatory memorandum. [Schedule 2, item 1,
section 82-160]
4.35 If the employment termination payment is greater than the
employment termination payments cap, the amount above the cap will be
taxed at the top marginal rate in accordance with the Income Tax Rates
Act 1986.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Example 4.4
In November 2007, Ryan retires from his position as an executive at
Mighty Power at age 65 after working there for 20 years. He receives
a payment of $400,000 as a retirement bonus. As the payment relates
only to post-June 1983 employment and there is no invalidity segment,
there is no tax free component. Ryan pays tax at no more than
15 per cent on the first $140,000 of the payment and at the top
marginal rate on the remaining $260,000.
4.36 The employment termination payments cap is reduced by the
amount of any earlier life benefit termination payment received in the
same financial year. This means that if the cap is exceeded by an earlier
employment termination payment, any further payments received in the
same year will be taxed at the top marginal rate. [Schedule 2, item 1,
paragraph 82-10(4)(a)]
Example 4.5
Continuing Example 4.4, following his retirement, Ryan is approached
to undertake a consulting role due to his industry experience. The
consultancy is undertaken over a six month period and as part of his
contract he receives a $100,000 payment when the work is complete.
The payment falls within the same income year as his retirement from
Mighty Power. As the employment termination payments cap was
exceeded by the payment from Mighty Power, Ryan will pay tax at the
top marginal rate on the full amount of the second employment
termination payment.
4.37 The employment termination payments cap is also reduced by
any earlier payments (whether in the same income year, or previous
income years) received in relation to the same termination. This will
mean that no more than the employment termination payments cap
amount ($140,000 in 2007-08) can be received at concessional taxation
rates in respect of any one termination. This ensures that individuals can
not seek to pay less tax by having their employment termination payment
paid to them in instalments over two or more years. [Schedule 2, item 1 ,
paragraph 82-10(4)(b)]
Example 4.6
Ryan, having terminated his employment with Mighty Power and
being entitled to receive an employment termination payment of
$400,000, arranges for his employer to make a payment of $200,000 in
the income year in which his employment was terminated. He has no
other employment termination payments in that year. The first
$140,000 is taxed at no more than 15 per cent (as Ryan is 65). The
remaining $60,000 is taxed at the top marginal rate.
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Employment termination payments
The remainder of Ryan's entitlement is paid to him in the following
income year. The available taxation concession for Ryan in the second
income year is reduced by the $140,000 he received at concessional
tax rates in the earlier income year. Assuming no increase in the value
of the employment termination payments cap, the entirety of the
$200,000 received in the subsequent income year would be taxed at the
top marginal rate.
Termination payments made more than 12 months after termination
4.38 A payment that would have been an employment termination
payment, had it been made within 12 months of the employment
termination, is assessable income and subject to tax at an individual's
marginal tax rate if it is paid after the 12-month period and is not
exempted from the 12-month rule by a determination by the
Commissioner. [Schedule 2, item 1, section 83-295]
Death benefit termination payments
4.39 The amendments apply to death benefit termination payments
from 1 July 2007. Changes to the tax treatment of these payments reflect
the abolition of benefits tax and RBLs, which operate to limit the
concessional tax treatment of death benefit payments under existing
legislation.
4.40 The tax treatment of death benefit termination payments
depends on whether the recipient was a death benefits dependant of the
deceased.
Death benefit termination payments to dependants
4.41 Any tax free component of an employment termination payment
received by a death benefits dependant is not subject to tax. [Schedule 2,
item 1, subsection 82-65(1)]
4.42 The part of the taxable component of a death benefit termination
payment that is within the employment termination payments cap is not
subject to tax and is not exempt income (ie, it is tax free) when paid to a
death benefits dependant. [Schedule 2, item 1, paragraph 82-65(2)(a) and
subsection 82-65(3)]
4.43 The part of the taxable component of a death benefit termination
payment that exceeds the employment termination payments cap will be
taxed at the top marginal rate. [Schedule 2, item 1, paragraph 82-65(2)(b) and
subsection 82-65(3)]
4.44 As with life benefit termination payments, the employment
termination payments cap is reduced by any death benefit termination
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
payments received in the same or previous financial years in consequence
of the same termination of employment. [Schedule 2, item 1,
subsection 82-65(4)]
Example 4.7
Angela is a full-time student who lives at home. Her mother, who has
supported her throughout her studies, dies. Her mother's employer
pays Angela a death benefit termination payment of $150,000. As
Angela was a death benefits dependant, she will pay no tax on the first
$140,000 of the payment. She will pay tax at the top marginal rate on
the remaining $10,000.
Death benefit termination payments for non-dependants
4.45 Death benefit termination payments made to those who are not
death benefits dependants (non-dependants) will be taxed less
concessionally than payments made to death benefits dependants. The
additional concession available to death benefits dependants reflects the
reliance these people had on the income of the deceased.
4.46 Any tax free component of an employment termination payment
received by the non-dependant is not subject to tax. [Schedule 2, item 1,
subsection 82-70(1)]
4.47 The remaining portion of a death benefit termination payment
the taxable component is taxed at a maximum rate of 30 per cent for
amounts below the employment termination payments cap. Any part of
the payment that exceeds the employment termination payments cap is
taxed at the top marginal rate. [Schedule 2, item 1, subsections 82-70(2) to (4)]
Example 4.8
Mark is employed full-time as a carpenter. Following the death of his
grandfather, he receives a death benefit termination payment of
$200,000 from his grandfather's employer. The pre-July 1983
component of this payment is $75,000. This amount is the tax free
component and is not subject to tax. The remaining $125,000 is the
taxable component, and as Mark was not a death benefits dependant of
his grandfather, Mark will pay tax at no more than 30 per cent on this
amount.
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Employment termination payments
4.48 As with life benefit termination payments, the employment
termination payments cap is reduced by any death benefit termination
payments received in the same or previous financial years in consequence
of the same termination of employment. [Schedule 2, item 1,
subsection 82-70(5)]
Death benefits paid to the trustee of a deceased estate
4.49 Death benefit termination payments to trustees of deceased
estates are subject to slightly different treatment than payments made
directly to beneficiaries. [Schedule 2, item 1, subsections 82-65(5), 70(6)
and 75(1)]
4.50 The portions of a death benefit termination payment relating to
beneficiaries will be taxed in the hands of the trustee in the same way it
would have been taxed if paid directly to a beneficiary.
4.51 The proportion of a payment that has or will benefit death
benefits dependants of the deceased will be subject to tax as if the trustee
of the deceased estate was a death benefits dependant who received the
payment. [Schedule 2, item 1, subsection 82-75(2)]
4.52 The proportion of a payment that has or will benefit
non-dependants of the deceased will be subject to tax as if the trustee of
the deceased estate was a non-dependant who received the payment.
[Schedule 2, item 1, subsection 82-75(3)]
Example 4.9
Yasmin is the trustee of her friend Michael's estate. Michael's will
evenly divided his estate between his daughter and nephew. Michael's
nephew is not a death benefits dependant, but his daughter is a death
benefits dependant. As trustee, Yasmin receives a death benefit
termination payment from Michael's employer of $150,000 (of which
there is no tax free component). Half of the payment will be treated as
though it had been paid directly to Michael's daughter and will not be
subject to tax. The remaining $75,000 will be treated as though it had
been paid directly to Michael's nephew and will be subject to tax at
30 per cent as it is below the employment termination payments cap.
Example 4.10
Matthew is the trustee of his friend Justin's estate. Justin's will evenly
divided his estate between his son, Ricky, who is a death benefits
dependant, and his three friends, Glenn, Shane and Adam. As trustee,
Matthew receives a death benefit termination payment from Justin's
employer of $400,000 (of which there is no tax free component). One
quarter of the payment ($100,000) will be treated as though it had been
paid directly to Justin's son Ricky. As this amount is less than
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
$140,000 it will not be subject to tax. The remaining $300,000 will be
treated as if it were paid to Matthew as a non-dependant of Justin. The
first $140,000 of this amount will be taxed at 30 per cent. The
remaining $160,000 will be taxed at the top marginal tax rate.
Other payments on termination
4.53 Division 83 of the ITAA 1997 contains the provisions related to
unused annual leave, unused long service leave, genuine redundancy
payments, early retirement scheme payments and foreign termination
payments. The provisions relating to these payments are intended to
retain their existing application but may have been redrafted to reflect
current drafting approaches.
Unused annual leave payments
4.54 A person's assessable income will continue to include payments
in consequence of unused annual leave, recreational leave, annual
holidays and any other similar leave. [Schedule 2, item 1, subsections 83-10(1)
and (2)]
4.55 An unused annual leave payment is a payment or bonus in
relation to unused annual leave (including for leave that is yet to accrue)
in consequence of an employment termination. [Schedule 2, item 1 ,
subsection 83-10(3)]
4.56 To the extent that an unused annual leave payment is made in
connection with a genuine redundancy payment, early retirement scheme
payment, the individual's invalidity or relates to employment before
18 August 1993 the rate of tax will be no more than 30 per cent (plus the
Medicare levy). These eligibility criteria are the same as under existing
legislation. Any other unused annual leave payments are taxed at
marginal rates. [Schedule 2, item 1, section 83-15]
Unused long service leave payments
4.57 A person's assessable income will continue to include payments
in consequence of unused long service leave that are paid in consequence
of an employment termination. The definition of `unused long service
leave' and the criteria for entitlement to a tax offset (including the
methodology for calculating the components attributable to different
periods and to part-time and full-time work) are the same as under
existing legislation. [Schedule 2, item 1, sections 83-70 to 83-115]
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Employment termination payments
Genuine redundancy payments and early retirement scheme payments
4.58 The new terminology of `genuine redundancy payment' and
`early retirement scheme payment' replace the existing ITAA 1936
terminology dealing with payments in consequence of bona fide
redundancy and approved early retirement schemes respectively.
[Schedule 2, item 1, subsection 83-170(1) and sections 83-175 and 83-180]
Tax treatment
4.59 Genuine redundancy payments and early retirement scheme
payments continue to receive the same concessional tax treatment
provided for in the ITAA 1936.
4.60 The tax free part of the payment is excluded from assessable
income and is not exempt income. [Schedule 2, item 1, subsection 83-170(2)]
4.61 The tax free part of a payment is determined by reference to a
base amount plus an amount per year of service. This replicates the
existing concession offered to such payments. [Schedule 2, item 1,
subsection 83-170(3)]
4.62 If a payment on redundancy or early retirement exceeds the
available tax free amount then the remaining part of the payment will
qualify as an employment termination payment and be taxed accordingly.
[Schedule 2, item 1, subsections 83-175(4) and 180(6) and section 82-130]
Foreign termination payments
4.63 Termination payments related exclusively to overseas
employment or service are treated differently to employment termination
payments resulting from domestic employment.
4.64 The treatment of these payments reflects the existing treatment
of exempt non-resident foreign termination payments and exempt resident
termination payments as contained in the ITAA 1936. Payments that
meet the conditions in sections 83-235 and 83-240 are not subject to tax in
the hands of the recipient (ie, they are not assessable). They are, however,
not exempt income. [Schedule 2, item 1, Subdivision 83-D]
Application provisions
4.65 These amendments apply from 1 July 2007.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Transitional provisions
Pre-10 May 2006 entitlement to a termination payment
4.66 The transitional provisions operate to reduce the risk that
employees with an entitlement to a payment on termination as at
9 May 2006 will terminate employment prior to that date in order to
access the existing ETP provisions, including the ability to have an
unlimited amount of such a payment made to a superannuation fund.
4.67 The transitional arrangements apply where a person is entitled,
as at 9 May 2006, to a payment on termination of employment under a
written contract, Australian or foreign law, legal instrument or workplace
agreement made under the Workplace Relations Act 1996, provided that
the payment is made before 1 July 2012. Such a payment is referred to as
a `transitional termination payment'. Payments to which these transitional
arrangements apply are not taxed under the normal employment
termination payment provisions in the ITAA 1997. [Schedule 2, item 2,
subsections 82-10(1), (2), (5) and (6)]
4.68 In order to ensure that the transitional provisions are not open to
abuse, they are only available in situations where the payment was able to
be determined as at 9 May 2006. This will encompass arrangements
where the contract refers to the amount of the payment by way of a
formula which can be objectively determined, or to payments made in
kind (eg, shares). [Schedule 2, item 2, subsections 82-10(3) and (4)]
Example 4.11
Duncan is to have his employment terminated shortly after
1 July 2007. If Duncan were entitled, as at 9 May 2006, to an amount
of $10,000 or an amount of 10,000 shares in the company, this would
meet the transitional provision requirement of being a specified
amount or providing for a way to work out the amount. If Duncan
were able to choose between the shares or the cash, or was entitled to
whichever had the greater value at termination, this would also meet
the requirements. If Duncan were entitled to 10,000 shares only if they
were at the time worth more than $5 each, this would also satisfy the
test.
If the payer has discretion as to whether the payment is made (but not
the value of the payment) then such payments are also likely to satisfy
the transitional provisions. For instance, if Duncan was entitled to
10,000 shares of the company if, in the opinion of the Board, he has
raised the value of the company, or if he was entitled to $10,000 or
10,000 shares at the Board's discretion, these payments would qualify
for the transitional arrangements. This is because the amount of the
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Employment termination payments
payment is still specified or able to be determined, despite the fact that
the Board holds the sole decision-making power about the payment.
If Duncan was entitled to an amount of money, or number of shares, at
the complete discretion of the Board, this would not meet the
requirements of the transitional provisions. Similarly, if the Board
was to determine the value of the payment as an amount equal to
10 per cent of the amount by which the Board considers that Duncan
has raised the value of the company, this would also fail to meet the
requirements.
Taxation treatment if the recipient is below preservation age
4.69 The tax free component of a transitional termination payment
made to a person below preservation age is not subject to tax. [Schedule 2,
item 2, subsection 82-10C(2)]
4.70 Any remaining part of the payment -- the taxable component --
is included in assessable income. [Schedule 2, item 2, subsection 82-10C(3)]
4.71 The amount of the taxable component that does not exceed the
upper cap amount of $1 million will be taxed at no more than 30 per cent.
[Schedule 2, item 2, subsections 82-10C(3) to (5)]
4.72 The upper cap amount of $1 million is the upper limit on the
amount of concessions that may be received during the transitional period.
Therefore, the taxable components of all previous transitional termination
payments, including directed termination payments, reduce the upper cap
amount. [Schedule 2, item 2, section 82-10D]
4.73 Any amount which exceeds the upper cap amount worked out
under section 82-10D is taxed at the top marginal rate.
Taxation treatment if the recipient has reached preservation age
4.74 If the recipient of a transitional termination payment will reach
preservation age by the end of the income year in which the payment is
received, the tax free component of the payment is not subject to tax.
[Schedule 2, item 2, subsections 82-10A(1) and (2)]
4.75 The taxable component of a transitional termination payment is
included in assessable income. [Schedule 2, item 2, subsection 82-10A(3)]
4.76 The amount of any transitional termination payment that does
not exceed the `lower cap amount' will be taxed at no more than
15 per cent. [Schedule 2, item 2, subsections 82-10A(4) and (6) and section 82-10B]
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
4.77 The amount of a transitional payment that exceeds the lower cap
amount but does not exceed the upper cap amount will be taxed at no
more than 30 per cent Any amount in excess of the upper cap will be
taxed at the top marginal rate in accordance with the Income Tax Rates
Act 1986. [Schedule 2, item 2, subsections 82-10A(5) and (7)]
Example 4.12
Lian retires on 1 January 2008 at the age of 55. As at 9 May 2006
Lian was entitled to receive a payment on termination of $1.5 million.
Lian will pay tax on the payment at a rate of no more than 15 per cent
on the first $140,000, at a rate of no more than 30 per cent on the next
$860,000 and at the top marginal tax rate on the remaining $500,000.
4.78 The lower and upper caps apply to each individual for the
duration of the transitional period. Accordingly, the caps are reduced by
the taxable components of any earlier transitional termination payments
they may have received, including directed termination payments.
[Schedule 2, item 2, sections 82-10B and 82-10D]
4.79 The lower cap amount is reduced by all amounts that have
previously used the concession available to amounts below the lower cap
amount. In addition, the lower cap amount is also reduced if the total of
the taxable components of all directed termination payments in the
income year in which the recipient reached preservation age or later and
the taxable components of all payments received before preservation age
exceed the difference between the upper cap amount and the lower cap
amount. This prevents an individual, for example, receiving $900,000
worth of concessions before they reach preservation age, and an extra
$140,000 of concessions after they reach preservation age, exceeding the
concessional limit of $1 million (see Example 4.13). The lower cap
amount cross-references the value of the employment termination
payments cap and as such will be subject to indexation as that cap is
indexed. [Schedule 2, item 2, section 82-10B]
4.80 The upper cap amount is reduced by the taxable components of
all previous transitional payments, including directed termination
payments. [Schedule 2, item 2, section 82-10D]
4.81 Any amount above the upper cap amount is taxed at the top
marginal rate.
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Employment termination payments
Example 4.13
Lian is the managing director of the Bouncing Baby child-care agency.
Under the terms of her contract as at 9 May 2006, she is entitled to a
termination payment of $900,000. She is also employed by
Max's Employment Agency, and under her contract as at 9 May 2006
she is entitled to a payment of $500,000 on termination.
On 1 July 2008, on her 54th birthday, Lian retires from her role with
Bouncing Baby, and receives her transitional termination payment of
$900,000. On 1 July 2009 on her 55th birthday, she retires from
Max's Employment Agency and receives a payment of $500,000.
None of the payments have a tax free component.
First payment
For the 2008-09 income year, Lian's entire payment of $900,000 will
be taxed at no more than 30 per cent, because she is under her
preservation age for the entire year and the payment does not exceed
the upper cap amount of $1 million (subsections 82-10C(1) and (3) to
(5)).
Second payment
The taxation of Lian's payment in the 2009-10 financial year is
affected by the payment she received in the previous year, which will
have to be taken into account when determining the tax rate on her
second payment.
As this second payment is made in the year in which Lian turned 55,
she may be entitled to have an amount taxed at no more than
15 per cent. This amount is called the `low rate part' and is that part of
the payment which does not exceed the lower cap amount
(subsection 82-10A(4)).
The formula in subsection 82-10B(2) reduces the lower cap amount by
an amount called the `cap excess' and all previous transitional
payments which have been taxed at 15 per cent.
The `cap excess' is the amount by which the sum of all previous
transitional termination payments received prior to preservation age
(plus any directed termination payments made after preservation age
but prior to the payment in question) exceeds the `cap difference'
(subsection 82-10B(3)).
The `cap difference' is determined by subtracting the employment
termination payments cap from $1 million (subsection 82-10B(3),
step 3 of the method statement).
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Assuming no indexation, this gives the following result:
$1,000,000 $140,000 = $860,000
In this example, the only earlier payment was the $900,000 Lian
received on 1 July 2008. The cap excess is the amount by which this
payment exceeds the cap difference. This is worked out under
subsection 82-10B(3), step 3 of the method statement which gives the
following result:
$900,000 $860,000 = $40,000
This reduces the lower cap amount to $100,000. Lian's low rate part is
therefore $100,000 which is taxed at a maximum rate of 15 per cent
(subsections 82-10A(4) and (6)).
The `middle rate' part is so much of Lian's second payment that
exceeds her low rate part, but does not exceed the amount worked out
as:
Upper cap amount lower cap amount
As Lian's upper cap amount has been reduced by the $900,000 she
previously received, the following calculation applies:
$100,000 (the reduced upper cap amount) $100,000 (the lower cap
amount reduced by the cap excess) = $0 (subsections 82-10A(5)
and (7)).
Therefore none of the remaining $400,000 of Lian's second payment is
entitled to concessional taxation treatment. $400,000 of Lian's second
payment will be taxed at the top marginal tax rate.
Pre-payment statements
4.82 Employers who propose to pay a transitional termination
payment are required to provide an individual with a `pre-payment
statement'. The statement must outline the components of the proposed
payment and must ask the individual to make a choice between receiving
the payment themselves, or a `directed termination payment'. [Schedule 2,
item 2, section 82-10E]
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Employment termination payments
Transitional termination payment choice
4.83 An individual who wants to make a choice must advise their
employer of their payment choice (ie, a direct payment to the individual or
a directed termination payment) in the approved form and within 30 days
of receipt of a pre-payment statement. In the absence of a decision, the
payment must be made directly to the individual. [Schedule 2, item 2,
section 82-10F]
4.84 A directed termination payment is a payment that an individual
directs the payer to make to a complying superannuation plan or to
purchase a superannuation annuity. [Schedule 2, item 2, subsection 82-10F(1)
and paragraphs 82-10F(2)(a) and (b)]
4.85 If the recipient chooses to have the payer make a directed
termination payment, the payer must comply with the direction and must
give the recipient of the payment the details of the components of the
payment. [Schedule 2, item 2, paragraphs 82-10F(4)(a) and (b)]
Taxation of directed termination payments
4.86 A directed termination payment is not subject to income tax and
is not exempt income for the individual. The payment may be included in
the assessable income of the superannuation provider. [Schedule 2, item 2,
section 82-10G]
Pre-10 May 2006 entitlements: payments made after 1 July 2012
4.87 The employment termination payments cap applying to
payments made after 1 July 2012 will be reduced by the amount of any
transitional termination payments relating to the same employment
termination, whether the transitional payment was made directly to the
individual or rolled over into superannuation. [Schedule 2, item 2,
section 82-10H]
Failure to make a transitional payment as directed
4.88 Amendments are being made to the Taxation Administration
Act 1953 to apply penalties to transitional termination payment payers
who receive a choice under subsection 82-10F(5) and do not make the
payment as directed. [Schedule 2, items 3 and 4, paragraphs 8C(1)(h) and (i)]
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Chapter 5
Social security arrangements
Outline of chapter
5.1 Schedules 8 and 9 to this Bill amend the Social Security
Act 1991 and the Veterans' Entitlements Act 1986 respectively to
implement changes to the assets-test to:
· halve the pension assets-test taper rate from $3 to $1.50 per
fortnight for every $1,000 of assets over the free area, with
effect from 20 September 2007; and
· remove the 50 per cent assets-test exemption for complying
income streams purchased on or after 20 September 2007.
5.2 The Schedules also contain minor consequential amendments on
income stream products to the Social Security Act 1991 and the
Veterans' Entitlements Act 1986.
Context of amendments
5.3 Currently, recipients of the age pension, disability
support pension, carer payment, bereavement allowance, wife pension,
widow B pension, service pension and income support supplement lose
$3 per fortnight for every $1,000 of assets above the relevant threshold
(currently $161,500 for single homeowners, and $229,000 for couple
homeowners for non-homeowners these amounts are $278,500 for
singles and $346,000 for couples). The effect of the current assets-test
taper rate means, for example, that retirees need to achieve a return of at
least 7.8 per cent on their additional savings in order to overcome the
effect of a reduction in their pension amount.
5.4 Lifetime, life expectancy and market-linked income streams
under sections 9A, 9B and 9BA of the Social Security Act 1991 and
sections 5JA, 5JB and 5JBA of the Veterans' Entitlements Act 1986 are
currently `assets-test exempt' for the purposes of the means test. This
means that part or all of the asset value of the income stream is not taken
into account when determining a person's eligibility for a social security
payment.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Summary of new law
Halving of assets-test taper rate
5.5 The amendments in these Schedules halve the assets-test taper
rate to $1.50 per fortnight with effect from 20 September 2007, resulting
in an increase in the amount of assets a person can hold before being
precluded from receiving the age pension, disability support pension,
carer payment, bereavement allowance, wife pension, widow B pension,
service pension and income support supplement.
5.6 The reduction in the assets-test taper rate will increase incentives
to save and boost the retirement incomes of pensioners whose rate of
payment is determined by the assets-test. It will also increase the number
of people who are eligible for a part pension and the associated
concessions.
Changes to the assets-test exemption for income streams
5.7 The amendments in both Schedules give effect to the removal of
the assets-test exemption for complying income streams purchased on or
after 20 September 2007.
5.8 Retaining the assets-test exemption for `purchased' income
streams alongside the reduced assets-test taper rate would create scope for
wealthier individuals to access the pension. The assets-test treatment of
income stream products purchased before 20 September 2007 will not
change.
5.9 The Schedules also contain provisions for minor consequential
amendments to the Social Security Act 1991 and Veterans' Entitlements
Act 1986 affecting income stream products.
Transitional rules
5.10 Both Schedules contain transitional rules allowing backdating of
pension claims made in the three months after the implementation of the
assets-test changes on 20 September 2007. These claims can be granted
from 20 September 2007 if all eligibility conditions were met from that
date. This gives people newly eligible for a pension the safeguard that
they have three months to make their claim and can still be paid from
20 September 2007. The purpose of these rules is to reduce the
concentration of claims made on or soon after 20 September 2007 and the
risk of claim processing delays.
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Social security arrangements
Comparison of key features of new law and current law
New law Current law
Pension assets-test
Pension recipients only lose $1.50 Pension recipients lose $3 per
per fortnight for every $1,000 of fortnight for every $1,000 of assets
assets above the relevant threshold. above the relevant threshold.
Assets-test exemption
Complying income streams which Complying income streams which
are purchased before 20 September are purchased before
2004 are eligible for a full assets-test 20 September 2004 are eligible for a
exemption. full assets-test exemption.
Complying income streams Complying income streams
purchased from 20 September 2004 purchased on or after this date are
and before 20 September 2007 are eligible for a 50 per cent exemption.
eligible for a 50 per cent exemption.
No exemption from the assets-test
for income stream products
purchased from 20 September 2007.
Detailed explanation of new law
Schedule 8 -- Social Security Act 1991
5.11 Schedule 8 amends the Social Security Act 1991.
Part 1 -- Amendments commencing 20 September 2007
5.12 Item 1 amends section 9A so that income streams purchased or
acquired on or after 20 September 2007 (other than defined benefit
income streams) will no longer be assets-test exempt. [Schedule 8, item 1]
5.13 Item 2 inserts new subsection 9A(1AA), which has the effect
that defined benefit income streams will continue to attract the
100 per cent assets-test exemption, even if they were acquired on or after
20 September 2007. [Schedule 8, item 2]
5.14 Item 3 removes part of subsection 9A(5), which currently gives
the Secretary the power to determine that an income stream that does not
meet the requirements of subsection 9A(2) is an assets-test exempt
income stream. This amendment allows the Secretary to determine that a
specific income stream is an assets-test exempt income stream even if it
does not meet the requirements of subsection 9A(2). For example, a
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
determination could be made that an existing lifetime assets-test exempt
income stream which was created from the commutation and roll-over of
an assets-test exempt income stream purchased or acquired before
20 September 2007, is also an assets-test exempt income stream provided
it retains the features of the original income stream. In addition, another
determination may be made that a defined benefit income stream that is
acquired from 20 September 2007 is an assets-test exempt income stream.
[Schedule 8, item 3]
5.15 Item 4 inserts subsection 9A(5A) to make it clear that a
determination made under subsection 9A(5) will apply to the income
stream regardless of the commencement date of that income stream.
[Schedule 8, item 4]
5.16 Subsection 9A(5B) is inserted to assist readers, as the
determination made under subsection 9A(5) is not a legislative instrument
within the meaning of section 5 of the Legislative Instruments Act 2003.
A determination under subsection 9A(5) is not legislative in character and,
accordingly, subsection 9A(5B) is merely declaratory of the law.
[Schedule 8, item 4]
5.17 Item 5 repeals subsection 9B(1) and inserts a replacement
provision. This new subsection provides that income streams falling
within section 9B will no longer be assets-test exempt if purchased or
acquired on or after 20 September 2007 unless the Secretary makes a
determination about the income stream. [Schedule 8, item 5]
5.18 Item 6 removes part of subsection 9B(4), which currently gives
the Secretary the power to determine that an income stream that does not
meet the requirements of subsection 9B(2) is an assets-test exempt income
stream. This amendment allows the Secretary to determine that a specific
income stream is an assets-test exempt income stream even if it does meet
the requirements of subsection 9B(2). For example, it would allow a
determination that an income stream created on or after
20 September 2007 from the commutation and roll-over of an assets-test
exempt life expectancy income stream purchased before
20 September 2007 will retain the assets-test exemption provided it
retains the features of the original income stream. [Schedule 8, item 6]
5.19 Item 7 inserts subsection 9B(4A) to make it clear that a
determination made under subsection 9B(4) will apply to the income
stream regardless of the commencement date of that income stream.
[Schedule 8, item 7]
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Social security arrangements
5.20 Subsection 9B(4B) is inserted to assist readers, as the
determination made under subsection 9B(4) is not a legislative instrument
within the meaning of section 5 of the Legislative Instruments Act 2003.
A determination under subsection 9B(4) is not legislative in character and,
accordingly, subsection 9B(4B) is merely declaratory of the law.
[Schedule 8, item 7]
5.21 Item 8 changes the date in subparagraph 9BA(1)(a)(i) so that a
market-linked income stream must have been purchased between
20 September 2004 and 19 September 2007 inclusive if it is to receive a
50 per cent exemption under the assets-test. Income streams that arise on
or after 20 September 2007 from the commutation and roll-over of a
market-linked income stream will only retain the 50 per cent exemption if
the Secretary makes a determination about the new income stream.
[Schedule 8, item 8]
5.22 Item 9 removes part of subsection 9BA(11), which currently
gives the Secretary the power to determine that an income stream that
does not meet the requirements of subsection 9BA(2) is an assets-test
exempt income stream. This amendment allows the Secretary to
determine that a specific income stream is an assets-test exempt income
stream even if it does not meet the requirements of subsection 9BA(11).
For example, it would allow a determination that an income stream
created on or after 20 September 2007 from the commutation and
roll-over of an assets-test exempt market-linked income stream purchased
before 20 September 2007 will retain the assets-test exemption provided it
retains the features of the original income stream. [Schedule 8, item 9]
5.23 Item 10 inserts subsection 9BA(11A) to make it clear that a
determination made under subsection 9BA(11) will apply to the income
stream regardless of the commencement date of that income stream.
[Schedule 8, item 10]
5.24 Subsection 9BA(11B) is inserted to assist readers, as the
determination made under subsection 9BA(11) is not a legislative
instrument within the meaning of section 5 of the Legislative Instruments
Act 2003. A determination under subsection 9BA(11) is not legislative in
character and, accordingly, subsection 9BA(11B) is merely declaratory of
the law. [Schedule 8, item 10]
5.25 Items 11 to 17 repeal the current formula for determining the
assets-test taper rate of $3 per fortnight and substitute a formula which
will have the effect of halving the taper rate to $1.50 per fortnight.
[Schedule 8, items 11 to 17]
5.26 Item 18 repeals the definition of `partially assets-test exempt
income stream' under subsection 1118(1A) and inserts a replacement
provision. Paragraph (a) of the new definition in subsection 1118(1A)
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
specifies that a partially assets-test exempt income stream is an
assets-test exempt income stream that:
· is a market-linked income stream (covered by
subsection 9BA(1)) or an `assets-test exempt income stream'
(covered by subsection 9A(1) or 9B(1)) that is not in either
case a defined benefit income stream;
· commences between 20 September 2004 and
19 September 2007 inclusive; and
· is not covered by principles that the Secretary has determined
in relation to this issue.
[Schedule 8, item 18]
5.27 The principles determined by the Secretary in relation to
paragraph (a), and specified in a legislative instrument, will cover certain
100 per cent assets-test exempt income streams covered by
subsections 9A(1), 9A(1A) and 9B(1) that were purchased or acquired
before 20 September 2004, and that are commuted and rolled over to
another income stream covered by those provisions. [Schedule 8, item 18]
5.28 If the new income stream is created between 20 September 2004
and 19 September 2007 inclusive, and the income stream is covered by
the Secretary's principles, the new income stream will retain the
100 per cent exemption that applied to the original income stream,
provided it retains the features of the original income stream. The effect
of not being covered by these principles is that these income streams will
lose the 100 per cent exemption and only be entitled to a 50 per cent
exemption, even if they retain the features of the original income stream.
[Schedule 8, item 18]
5.29 If the new income stream covered by subsections 9A(1), 9A(1A)
and 9B(1) is subsequently commuted and rolled over to another new
income stream covered by subsections 9A(1), 9A(1A) and 9B(1) on or
after 20 September 2007, and this new income stream is covered by the
Secretary's principles, the new income stream will retain the 100 per cent
exemption that applied to the original income stream, provided it retains
the features of the original income stream. The effect of not being
covered by these principles is that the income streams will lose the
100 per cent exemption altogether, even if they retain the features of the
original income stream. [Schedule 8, item 18]
5.30 Paragraph (b) of the new definition in subsection 1118(1A)
refers to an income stream that:
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Social security arrangements
· commences on or after 20 September 2007; and
· is covered by principles that the Secretary has determined in
relation to this issue.
[Schedule 8, item 18]
5.31 The principles determined by the Secretary in relation to
paragraph (b), and specified in a legislative instrument, will cover certain
assets-test exempt income streams that do not arise from previously
commuted assets-test exempt income streams. These income streams will
have been purchased or acquired between 20 September 2004 and
19 September 2007 inclusive, then commuted and rolled over to purchase
another income stream that satisfies the requirements of
subsections 9A(1), 9A(1A), and 9B(1) and subsection 9BA(1). These
income streams will be allowed to retain the 50 per cent exemption from
the assets-test in certain circumstances specified in the legislative
instrument. [Schedule 8, item 18]
5.32 Item 19 amends the assets-test hardship rules. Currently these
rules incorporate a reduction for assets that are not unrealisable based on
the existing assets-test taper rate. Item 19 brings this reduction amount
into line with the reduction in the assets-test taper rate. [Schedule 8, item 19]
5.33 Item 20 provides transitional rules.
5.34 Subitem 20(1) provides that, where a person makes a claim for a
relevant social security payment during the claim period (defined in
subitem 20(3) as the period commencing on 20 September 2007 and
ending on 20 December 2007), the person's start day is the earlier of
either:
· 20 September 2007, or the day on which the relevant social
security payment first becomes payable to the person
(whichever is the later); and
· the day worked out under the current start day rules in
Schedule 2 to the Social Security (Administration) Act 1999.
[Schedule 8, item 20]
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
5.35 Subitem 20(2) inserts a special rule for a person who makes a
claim for a relevant social security payment during the claim period
(ie, from 20 September 2007 to 20 December 2007 inclusive) but, on the
day on which the claim was made, either the person was not qualified for
the relevant payment or the relevant payment was not payable. If the
person was qualified for a relevant payment, and the relevant payment
was payable, during a period that falls before the day on which the claim
was made (the relevant period), which is within the claim period, then the
Secretary may grant the claim. The person's start date in relation to the
relevant social security payment is the earlier of the first day of the
relevant period and the day worked out under the current start day rules in
Schedule 2 to the Social Security Administration Act 1999. [Schedule 8,
item 20]
5.36 Subitem 20(3) defines the term claim period to mean the period
commencing on 20 September 2007 and ending on 20 December 2007
inclusive. The term relevant social security payment means an age
pension, a disability support pension, a wife pension, a carer payment, a
widow B pension or a bereavement allowance. [Schedule 8, item 20]
Part 2 -- Amendment commencing 1 July 2007
5.37 Part 2 contains an amendment to insert a new definition of
`deductible amount'. The amendment will commence on 1 July 2007.
5.38 Item 21 repeals and replaces the definition of `deductible
amount' at subsection 9(1). [Schedule 8, item 21]
5.39 Under the social security legislation, the `deductible amount' is
used to determine assessable income for defined benefit income streams
(as defined in subsection 9(1F) of the Social Security Act 1991) but not for
`purchased' income streams. The social security definition refers to the
definition of `deductible amount' in the Income Tax Assessment Act 1936
(ITAA 1936) which is used to determine assessable income for tax
purposes. [Schedule 8, item 21]
5.40 Defined benefit income streams are lifetime income streams
where the payments are not fully determined in relation to a particular
sum of money used to acquire the income stream but also by other factors,
for example, completed years of service and the retiree's salary in the
years immediately preceding retirement. Under the income test,
assessable income for these income streams is determined by reducing
their gross annual income by the deductible amount. Currently the value
of the deductible amount remains constant throughout the life of the
income stream. [Schedule 8, item 21]
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Social security arrangements
5.41 The amendments that will apply to the Income Tax Assessment
Act 1997 (ITAA 1997) from 1 July 2007, will move the tax treatment of
superannuation income stream benefits from an annual basis to a
per payment basis. As a result, the annual deductible amount needs to be
converted into a per benefit (ie, per payment) figure to maintain the
existing tax treatment (see subsection 307-125(2) of the Income Tax
(Transitional Provisions) Act 1997). [Schedule 8, item 21]
5.42 This will be achieved by apportioning the annual deductible
amount across each superannuation income stream according to the
value of each of the superannuation income stream benefits received in
the income year. The portion of the deductible amount applying to a
particular superannuation income stream benefit will be the `tax free
component' for that superannuation income stream benefit
(see subsection 307-125(2) of the Income Tax (Transitional Provisions)
Act 1997). The `tax free component' is paid `tax free' to the recipient, and
comprises several segments that are specified in this Bill. [Schedule 8,
item 21]
5.43 Under the new arrangements, the value of the `tax free
component' of a superannuation interest is worked out by reference to
subsection 307-120(2) of the ITAA 1997. The proportion that the tax free
component comprises of the superannuation interest is then calculated in
accordance with section 307-125 of the ITAA 1997. This proportion is
then applied to each benefit (ie, each payment) paid from the
superannuation interest to determine the amount of the benefit that should
be returned to the recipient as a tax free component. [Schedule 8, item 21]
5.44 These changes to the ITAA 1997 require corresponding
amendments to the social security definition of deductible amount.
[Schedule 8, item 21]
5.45 For defined benefit income streams created from 1 July 2007
(as well as those subject to an event under subsection 307-125(3) of the
Income Tax (Transitional Provisions) Act 1997), the rules under
section 307-120 of the ITAA 1997 will also apply in determining a
deductible amount for social security purposes. Under these rules, the
proportion of the superannuation interest that constitutes the tax free
component will be applied to a benefit paid as an income stream payment
to determine the tax free component, (ie, the deductible amount, for that
benefit). [Schedule 8, item 21]
5.46 For defined benefit income streams acquired before 1 July 2007,
section 307-125 of the Income Tax (Transitional Provisions) Act 1997
will apply in determining the deductible amount for social security
purposes. The effect of this section is that the deductible amount for the
income year will continue to be worked out under section 27H of the
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
ITAA 1936 (as in force before 1 July 2007) unless a specific trigger event
occurs under subsection 307-125(3). As the deductible amount calculated
under section 27H is an annual amount, subsection 307-125(2) allocates
the deductible amount proportionately to each of the income stream
benefits paid out in respect of the year to which the deductible amount
applies. If a trigger event occurs, the deductible amount will be assessed
under the new rules in section 307-120 of the ITAA 1997. [Schedule 8,
item 21]
5.47 These methods of calculation will be applied irrespective of
whether or not the recipient of the income stream payments is below 60
years of age, or 60 years of age or above. Where the recipients of defined
benefit income streams are 60 years of age or above, it will still be
necessary for them, or their provider, to retain details of the proportion of
their superannuation interest that would have constituted the tax free
component to allow the determination of their deductible amount for
social security purposes. [Schedule 8, item 21]
5.48 Deductible amounts for defined benefit income streams acquired
before 1 July 2007 will not change for the life of the income stream unless
a trigger event occurs. [Schedule 8, item 21]
5.49 Deductible amounts for defined benefit income streams that are
acquired from 1 July 2007, that are based on a proportion of the total
superannuation interest, will remain constant for as long as the value of
the benefits paid to the recipient remains constant. However, if the value
of the benefits paid to the recipient rises, for example, as a consequence of
indexation of the income stream payments, then the deductible amount
will increase in line with an increase in the indexed payments. [Schedule 8,
item 21]
Schedule 9 -- Veterans' Entitlements Act 1986
5.50 This Schedule amends the Veterans' Entitlements Act 1986.
Part 1 -- Amendments commencing 20 September 2007
Removal of assets-test exemption for complying income streams and the
retention of 100 per cent assets-test exemption for certain defined benefit
income streams
5.51 Item 1 inserts new paragraph (aa) into subsection 5JA(1) of the
Veterans' Entitlements Act 1986. Subsection 5JA(1) sets out the general
requirements to be met for a lifetime income stream to be regarded as an
assets-test exempt income stream. New paragraph (aa) provides that
subject to new subsection 5JA(1AA), the relevant assets-test exempt
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Social security arrangements
income stream must have a commencement date that is prior to
20 September 2007. [Schedule 9, item 1]
5.52 Item 2 inserts new subsection (1AA) into section 5JA. New
subsection 5JA(1AA) provides that paragraph 5JA(1)(aa) is not applicable
if the income stream is a defined benefit income stream. Income streams
that are defined benefit income streams will be assets-test exempt
regardless of the commencement date. [Schedule 9, item 2]
5.53 Item 3 amends subsection 5JA(5) by omitting the words `that
does not meet the requirements of subsection (2)'. Subsection 5JA(5)
provides the Repatriation Commission with the power to determine that
an income stream was an assets-test exempt income stream even though it
did not meet the requirements set out in subsection 5JA(2). The
amendment to subsection 5JA(5) provides that the Repatriation
Commission has the power to make a determination that any income
stream is an assets-test exempt income stream whether or not the income
stream's commencement date is before 20 September 2007. [Schedule 9,
item 3]
5.54 Item 4 inserts new subsections 5JA(5A) and (5B). New
subsection 5JA(5A) provides that to avoid doubt, a determination of the
Repatriation Commission under subsection 5JA(5) that an income stream
is an assets-test exempt income stream can be made regardless of the
commencement date of the income stream. New subsection 5JA(5B)
provides that a determination of the Repatriation Commission under
subsection 5JA(5) is not a legislative instrument within the meaning of
section 5 of the Legislative Instruments Act 2003. [Schedule 9, item 4]
5.55 Item 5 repeals and substitutes subsection 5JB(1). Section 5JB
sets out the general requirements to be met for a life expectancy income
stream to be regarded as an assets-test exempt income stream. New
paragraph 5JB(1)(a) provides that a life expectancy income stream will be
regarded as an assets-test exempt income stream for the purposes of the
Veterans' Entitlements Act 1986 if the income stream has a
commencement date before 20 September 2007 and subsection 5JB(1A) is
applicable. [Schedule 9, item 5]
5.56 Alternatively, new paragraph 5JB(1)(b) provides that the income
stream will be an assets-test exempt income stream if subsection 5JB(1B)
is applicable. Subsection 5JB(1B) is applicable in the circumstances
where the Repatriation Commission has made a determination under
subsection 5JB(4) that an income stream is an assets-test exempt income
stream. [Schedule 9, item 5]
5.57 Item 6 amends subsection 5JB(4) by omitting the words `that
does not meet the requirements of subsection (2)'. Subsection 5JB(4)
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
provides the Repatriation Commission with the power to determine that
an income stream is an assets-test exempt income stream even though it
does not meet the requirements set out in subsection 5JB(2). The
amendment to subsection 5JB(4) provides that the Repatriation
Commission has the power to make a determination that any income
stream is an assets-test exempt income stream whether or not the income
stream's commencement date is before 20 September 2007. [Schedule 9,
item 6]
5.58 Item 7 inserts new subsections 5JB(4A) and (4B). New
subsection 5JB(4A) provides that to avoid doubt, a determination of the
Repatriation Commission under subsection 5JB(4) that an income stream
is an assets-test exempt income stream can be made regardless of the
commencement date of the income stream. New subsection 5JB(4B)
provides that a determination of the Repatriation Commission under
subsection 5JB(4) is not a legislative instrument. [Schedule 9, item 7]
5.59 Item 8 amends subparagraph 5JBA(1)(a)(i) by omitting the
words `on or after 20 September 2004' and substituting the words `during
the period from 20 September 2004 to 19 September 2007 (both dates
inclusive)'. Subsection 5JBA(1) sets out the general requirements to be
met for a market-linked income stream to be regarded as an assets-test
exempt income stream. The amendment to subparagraph 5JBA(1)(a)(i)
provides that the relevant assets-test exempt income stream must have a
commencement day that is during the period from 20 September 2004 to
19 September 2007. [Schedule 9, item 8]
5.60 Item 9 amends subsection 5JBA(11) by omitting the words `that
does not meet the requirements of subsection (2)'. Subsection 5JBA(11)
provides the Repatriation Commission with the power to determine that
an income stream is an assets-test exempt income stream even though it
did not meet the requirements set out in subsection 5JBA(2). The
amendment to subsection 5JBA(11) provides that the Repatriation
Commission has the power to make a determination that any income
stream is an assets-test exempt income stream whether or not the income
stream's commencement date is before 20 September 2007. [Schedule 9,
item 9]
5.61 Item 10 inserts new subsections 5JBA(11A) and (11B). New
subsection 5JB(11A) provides that to avoid doubt, a determination of the
Repatriation Commission under subsection 5JBA(1) that an income
stream is an assets-test exempt income stream can be made regardless of
the commencement date of the income stream. New subsection 5JB(11B)
provides that a determination of the Repatriation Commission under
subsection 5JBA(11) is not a legislative instrument within the meaning of
section 5 of the Legislative Instruments Act 2003. [Schedule 9, item 10]
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Social security arrangements
Amendment to the definition of `partially assets-test exempt income
stream'
5.62 Item 11 repeals and substitutes the definition of `partially
assets-test exempt income stream' in subsection 52(1AA). Section 52
lists certain assets that are to be disregarded in the calculation of the value
of a person's assets for the purposes of the means test applicable to
payments of service pension or income support supplement. Included at
paragraph 52(1)(daa) is a reference to `half of the value of any partially
assets-test exempt income stream'. [Schedule 9, item 11]
5.63 The new definition provides that a partially assets-test exempt
income stream is an income stream other than a defined benefit income
stream as covered by subsection 5JA(1) or (1A) or 5JB(1) or 5JBA(1) and
is an income stream that has a commencement date during the period from
20 September 2004 to 19 September 2007. For income streams
commencing on or after 20 September 2007 only those income streams
that are covered by principles determined by the Repatriation Commission
in a legislative instrument will be regarded as being partially assets-test
exempt. [Schedule 9, item 11]
5.64 Item 12 repeals subsection 52(1AB) and inserts new
subsections 52(1AB) and (1AC). New subsections 52(1AB) and (1AC)
provide that the Repatriation Commission may determine principles for
the purpose of determining whether or not an income stream is a partially
assets-test exempt income stream. [Schedule 9, item 12]
Reduction in assets-test taper rate
5.65 Item 13 amends paragraph 52Z(3)(d) by replacing a reference to
`$19.50' with a reference to `$9.75' in the determination of the `adjusted
annual rate of ordinary income' for the purposes of the hardship
provisions. That determination is made when the financial hardship rules
are applicable to the determination of the rate of service pension or
income support supplement. The amendment to paragraph 52Z(3)(d)
reflects the change in the taper rate. [Schedule 9, item 13]
5.66 Item 14 amends subpoint SCH6-F4(1) of Schedule 6 to the
Veterans' Entitlements Act 1986. At the present time, the pension
assets-test applies a taper rate that reduces a fortnightly service pension
or income support supplement instalment by $3 for every $1,000 in assets
above the relevant threshold. The taper rate is applied in the assets-test
component of the Rate Calculators in Schedule 6 to the
Veterans' Entitlements Act 1986. The reduction for assets in excess of the
limit is calculated using the formula set out in point SCH6-F4. The
proposed amendment will halve the taper rate to reduce instalments by
$1.50 for every $1,000 in assets above the threshold. [Schedule 9, item 14]
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
5.67 The determination of the amount of the excess assets is based on
multiples of $250 and the current reduction is $0.75 per $250, being one
quarter of the $3 per $1,000 reduction. The formula in subpoint
SCH6-F4(1) currently includes a reference to `$19.50' as that figure was
derived by multiplying 0.75 by 26. The excess of assets test is applied
fortnightly so an annual figure is required for the Rate Calculator in
determining an annual rate of service pension or income support
supplement. This amendment will replace the reference to `$19.50' with a
reference to `$9.75'. [Schedule 9, item 14]
5.68 Item 15 inserts a transitional provision that may be applicable in
the circumstances where a claim for a service pension or income support
supplement is made during the period from 20 September 2007 and
20 December 2007. [Schedule 9, item 15]
5.69 Subclause 15(1) is applicable in the circumstances where a
person is not receiving a service pension or income support supplement
immediately before 20 September 2007 and subsequently makes a claim
for a service pension or income support supplement during the `claim
period' which ends 20 December 2007. [Schedule 9, item 15]
5.70 The effect of the provision is that service pension or income
support supplement will only be payable from the later of
20 September 2007 or from the date of effect of the determination.
[Schedule 9, item 15]
5.71 Subclause 15(2) is also applicable in the circumstances where a
person is not receiving a service pension or income support supplement
immediately before 20 September 2007 and subsequently makes a claim
for a service pension or income support supplement during the `claim
period'. [Schedule 9, item 15]
5.72 The effect of the provision is that a person will be eligible for
service pension or income support supplement in certain circumstances
where service pension or income support supplement is not payable on the
date of the claim. In those circumstances a service pension or an income
support supplement will be payable if it would have been payable during a
period that fell within the claim period and before the claim was made.
[Schedule 9, item 15]
Part 2 -- Amendment commencing 1 July 2007
Amendment to the definition of `deductible amount'
5.73 Item 16 repeals and substitutes the definition of `deductible
amount' in subsection 5J(1). The term `deductible amount' is used in
sections 46V and 46Y. Those sections concern the determination of the
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Social security arrangements
amount of income derived from the annual payments received from
defined benefit income streams that are either assets-tested or assets-test
exempt. [Schedule 9, item 16]
5.74 This amendment to the definition of `deductible amount' is a
consequence of the amendments being made to the ITAA 1997 from
1 July 2007. The amended definition provides that for a defined benefit
income stream the deductible amount is the sum of the amounts that are
the tax free component of the payments received from the defined benefit
income stream during the year. [Schedule 9, item 16]
5.75 The tax free component of a payment will be determined under
section 307-125 of the ITAA 1997 or if applicable, under section 307-125
of the Income Tax (Transitional Provisions) Act 1997. [Schedule 9, item 16]
153
Chapter 6
Self-managed superannuation funds
Outline of chapter
6.1 Schedule 5 to this Bill amends the Superannuation Industry
(Supervision) Act 1993 and other Acts to enhance the regulation of
self-managed superannuation funds and to ensure that self-managed
superannuation funds comply with their legislative obligations.
6.2 Key changes include:
· streamlined reporting arrangements and the application of
administrative penalties for late returns and false or
misleading statements;
· clarification of trustee and auditor requirements; and
· other changes to the regulation of self-managed
superannuation funds.
6.3 Schedule 5 to the Bill also amends the Fringe Benefits Tax
Assessment Act 1986 to remove fringe benefits tax (FBT) from in specie
employer contributions to superannuation funds.
Context of amendments
6.4 Trustees of self-managed superannuation funds are required to
comply with obligations under superannuation and taxation laws. These
include lodging returns, complying with rules on member contributions
and benefit payments, and complying with rules on superannuation
investments. However, differing requirements under the various laws
have resulted in inefficiencies and anomalies in relation to self-managed
superannuation funds.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Self Managed Superannuation Funds) Supervisory Levy
Amendment Bill 2006
Reporting arrangements
6.5 Under current law, trustees of self-managed superannuation
funds are required to lodge two separate returns or statements on different
dates. They also pay the self-managed superannuation fund annual
supervisory levy separately from their fund's income tax liability.
6.6 Administrative penalties for late returns and for making false or
misleading statements do not apply to self-managed superannuation fund
regulatory returns.
Trustee and auditor requirements
6.7 Trustee rules do not permit individual trustees of self-managed
superannuation funds to receive remuneration for the performance of
trustee duties or services. They also prevent a disqualified person from
appointing a legal personal representative as a trustee of a self-managed
superannuation fund. These trustee rules do not currently apply to
directors of a corporate trustee of a self-managed superannuation fund.
6.8 Approved auditors are required to report actual and possible
contraventions of the superannuation laws to the Regulator where the
contraventions may affect the interests of fund members or beneficiaries.
As a result, auditors may be uncertain about which matters should be
reported to the Regulator.
Other regulatory changes
6.9 The regulatory provisions of the superannuation laws do not
include relevant provisions of the taxation laws.
6.10 The Commissioner of Taxation (Commissioner), as Regulator of
self-managed superannuation funds, cannot regulate funds which cease to
be self-managed superannuation funds.
Fringe benefits tax
6.11 Employer contributions in cash to superannuation funds for the
benefit of an employee are not subject to FBT. However, in specie
contributions made by an employer are subject to FBT.
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Self-managed superannuation funds
Summary of new law
6.12 The Government's superannuation reforms, Simplified
Superannuation, announced on 5 September 2006 included specific
proposals relating to the regulation of self-managed superannuation funds.
6.13 The number of self-managed superannuation funds has increased
significantly over the past decade. Effective regulation of self-managed
superannuation funds is crucial to the effective administration of
Simplified Superannuation in the context of the growing number and size
of such funds.
6.14 Improvements to the regulatory processes for self-managed
superannuation funds will make their administration easier and simpler for
trustees, reduce compliance costs and enhance self-managed
superannuation fund compliance with both the current superannuation
laws and the Simplified Superannuation reforms.
Reporting arrangements
6.15 Trustees of self-managed superannuation funds will lodge a
single annual return and will make a single payment for both the
supervisory levy and their fund's income tax liability.
6.16 Administrative penalties will apply to self-managed
superannuation funds for failure to lodge documents on time and for
making false or misleading statements on approved forms.
Trustee and auditor requirements
6.17 Trustee rules in respect of remuneration and legal personal
representatives that apply to individual trustees will apply consistently to
directors of a corporate trustee of a self-managed superannuation fund.
6.18 The reporting obligations of approved auditors will be clarified,
so that auditors report on specified matters to the Regulator.
Other regulatory changes
6.19 The regulation of self-managed superannuation funds is
improved by including provisions of the taxation laws, concerning both
false or misleading statements and also superannuation fund reporting
obligations, as regulatory provisions of the Superannuation Industry
(Supervision) Act 1993.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation (Self Managed Superannuation Funds) Supervisory Levy
Amendment Bill 2006
6.20 The Commissioner will continue to regulate funds which have
ceased to be self-managed superannuation funds until a person who holds
a registrable superannuation entity licence is appointed as trustee of the
fund.
Fringe benefits tax
6.21 FBT is being removed from in specie contributions to
superannuation funds made by an employer for the benefit of its
employees.
Comparison of key features of new law and current law
New law Current law
Reporting arrangements
Self-managed superannuation funds Self-managed superannuation funds
lodge a single annual return, and lodge two returns or statements on
make a single payment for the fund's different dates, and pay the levy
levy and income tax liability. separately from their income tax
liability.
Administrative penalties for late Administrative penalties for late
returns and false or misleading returns and false or misleading
statements will apply to statements do not apply to
self-managed superannuation funds. self-managed superannuation fund
regulatory returns.
Trustee and auditor requirements
Directors of a corporate trustee Individual trustees cannot receive
cannot receive remuneration for remuneration for trustee duties or be
trustee duties or be appointed a appointed as the legal personal
director in the capacity of a legal representative of a disqualified
personal representative of a person. These rules do not apply to
disqualified person. directors of corporate trustees.
Approved auditors will report on Approved auditors report
matters specified in the approved superannuation law contraventions
form. that affect the interests of members
or beneficiaries.
Other regulatory changes
Provisions about false or misleading The regulatory provisions of the
statements and superannuation fund Superannuation Industry
reporting are included as regulatory (Supervision) Act 1993 do not
provisions. include relevant taxation laws.
The Commissioner will continue to The Commissioner cannot regulate
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Self-managed superannuation funds
New law Current law
regulate former self-managed former self-managed superannuation
superannuation funds. funds.
Fringe benefits tax
FBT is removed from in specie In specie employer contributions to a
employer contributions to a superannuation fund are subject to
superannuation fund. FBT.
Detailed explanation of new law
Reporting arrangements
Definition of `taxation law'
6.22 Amendments to the definition of `taxation law' in the Income
Tax Assessment Act 1997 (ITAA 1997) and the Taxation Administration
Act 1953 (TAA 1953) facilitate the streamlined arrangements for
self-managed superannuation funds, including:
· lodgement of a single annual return;
· collection and recovery of the supervisory levy; and
· application of administrative penalties to self-managed
superannuation funds.
6.23 Prior to these amendments, the definition of `taxation law' in the
ITAA 1997 and the TAA 1953 referred to any Act of which the
Commissioner has the general administration.
6.24 Most of the legislative obligations of self-managed
superannuation funds are contained in the Superannuation Industry
(Supervision) Act 1993, and the Commissioner has the general
administration of the Superannuation Industry (Supervision) Act 1993 to
the extent it relates to self-managed superannuation funds
(paragraphs 6(1)(e) and (f) of the Superannuation Industry (Supervision)
Act 1993). It has long been considered that these specified provisions of
the Superannuation Industry (Supervision) Act 1993 are taxation laws for
the purposes of the ITAA 1997 and the TAA 1953.
6.25 However, to avoid doubt, the definition of `taxation law' in the
ITAA 1997 is being amended to include a part of an Act to the extent to
which the Commissioner has the general administration of that Act, and
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regulations under such a part of an Act. [Schedule 5, items 6 and 7,
subsection 995-1(1) of the ITAA 1997]
6.26 These amendments clarify that the previous definitions of
taxation law in the ITAA 1997 and the TAA 1953 included the
Superannuation Industry (Supervision) Act 1993 to the extent that the
Commissioner had general administration of that Act. To avoid the
implication that there has been a substantive change in the meaning of
taxation law, the amended definition is to be disregarded when
interpreting the provision as it applied before the 2007-08 income year.
[Schedule 5, item 8]
6.27 The definition of `taxation law' in the TAA 1953 is replaced by
the amended definition in the ITAA 1997. This ensures that there is only
one definition of `taxation law'. [Schedule 5, item 31, subsection 2(1) of the
TAA 1953]
6.28 To avoid the implication that there has been a substantive
change in the meaning of `taxation law', the amended definition in the
TAA 1953 is to be disregarded when interpreting the provision as it
applied before the 2007-08 income year. [Schedule 5, item 32]
6.29 A definition of `self-managed superannuation fund' is also being
inserted into the ITAA 1997 which refers to the definition of
`self-managed superannuation fund' in the Superannuation Industry
(Supervision) Act 1993. [Schedule 10, item 66, subsection 995-1(1) of the
ITAA 1997]
Single annual return
6.30 Trustees of a self-managed superannuation fund are required to
lodge a single annual return. The single annual return consists of the
fund's income tax return, regulatory return, and a member contribution
statement in respect of each member. This will result in a single
lodgement date for the combined income tax return, regulatory return and
member contribution statement.
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Self-managed superannuation funds
6.31 The rationalisation of multiple reporting requirements is
expected to reduce compliance costs for self-managed superannuation
fund trustees, increase self-managed superannuation fund lodgement
compliance, improve the quality of data provided to the Commissioner on
the return and contribute to the effective administration of the
contributions caps under the Simplified Superannuation reforms
(see Chapter 7).
Supervisory levy
6.32 All superannuation funds, including self-managed
superannuation funds, are subject to an annual supervisory levy designed
to fund the regulatory costs of ensuring funds comply with their
superannuation obligations. Administrative changes enable the payment
of the supervisory levy to be incorporated into the payment of the fund's
income tax liability.
6.33 The amended definition of `taxation law' confirms that the
collection and recovery provisions of the TAA 1953 apply to the
supervisory levy, consistent with the processes for the self-managed
superannuation fund's income tax liability.
6.34 The current penalty for the late payment of the supervisory levy
is being repealed and replaced by the general interest charge (GIC).
[Schedule 5, item 26, section 15DC of the Superannuation (Self Managed
Superannuation Funds) Taxation Act 1987]
6.35 The GIC provisions are contained in the TAA 1953. The
supervisory levy is included in an index of provisions of Acts under which
the GIC arises, other than provisions in the ITAA 1936. [Schedule 5,
item 33, subsection 8AAB(5), item 13A in the table of the TAA 1953]
6.36 The application of the GIC to the late payment of the
supervisory levy is consistent with the treatment of the late payment of the
fund's income tax liabilities and is collected in the same way.
6.37 The reduction of multiple payment obligations eliminates the
need for self-managed superannuation fund trustees to make two separate
payments, while the streamlining of the late payment arrangements
encourages timely payment of the supervisory levy. Both these initiatives
are expected to result in simpler administration for trustees and reduced
compliance costs.
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6.38 As the late payment penalty for the supervisory levy is repealed,
the following consequential amendments are required:
· The definition of `late payment penalty' is repealed
[Schedule 5, item 25, section 15DAA of the Superannuation
(Self Managed Superannuation Funds) Taxation Act 1987].
· The definition of `general interest charge' is inserted
[Schedule 5, item 24, section 15DAA of the Superannuation
(Self Managed Superannuation Funds) Taxation Act 1987].
· The reference to the late payment penalty is removed from
the levy recovery provision [Schedule 5, item 27, section 15DD of
the Superannuation (Self Managed Superannuation Funds) Taxation
Act 1987].
· References to the late payment penalty are removed from the
levy payment provision [Schedule 5, items 28 and 29, section 15DE
and Note of the Superannuation (Self Managed Superannuation Funds)
Taxation Act 1987].
· The reference to the late payment penalty is removed from
the levy remission provision [Schedule 5, item 30, section 15DF of
the Superannuation (Self Managed Superannuation Funds) Taxation
Act 1987].
6.39 These consequential amendments to remove references to the
penalty for the late payment of the levy do not preclude the
Commissioner's general recovery power under the TAA 1953.
Administrative penalties
6.40 Administrative penalties in the TAA 1953 for failing to meet
certain obligations apply to trustees of self-managed superannuation
funds. Administrative penalties enable the Commissioner to take timely
and effective action for breaches of a trustee's obligations.
Penalty for failing to lodge documents on time
6.41 An administrative penalty for failing to lodge documents on
time applies to trustees of self-managed superannuation funds. The
penalty will apply, for example, where the trustee of a self-managed
superannuation fund fails to lodge the fund's single annual return on time.
[Schedule 5, item 34, subsection 286-75(5) of the TAA 1953]
6.42 Where the penalty is imposed on a corporate trustee, the
directors of the body corporate at the time the body corporate becomes
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Self-managed superannuation funds
liable to the penalty are jointly and severally liable to pay the amount of
the penalty. [Schedule 5, item 34, subsection 286-75(6) of the TAA 1953]
6.43 The current penalty for the late lodgement of a self-managed
superannuation fund's regulatory return is being repealed. [Superannuation
(Self Managed Superannuation Funds) Supervisory Levy Amendment Bill 2006]
6.44 The amendments extend the administrative penalty for the late
lodgement of documents under taxation laws to self-managed
superannuation funds and enable the Commissioner to collect the
administrative penalty from the trustees or the directors of the corporate
trustee. The amendments are expected to improve self-managed
superannuation fund lodgement compliance.
Penalty for false or misleading statements
6.45 The current administrative penalty in the TAA 1953 for making
false or misleading statements is imposed where the statement results in a
tax shortfall. This penalty is not appropriate for self-managed
superannuation funds, where false or misleading statements in relation to
obligations under the Superannuation Industry (Supervision) Act 1993
may not result in a tax shortfall.
6.46 An administrative penalty for false or misleading statements,
including where the statements do not result in a tax shortfall, is being
introduced for trustees of self-managed superannuation funds. [Schedule 5,
item 35, section 288-85 of the TAA 1953]
6.47 The penalty applies where the trustee makes a false or
misleading statement in relation to the fund in an approved form given to
the Commissioner or to another entity. The statement must be false or
misleading in a significant way, either because of what is included in the
statement or because of information omitted from the statement.
[Schedule 5, item 35, subsection 288-85(2) of the TAA 1953]
6.48 The penalty may be imposed on a trustee of a self-managed
superannuation fund or on a trustee of a former self-managed
superannuation fund which remains under the Commissioner's regulation
(see paragraphs 6.69 to 6.76). [Schedule 5, item 35, subsection 288-85(1) of the
TAA 1953]
6.49 The maximum penalty is 20 penalty units. [Schedule 5, item 35,
subsection 288-85(2) of the TAA 1953]
6.50 Where a penalty is imposed on a corporate trustee, the directors
of the body corporate at the time the body corporate becomes liable to the
penalty are jointly and severally liable to pay the amount of the penalty.
[Schedule 5, item 35, subsections 288-85(3) and (4) of the TAA 1953]
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6.51 The amendments enable the Commissioner to impose an
administrative penalty on trustees of self-managed superannuation funds
for making false or misleading statements on approved forms where the
statements do not result in a tax shortfall. The penalty is expected to
ensure the accuracy of information reported to the Commissioner and to
other entities and to provide the Commissioner with greater flexibility in
administering the law.
Trustee and auditor requirements
Trustee requirements
6.52 Directors of a corporate trustee cannot receive remuneration for
the performance of trustee duties or services. This rule applies to
directors of a corporate trustee of single member funds and of funds with
more than one member. [Schedule 5, items 11 to 14, paragraphs 17A(1)(g) and
(2)(d) of the Superannuation Industry (Supervision) Act 1993]
6.53 A person, in the capacity of legal personal representative of a
disqualified person, cannot be a director of a body corporate that is a
trustee of a self-managed superannuation fund. [Schedule 5, item 15,
subsection 17A(10) of the Superannuation Industry (Supervision) Act 1993]
6.54 These amendments extend the rules which apply to individual
trustees to directors of a corporate trustee, ensuring consistent treatment in
respect of trustee remuneration and legal personal representatives between
individual trustees and directors of a corporate trustee.
6.55 The trustee rules relating to trustee remuneration and legal
personal representatives form part of the basic conditions which a
superannuation fund must satisfy in order to be a self-managed
superannuation fund under section 17A of the Superannuation Industry
(Supervision) Act 1993. A self-managed superannuation fund which
breaches these rules may cease to be a self-managed superannuation fund
(see paragraphs 6.69 to 6.76).
Auditor requirements
6.56 Approved auditors and actuaries of self-managed
superannuation funds are required to report to the Regulator on matters
specified in the approved form. [Schedule 5, item 22, paragraph 129(3)(c) of the
Superannuation Industry (Supervision) Act 1993]
6.57 This provision replaces the requirement under which approved
auditors and actuaries of self-managed superannuation funds reported
matters that may affect the interests of fund members or beneficiaries.
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Self-managed superannuation funds
6.58 The approved form may refer to a class or classes of matters,
rather than specific matters. [Schedule 5, item 23, subsection 129(3AA) of the
Superannuation Industry (Supervision) Act 1993]
6.59 An example of a class of matters would be matters relating to
specific time periods. This would enable the Regulator to include in the
approved form, for example, matters to be reported in relation to the
fund's first year (or first full year) of operation. Targeting self-managed
superannuation funds at, or very shortly after, their establishment would
reduce the risk of non-compliance during the fund's future operations and
allow the Regulator to take appropriate action at an earlier stage.
6.60 The matters able to be specified in the approved form are limited
to contraventions of the Superannuation Industry (Supervision) Act 1993
and its regulations and to matters relating to the annual audit of the fund's
accounts.
6.61 These amendments apply only to self-managed superannuation
funds and do not apply to approved auditors and actuaries of other
regulated superannuation funds. [Schedule 5, item 20, paragraph 129(3)(b) of the
Superannuation Industry (Supervision) Act 1993]
Other regulatory changes
Regulatory provisions
6.62 The false or misleading statement provisions
(see paragraphs 6.45 to 6.51) and the superannuation fund reporting
requirements of the TAA 1953 are included (but only for self-managed
superannuation funds) as regulatory provisions of the Superannuation
Industry (Supervision) Act 1993. [Schedule 5, item 16, paragraph 38A(ab) of the
Superannuation Industry (Supervision) Act 1993]
6.63 A contravention of these provisions is a contravention of a
regulatory provision regardless of whether it is an offence or a
contravention of a civil penalty provision. [Schedule 5, item 18,
paragraph 39(1)(c) of the Superannuation Industry (Supervision) Act 1993]
6.64 A trustee of a self-managed superannuation fund is considered to
contravene the false or misleading statement provisions by making false
or misleading statements. [Schedule 5, item 19, subsection 39(1B) of the
Superannuation Industry (Supervision) Act 1993]
6.65 That is, conduct which may result in a penalty for false or
misleading statements, regardless of whether the penalty is actually
imposed by the Commissioner, is treated as a contravention of the false or
misleading statement provisions of the TAA 1953.
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6.66 The superannuation fund reporting requirements under
Simplified Superannuation are explained in Chapter 7 of this explanatory
memorandum. In relation to self-managed superannuation funds, trustees
are required to lodge a member contribution statement in respect of each
member. The member contribution statement will be included as part of
the fund's single annual return. Trustees of self-managed superannuation
funds may also be required to report to other entities, for example for
roll-over purposes.
6.67 The Regulator may take appropriate action in response to a
contravention of the regulatory provisions, including removing a fund's
complying status under section 42A of the Superannuation Industry
(Supervision) Act 1993.
6.68 The inclusion of the false or misleading statement provisions
and the superannuation fund reporting requirements in the regulatory
provisions supports the effective administration of the Simplified
Superannuation reforms relating to member contributions and the
contributions caps for self-managed superannuation funds.
Regulation of former self-managed superannuation funds
6.69 A superannuation fund is a self-managed superannuation fund if
it satisfies certain conditions specified in section 17A of the
Superannuation Industry (Supervision) Act 1993. Under current law, if
the fund no longer satisfies any of these conditions, it ceases to be a
self-managed superannuation fund six months after it failed to meet the
condition, and is no longer regulated by the Commissioner (it ceases to be
a self-managed superannuation fund immediately if the breach relates to
the admission of a new member). The Australian Prudential Regulation
Authority (APRA) becomes the regulator of the former self-managed
superannuation fund.
6.70 A fund which has ceased being a self-managed superannuation
fund will continue to be treated as a self-managed superannuation fund,
for the purposes of sections 6, 42 and 42A of the Superannuation Industry
(Supervision) Act 1993. The fund will continue to be treated as a self-
managed superannuation fund for the purposes of these provisions until a
person who holds a registrable superannuation entity licence is appointed
as trustee. [Schedule 5, item 9, subsection 10(1) and item 10, subsection 10(4) of the
Superannuation Industry (Supervision) Act 1993]
6.71 The application of section 6 of the Superannuation Industry
(Supervision) Act 1993 to former self-managed superannuation funds
enables the Commissioner to continue to regulate such funds, removing
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Self-managed superannuation funds
the need to change regulators to APRA and allowing the Commissioner to
take timely and appropriate action where necessary.
6.72 The complying superannuation fund provisions (sections 42 and
42A of the Superannuation Industry (Supervision) Act 1993) determine
whether a fund is a complying superannuation fund. Different compliance
tests apply to self-managed superannuation funds and non-self-managed
superannuation funds. In particular, the compliance test applying to
self-managed superannuation funds requires all trustees to comply with
the regulatory provisions. This test will now apply to all funds regulated
by the Commissioner, including former self-managed superannuation
funds.
6.73 A former self-managed superannuation fund will remain subject
to all remaining provisions of the Superannuation Industry (Supervision)
Act 1993 that apply to regulated superannuation funds that are not
self-managed superannuation funds.
6.74 A former self-managed superannuation fund remains under the
Commissioner's regulation until a registrable superannuation entity
licensee is appointed as trustee. At the time that a registrable
superannuation entity licensee is appointed as trustee, APRA becomes the
fund's regulator.
6.75 Alternatively, the trustees of the former self-managed
superannuation fund may decide to wind up the fund.
6.76 If a registrable superannuation entity licensee is not appointed as
trustee, and the fund is not wound up, the Commissioner, as Regulator,
may take appropriate action. The Commissioner's actions could include
suspending or removing a trustee and appointing an acting trustee, or
removing a fund's complying status. The fund's complying status may be
able to be removed because the trustees are in breach of the registrable
superannuation entity provisions in the Superannuation Industry
(Supervision) Act 1993.
Example 6.1
Demelza-Rose and John are members of their self-managed
superannuation fund. Demelza-Rose resigns her position as a trustee
of the fund, but remains a member.
The self-managed superannuation fund has breached one of the basic
conditions of being a self-managed superannuation fund by having a
member who is not a trustee.
The fund continues to be a self-managed superannuation fund until
six months after Demelza-Rose ceased to be a trustee
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Superannuation (Self Managed Superannuation Funds) Supervisory Levy
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(subsection 17A(4) of the Superannuation Industry (Supervision) Act
1993). At the end of the six months, the fund will continue to be
regulated by the Commissioner until the fund either appoints a
registrable superannuation entity licensee as trustee or is wound up.
The fund may rectify the breach by Demelza-Rose becoming a trustee
again, so that the fund again satisfies the conditions to be a
self-managed superannuation fund. Alternatively, the fund may
appoint a registrable superannuation entity licensee as trustee, in which
case the Commissioner's regulation ceases.
If the fund takes no action, the Commissioner may take appropriate
action, including:
· suspending or removing a trustee and appointing an acting
trustee; or
· making the fund non-complying under section 42A of the
Superannuation Industry (Supervision) Act 1993.
Fringe benefits tax
6.77 The definition of `fringe benefit' in the Fringe Benefits Tax
Assessment Act 1986 in respect of a resident superannuation fund is
amended to refer to `contribution' rather than `payment of money' or
`payment'. [Schedule 5, items 1 and 2, subparagraph 136(1)(j)(i) of the
Fringe Benefits Tax Assessment Act 1986]
6.78 The definition is also amended in respect of a non-resident
superannuation fund. [Schedule 5, items 3 to 5, subparagraph 136(1)(j)(ii) of the
Fringe Benefits Tax Assessment Act 1986]
6.79 These amendments ensure that contributions made by an
employer to a resident superannuation fund or to a non-resident
superannuation fund for the benefit of an employee are specifically
excluded from the definition of `fringe benefit'. Consequently, such
contributions are not subject to FBT.
6.80 A contribution may be either money or an in specie contribution,
for example shares or real property.
6.81 The amendments provide consistent FBT treatment between
employer contributions made in the form of money and in specie
contributions made by employers.
6.82 Trustees of superannuation funds, and particularly self-managed
superannuation funds, need to ensure that, in accepting in specie employer
contributions, they do not contravene the investment rule that prohibits the
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Self-managed superannuation funds
intentional acquisition of an asset from a related party of the fund,
including a member of the fund.
Application
6.83 The majority of the amendments apply to the 2007-08 income
year, and later income years. For most self-managed superannuation
funds, the 2007-08 income year commences on 1 July 2007, however,
there may be some self-managed superannuation funds whose 2007-08
income year commences after 1 July 2007. [Schedule 5, item 36 and
Superannuation (Self Managed Superannuation Funds) Supervisory Levy Amendment
Bill 2006]
6.84 The amendments providing an exemption from FBT for
in-specie contributions to superannuation, the extension of the lodgement
penalties to directors of corporate trustees, and the false and misleading
statement provisions apply from 1 July 2007. [Schedule 5, item 36]
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Chapter 7
Other changes
Outline of chapter
7.1 Schedules 3, 4, 6 and 7 to this Bill contain administrative
arrangements and the key elements of Simplified Superannuation not
directly related to income tax. Broadly:
· Schedule 3 details the indexation provisions for
certain thresholds applying to superannuation and
employment termination payments.
· Schedule 4 streamlines superannuation fund reporting
arrangements.
· Schedule 6 extends access to the Government co-contribution
to the self-employed.
· Schedule 7 makes a minor amendment to the definition of
`unclaimed money' and provides for a consistent legislative
basis in respect of portability requirements for
superannuation funds and retirement savings account (RSA)
providers.
Context of amendments
Indexation
7.2 A number of key superannuation tax thresholds are currently
indexed annually to full-time average weekly ordinary time earnings,
including reasonable benefit limits (RBLs), age-based limits and the
eligible termination payment low-rate threshold. Indexation ensures that
these thresholds maintain value over time relative to average full-time
earnings.
7.3 Simplified Superannuation abolishes RBLs and age-based limits
and introduces annual caps on superannuation contributions. The new
contribution thresholds will also be indexed to maintain value over time.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation fund reporting requirements
7.4 The existing legislative basis for the reporting of
superannuation-related information to the Commissioner of Taxation
(Commissioner) is fragmented and prescriptive. Superannuation entities
provide information to the Commissioner, each other and individuals for
co-contribution and superannuation guarantee (SG) purposes under
separate legislation. Regulations detail the type of information to be
provided. Additional reporting is required to support the new limits on
superannuation contributions.
7.5 The penalties supporting the reporting requirements are similarly
fragmented, resulting in anomalies in the severity and application of
penalties for non-compliance. For example, under the Superannuation
(Government Co-contribution for Low Income Earners) Act 2003, failure
to provide a statement to another superannuation provider on transfers is a
criminal offence (50 penalty units), whereas under the Superannuation
Guarantee (Administration) Act 1992 the same offence is classed as
administrative (5 penalty units).
Co-contribution for the self-employed
7.6 The Government introduced the superannuation co-contribution
scheme for low and middle income employees from 1 July 2003.
7.7 Currently, under the co-contribution scheme, the Government
provides $1.50 for every $1 of personal superannuation contributions, up
to the maximum co-contribution of $1,500. The maximum
co-contribution is available to those individuals on incomes up to the
lower threshold (currently $28,000) with the payment phasing out at the
upper threshold (currently $58,000).
7.8 Self-employed individuals do not currently have access to the
co-contribution unless 10 per cent or more of their income is attributable
to eligible employment (ie, income earned as an employee).
Meaning of unclaimed money
7.9 Currently, an amount payable to a member of a fund is taken to
be unclaimed money if:
· the member has reached the eligibility age specified in the
regulations (currently 65);
· the superannuation provider determines that, under the
governing rules of the fund or by operation of law, a benefit
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Other changes
(other than a pension or annuity) is immediately payable in
respect of the member;
· the superannuation provider has not received a contribution
in respect of the member for at least two years; and
· after making reasonable efforts and after a reasonable period
has passed, the superannuation provider is unable to ensure
that the member receives the benefit.
7.10 Prior to the removal of compulsory cashing on 10 May 2006,
the effect of the definition in paragraph 7.9 was that the benefits of
inactive members over the age of 65 who could not be contacted by their
fund became unclaimed money. This arose because funds were required
under law to cash the benefits of members over the age of 65 where they
were unable to determine that the member satisfied the work test.
7.11 With the removal of compulsory cashing under
Simplified Superannuation, the benefits of inactive members who have
reached age 65 and who cannot be contacted by their fund are no longer
immediately payable under law. The benefits of these members therefore
do not become unclaimed money unless the rules of the particular fund
require that a benefit is immediately payable to a member. The
amendments change the definition of `unclaimed money' to restore the
previous effect of the law. This is achieved by removing the requirement
for a benefit to be immediately payable in respect of a member.
Portability requirements
7.12 Since 1 July 2004, members of most superannuation funds have
been able to move their superannuation benefits into a fund of their
choice, subject to some limited exceptions (this is referred to as
portability).
7.13 The legislative basis for the portability requirements of
superannuation funds and RSA providers is inconsistent. In particular, the
portability requirements for superannuation funds are specified in the
Superannuation Industry (Supervision) Regulations 1994, whereas the
requirements for RSA providers are specified in the Retirement Savings
Accounts Act 1997. The penalties that apply for failure to comply with
portability requirements are also inconsistent.
7.14 Under the Superannuation Industry (Supervision) Act 1993,
complying with a portability request is an operating standard for the
purposes of the Act and a breach of this standard attracts a penalty of up
to 100 penalty units. If the portability requirements were similarly
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
prescribed as a `standard' for the purposes of the Retirement Savings
Accounts Act 1997, the more detailed portability requirements could be
contained in regulations and the penalty for failure to comply with a
portability request could be made consistent with that which applies to
superannuation funds.
Summary of new law
Indexation
7.15 Schedule 3 incorporates the indexation provisions for the new
thresholds into the Income Tax Assessment Act 1997 (ITAA 1997).
7.16 Existing indexation provisions (related to redundancy and early
retirement scheme payments and pre-1 July 1988 funding credits) are also
consolidated.
Superannuation fund reporting requirements
7.17 Schedule 4 creates a new Division in the Taxation
Administration Act 1953 (TAA 1953) which consolidates the existing
superannuation entity reporting requirements and new requirements under
Simplified Superannuation.
7.18 The new Division contains the framework for approved
reporting form contents, which allows the Commissioner to obtain the
required information by designing approved forms in consultation with
industry.
7.19 The uniform administrative and criminal penalty regime for
non-compliance prescribed in the TAA 1953 applies.
Co-contribution for the self-employed
7.20 Schedule 6 extends the superannuation co-contribution scheme
to the self-employed.
Meaning of unclaimed money
7.21 Schedule 7 amends the general meaning of unclaimed money in
the Superannuation (Unclaimed Money and Lost Members) Act 1999 to
remove the requirement for a benefit to be immediately payable in respect
of a member. Under the amendments, superannuation providers are
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Other changes
required to make reasonable efforts to contact their inactive members over
the age of 65 every five years to determine whether their benefits are
unclaimed money.
Portability requirements
7.22 The portability requirements for RSA providers are removed
from the Retirement Savings Accounts Act 1997 and are inserted in the
Retirement Savings Accounts Regulations 1997.
Comparison of key features of new law and current law
New law Current law
Indexation
Superannuation tax thresholds Key superannuation tax thresholds
(except those relating to most are indexed annually to average
transitional measures) are indexed weekly ordinary time earnings and
annually to average weekly ordinary rounded to the nearest dollar.
time earnings and rounded down to
the nearest multiple of $5,000.
The indexation calculation utilises The indexation calculation is based
the original thresholds as of on the previous year's thresholds and
1 July 2007 and the cumulative the annual change in average weekly
change in average weekly ordinary ordinary time earnings up to the
time earnings from the middle month middle month of the March quarter
of the December quarter 2006 to the preceding the year to which the new
middle month of the threshold relates.
December quarter in the year
preceding the year to which the new
indexed threshold relates.
The existing indexation
arrangements using the March
quarter figure is used for genuine
redundancy payments and early
retirement scheme payments and
pre-1 July 1988 funding credits.
Superannuation fund reporting requirements
Superannuation entity reporting Superannuation entity reporting
obligations in relation to obligations in relation to
contributions and benefits paid are contributions and benefits paid are
consolidated. contained in separate legislation.
There are minimal details of The content of reporting forms is
approved reporting form contents in prescribed in the legislation.
the legislation.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
New law Current law
Penalties for non-compliance with Penalties for non-compliance with
reporting obligations are reporting obligations are contained in
consolidated and standardised. separate legislation and are
inconsistent.
Co-contribution for the self-employed
The self-employed are eligible for The self-employed are not eligible
the superannuation co-contribution. for the superannuation
co-contribution unless 10 per cent or
more of their income is earned as an
employee.
Meaning of unclaimed money
The general meaning of unclaimed In order for an amount payable to a
money is amended to remove the member to be unclaimed money, one
requirement for a benefit to be of the conditions is that a
immediately payable in respect of a superannuation provider must
member. determine that, under the governing
rules of the fund or by operation of
Superannuation providers are
law, a benefit (other than a pension
required to make reasonable efforts
or annuity) is immediately payable in
to contact their inactive members
respect of a member.
over the age of 65 every five years to
ascertain the status of their benefits. A further condition is that
superannuation providers are
required to make reasonable efforts
to ensure that the member receives
the benefit.
Portability requirements
The portability requirements for The portability requirements for
RSA providers are specified in the RSA providers are specified in the
Retirement Savings Accounts Retirement Savings Accounts
Regulations 1997. Act 1997.
Detailed explanation of new law
Indexation
7.23 The thresholds that are subject to indexation and the
corresponding areas of the tax law in which the thresholds can be found
are listed in a table. Items 5 to 7 in the table consolidate existing
indexation provisions (related to redundancy and early retirement scheme
payments and pre-1 July 1988 funding credits), and items 8 to 12 are new
items (related to superannuation and employment termination). The
non-concessional cap is (and will remain) three times the concessional
contributions cap. [Schedule 3, item 1, section 960-265]
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Other changes
7.24 Thresholds related to transitional provisions are not indexed
(with the exception of the transitional termination payment lower cap
amount).
7.25 Existing indexation provisions related to genuine redundancy
and early retirement scheme payments and pre-1 July 1988 funding
credits are consolidated. While the wording is updated, it is not intended
to change the meaning of these provisions. [Schedule 3, items 3, 5 and 6]
7.26 The existing indexation provisions do not apply to items 8 to 12
in the table (related to superannuation and employment termination).
[Schedule 3, items 2 and 4]
7.27 New thresholds are indexed annually to average weekly ordinary
time earnings and apply from 1 July each year. However, thresholds are
rounded down to the nearest multiple of $5,000 to ensure thresholds
remain in round figures. This should assist in maintaining simplicity and
minimise the risk of inadvertent breaches of the excess contributions caps.
[Schedule 3, item 7, subsections 960-285(1) and (2)]
7.28 The indexation factor is the proportional change in average
weekly ordinary time earnings from the middle month of the
December quarter 2006 to the middle month of the December quarter just
before the relevant income year. The indexation factor is calculated to
four decimal places and rounded to three decimal places. [Schedule 3,
item 7, subsections 960-285(4) to (6)]
7.29 The amount cannot be reduced by indexation, that is, it is not
indexed if the indexation factor is less than one. [Schedule 3, item 7,
subsection 960-285(3)]
Example 7.1
If the amount to be indexed is $50,000 and the indexation factor
increases this to an indexed amount of $53,710 in the second year, the
indexed amount is rounded back down to $50,000. In the third year,
the new cumulative indexation factor is again applied to the
$50,000 threshold and gives an indexed amount of $57,250. This
amount is rounded down to $55,000.
If the $50,000 in this example represents the concessional
contributions cap, the non-concessional contributions cap would be
$150,000 (3 × $50,000) in the first and second years and
$165,000 (3 × $55,000) in the third year.
Once an individual breaches the non-concessional cap and activates the
bring forward arrangements, the amount the individual can contribute
over the three year period is based on the cap in the first year.
Indexation of the cap in the second or third year does not increase the
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
amount that can be brought forward. For example, if an individual
makes a contribution of $450,000 in 2007-08, they are not able to
make further contributions until 2010-11, even if the cap is increased
during that period. Similarly, if the individual first utilises the
bring forward arrangements when the non-concessional contributions
cap is $165,000, they are able to bring forward contributions of up to
$495,000 over the three year period, even if indexation increases the
amount of the non-concessional cap in the second or third years.
If the amount to be indexed is $1 million and the indexation factor
increases this to an indexed amount of $1,043,000, the indexed amount
is rounded back down to $1,040,000.
Superannuation fund reporting requirements
7.30 Several superannuation provider reporting obligations are
rationalised in a new Division 390 of the TAA 1953.
Contributions statements
7.31 Superannuation providers are required to provide contribution
statements to the Commissioner in the approved form in respect of
individuals who were members at the end of the period, and also
individuals who were members during the period and were paid
superannuation benefits other than roll-over benefits. [Schedule 4, item 15,
subsections 390-5(1), (3) and (4)]
7.32 Where a superannuation provider rolls over a superannuation
benefit, the paying provider does not have to provide a contribution
statement to the Commissioner but is required to report to the receiving
provider in respect of the amounts rolled over. The receiving provider is
required to report the amounts in a contributions statement. [Schedule 4,
item 15, section 390-5 and section 390-10]
7.33 The approved form may require the statement to contain, among
other things, details of contributions made or paid in respect of a member,
including the amount and type of the contributions. [Schedule 4, item 15,
subsection 390-5(9)]
7.34 Contributions are taken to include notional taxed contributions
and allocated surplus amounts. [Schedule 4, item 15, subsection 390-5(2)]
7.35 Where the superannuation plan is a self-managed
superannuation fund, the approved form may require the superannuation
provider to supply a statement to the effect that no contributions were
made in respect of the member during the period. This assists the
Commissioner to target his compliance activities for self-managed
superannuation funds. [Schedule 4, item 15, subsections 390-5(1) and (9)]
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Other changes
7.36 The approved form may also require the tax file
numbers (TFNs) of the superannuation provider and the superannuation
plan. In addition, if the member in respect of whom contributions are
made has quoted their TFN to the superannuation provider, the approved
form may also require the TFN of the member. This also applies if an
individual making contributions on the member's behalf has legally
provided the member's TFN to the superannuation provider. [Schedule 4,
item 15, subsection 390-5(11)]
7.37 The period covered by a statement and the day on which it must
be provided are determined by the Commissioner. [Schedule 4, item 15,
subsections 390-5(5) to (8)]
7.38 The information collected by the Commissioner in the
contribution statement may be used for co-contribution, SG and excess
contributions cap purposes. Therefore, the approved form may contain
any information the Commissioner may reasonably require to administer
the legislation for those purposes. [Schedule 4, item 15, subsection 390-5(10)]
Statements about superannuation benefits paid from one
superannuation plan to another superannuation plan
7.39 Superannuation providers which transfer benefits on behalf of a
member to another superannuation provider must supply the receiving
provider with a statement in the approved form within seven days of
making the transfer. The superannuation provider must also supply the
affected member with a statement in the approved form within 30 days of
making the transfer. [Schedule 4, item 15, sections 390-10 and 390-25]
7.40 The approved form may require the statement to contain, among
other things:
· details of the value of the superannuation benefit transferred,
the tax free component, the taxable component, the element
taxed in the fund and the element untaxed in the fund; and
· information about contributions made to the superannuation
provider transferring the benefit in the financial year in which
the transfer was made.
[Schedule 4, item 15, subsections 390-10(4) to (9)]
7.41 Contribution information is required to be reported to the other
superannuation provider so it can provide an accurate contribution
statement to the Commissioner for the relevant income year. [Schedule 4,
item 15, sections 390-5 and 390-10]
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Superannuation statements to members
7.42 Arrangements for superannuation statements to members are
maintained from the existing legislation. While the wording has been
updated, it is not intended to change the meaning of the existing
provisions. [Schedule 4, item 15, section 390-15]
Statements relating to release authorities
7.43 Where a member or the Commissioner has requested via a
release authority that a superannuation provider pay a liability using the
member's superannuation monies and the superannuation provider has
acted on that authority, the superannuation provider must supply the
Commissioner with a statement in the approved form within 30 days of
the amount being paid from the member's account. This reporting
requirement exists even if the superannuation provider has paid the
amount to the Australian Taxation Office (ATO) rather than to the
individual. [Schedule 4, item 15, section 390-65]
7.44 The approved form must include details of the release authority
provided by the member or the Commissioner to the superannuation
provider. [Schedule 4, item 15, subsection 390-65(4)]
7.45 The approved form may require the statement to contain, among
other things:
· details of the amount paid on behalf of or to the member;
· information about the superannuation provider; and
· information about the member who provided the release
authority to the superannuation provider.
[Schedule 4, item 15, subsections 390-65(5) and (6)]
Change or omission in information given to the Commissioner
7.46 A superannuation provider must correct material errors or
omissions in information supplied to the Commissioner within 30 days of
becoming aware of them. The definition of `material' depends on the
particular facts and circumstances of each case. For example, if a
member's contribution is initially reported as $1,000 where the amount is
actually $2,000, that would generally be classed as a material change
because of the relative difference between the two amounts. In contrast,
an under-reporting by a few dollars would generally not be classed as a
material change. A change may also be material because it does, or could,
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Other changes
affect an individual's liability or entitlement. [Schedule 4, item 15,
section 390-115]
Example 7.2
ABC Superannuation Fund (ABC) is a large fund which reports
contributions for the 2008-09 financial year for 20,000 members.
Using the details contained in the report (after matching details from
the member's tax return for the 2008-09 financial year), the ATO pays
co-contributions and issues assessments of excess contributions taxes.
After checking with ABC in early 2009, Jonathon realises he has not
been paid a co-contribution, even though he believes he satisfies the
eligibility criteria (and has made personal contributions to ABC). He
contacts the ATO which advises him that ABC did not report that he
had made personal contributions for the 2008-09 financial year.
Jonathon contacts ABC with details of the personal contributions he
made during the 2008-09 financial year. ABC is required to correct
this error and re-report the information to the ATO in respect of
Jonathon's account within 30 days of Jonathon contacting ABC and
alerting it to the error.
In that same report, ABC mistakenly reports $100,000 of contributions
for Nina instead of $10,000. The ATO issues Nina with an excess
assessable contributions tax assessment because of this information.
Nina contacts ABC and points out that the contribution made on her
behalf was $10,000. ABC is required to re-report the information to
the ATO in respect of Nina's account within 30 days of Nina
contacting ABC and alerting it to the error.
Application
7.47 Superannuation fund reporting obligations, in relation to
contributions, roll-overs and benefits paid, apply to things done or events
occurring on or after 1 July 2007. These obligations will therefore apply
where, for example, an amount is contributed to a fund or rolled over on
or after that date, or where an individual holds a superannuation interest in
a self-managed superannuation fund on or after that date. Reporting
obligations for superannuation entities to provide statements about the
release authorities (and to notify the Commissioner of material changes or
omissions in relation to such statements) apply to release authorities given
(and payments made in accordance with those authorities) on or after
10 May 2006. [Schedule 4, item 16 and Schedule 1, item 25, section 292-80 of the
Income Tax (Transitional Provisions) Act 1997]
Penalty regime
7.48 Penalties for non-compliance are standardised with the penalty
regime under the TAA 1953. The existing TAA 1953 administrative and
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
criminal penalties apply for late, or non-lodgement, of required statements
and information. [Schedule 4, items 11 to 14]
Co-contribution for the self-employed
Who is eligible for the co-contribution?
7.49 Individuals (including the self-employed) are eligible for the
superannuation co-contribution if they meet certain criteria. First, they
must earn 10 per cent or more of their total income from carrying on a
business, eligible employment or a combination of both. Second, their
total income (as reduced for individuals who are entitled to deductions for
carrying on a business) must be under the co-contribution upper income
threshold. They must not be a temporary resident at any time during the
income year in which the contribution is made, and be under age 71 at the
end of that income year. [Schedule 6, items 1, 2, 7 and 8]
Example 7.3
Susie is an Australian resident aged 26 who receives income from a
religious vocation of $25,000 per year and also receives passive
income of $2,000 per year. The definition of business within the
meaning of the ITAA 1997 includes any profession, trade,
employment, vocation or calling but does not include an occupation as
an employee. Susie is carrying on a business for co-contribution
purposes. As more than 10 per cent of her income is from carrying on
a business, Susie would be eligible for a co-contribution payment if
she makes personal contributions to her superannuation fund.
Example 7.4
Andrew is in a partnership and receives partnership income from
carrying on a business of $45,000 per year. Andrew also receives
$5,000 in passive income. Andrew's partnership income is business
income for co-contribution purposes.
Which contributions qualify for a co-contribution payment?
7.50 The co-contribution is only available in respect of a personal
superannuation contribution to the extent that the Commissioner has not
allowed the contribution as a deduction. [Schedule 6, item 6, section 7]
Example 7.5
Hector, a self-employed individual, makes a personal superannuation
contribution of $5,000 to a complying fund on 30 June 2008. On
31 October, Hector claims a $4,000 deduction for this contribution in
his 2007-08 income tax return, and his total income less business
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Other changes
deductions is $28,000. The Commissioner receives contribution data
from Hector's fund that $5,000 of personal contributions have been
received. From the fund data and the income tax return, the
Commissioner determines that $1,000 of the personal contribution is
not deductible and that a co-contribution of $1,500 is payable into
Hector's account.
7.51 To be a personal superannuation contribution that is eligible for
co-contribution payment, the contribution must have been made on or
after 1 July 2003 (by employees) or after 1 July 2007 (by the
self-employed) to a complying fund or RSA to provide benefits for
themselves, or to provide benefits on their death to their dependants.
[Schedule 6, items 3 and 4, section 7]
7.52 The following contributions are not eligible for a
co-contribution: a roll-over superannuation benefit, a lump sum paid from
a foreign superannuation fund, and a transfer from an overseas fund.
[Schedule 6, item 5, section 7]
How is total income for the year calculated?
7.53 Total income is used for determining the amount of
co-contribution payable, and is the total of assessable income and
reportable fringe benefits. Total income is reduced by amounts for which
an individual is entitled to a deduction for carrying on a business. These
deductions do not include work-related employee deductions or
deductions that are available to eligible individuals (including the
self-employed) for their personal superannuation contributions. The
income concept used here is a net concept for individuals who carry on a
business, and is designed to ensure that self-employed individuals with
high gross business receipts are not arbitrarily exceeding the
co-contribution income threshold. [Schedule 6, items 7 and 8]
7.54 For the purposes of determining eligibility for the
co-contribution, a total income concept is also used. However, in
determining whether an individual satisfies the 10 per cent test
(ie, 10 per cent or more of total income earned from eligible employment,
carrying on a business or a combination of both), total income is not
reduced by the deductions that result from carrying on a business. The
income concept used here is a gross concept, designed to ensure that
self-employed individuals with low incomes or low profit margins are not
disadvantaged by arbitrarily failing the test. [Schedule 6, item 8, sections 6
and 8]
Example 7.6
The use of the net and gross concepts of income mentioned above
ensures that a self-employed individual with gross business receipts of
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
$43,000, business deductions of $41,500, and other personal
investment income of $15,000, would receive a co-contribution
because the percentage of gross income from employment or carrying
on a business would be 74% ($43,000 / ($43,000 + $15,000))
and the net income for threshold purposes would be
$16,500 ($43,000 + $15,000 $41,500).
Meaning of unclaimed money
7.55 The requirement for a benefit to be immediately payable in
respect of a member under the rules of the fund or by operation of law is
removed from the definition of `unclaimed money'. Superannuation
providers are required to make reasonable efforts to contact their inactive
members over the age of 65 every five years to determine whether their
benefits are unclaimed money. [Schedule 7, items 2 to 6]
7.56 The effect of the amendments is that the benefits of a
superannuation fund member become unclaimed money once:
· the member has reached the eligibility age specified in the
regulations (currently 65);
· the superannuation provider has not received a contribution
on behalf of the member for at least two years; and
· after a period of five years since the superannuation provider
last had contact with the member, the superannuation
provider is unable to contact them again after making
reasonable efforts.
Portability requirements
7.57 To ensure a consistent legislative framework for superannuation
funds and RSA providers in respect of portability, the portability
requirements for RSA providers are prescribed in the Retirement Savings
Accounts Regulations 1997. To facilitate this, the specific provision in the
Retirement Savings Accounts Act 1997 covering portability is removed.
[Schedule 7, item 1, section 50]
Consequential amendments
Indexation
7.58 There are no consequential amendments.
184
Other changes
Superannuation fund reporting requirements
7.59 Several consequential amendments are required to remove
current reporting requirements that are being consolidated as part of the
new law. [Schedule 4, items 1 to 10]
Co-contribution for the self-employed
7.60 There are no consequential amendments.
Meaning of unclaimed money
7.61 There are no consequential amendments.
Portability requirements
7.62 There are no consequential amendments.
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Chapter 8
Regulation impact statement
Policy objective
8.1 The policy objective is to simplify superannuation for retirees
making it easier to understand, improve incentives to work and save, and
introduce greater flexibility in how superannuation savings can be drawn
down in retirement.
Background
8.2 The Government is committed to Australia's three-pillar
approach to providing retirement incomes, which has been broadly
endorsed by the World Bank. The three pillars comprise:
· a taxpayer funded means-tested age pension for people who
are unable to fully support themselves in retirement;
· a minimum level of compulsory employer superannuation
contributions made in respect of employees; and
· voluntary private superannuation and other savings.
8.3 This three-tiered approach efficiently and effectively achieves
the multiple functions of retirement income policy, which include poverty
alleviation and wealth redistribution, increasing private savings,
improving retirement incomes and managing risk, while promoting
workforce participation. Australia's retirement income system
complements Government policies designed to encourage labour force
participation, maximise productivity and ensure long-term fiscal
sustainability.
8.4 Australia's superannuation system comprises the second and
third pillars. Its objective is to assist and encourage people to achieve a
higher standard of living in retirement than would be possible from the
age pension alone, to ensure Australians have security and dignity in
retirement.
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Regulation impact statement
8.5 In pursuit of this objective, the Government provides significant
superannuation taxation concessions, valued at $15.9 billion in 2005-06.
The Government also provides targeted assistance through initiatives such
as the superannuation co contribution for low to middle income
employees, capital gains tax exemptions for small business owners and
the Mature Age Worker Tax Offset for older workers.
8.6 However, there is growing recognition that the efficiency and
effectiveness of Australia's superannuation system is being impeded by
unnecessarily complex and prescriptive rules.
8.7 In the 2006-07 Budget, the Government announced a plan to
simplify and streamline superannuation. A detailed document outlining
the Government's proposals, A Plan to Simplify and Streamline
Superannuation, was released on Budget night, 9 May 2006.
8.8 Key stakeholders and members of the community were invited
to make comments and submissions on the plan during the three-month
consultation period. After considering the outcomes of consultation, the
Government announced its final policy decision, Simplified
Superannuation, on 5 September 2006.
8.9 The package of reforms detailed in Simplified Superannuation
will sweep away the current raft of complex tax arrangements and
restrictions that apply to people's superannuation benefits. Simplification
will increase community understanding and, when combined with more
flexibility and greater tax concessions, will encourage individuals to take
greater interest in their superannuation. The Government's reforms will
also provide individuals with clear incentives to save and to work longer.
Impact groups
8.10 Simplified Superannuation is expected to impact on the
following groups:
· individuals (including the self-employed);
· employers;
· superannuation funds (including approved deposit fund and
retirement savings account (RSA) providers, and
self-managed superannuation funds); and
· the Government.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Specific issues
8.11 This part of the Chapter will identify the objectives of the
Government's reforms. It will explore options to ameliorate existing
systemic problems, assessing the costs and benefits of each option for the
impact groups identified in paragraph 8.10. The optimal approach for
addressing each objective will then be identified.
8.12 The options in this section largely reflect the reforms outlined in
Simplified Superannuation. However, where consideration was given to
an alternative approach for satisfying a particular objective, the alternative
is separately assessed. Linkages between each option are identified and
discussed.
8.13 Paragraphs 8.14 to 8.166 contain qualitative assessments of the
costs and benefits of the key policy proposals in Simplified
Superannuation. Quantitative assessment is in paragraphs 8.167 to 8.171.
Simplification of the taxation arrangements for superannuation by
reducing the number of taxing points
Problem identification
8.14 The superannuation system has a myriad of different
arrangements for tax on contributions, earnings and benefits.
8.15 In relation to the average person, employer and concessional
member superannuation contributions are taxed at the concessional rate of
15 per cent. Personal contributions made from after-tax income for which
no deduction has been claimed are not subject to further tax in the
superannuation fund.
8.16 The investment income of superannuation funds is taxed at
15 per cent, but can be reduced through the use of imputation credits.
8.17 The tax treatment of superannuation benefits depends on a range
of factors, including whether the individual:
· commenced work before 1 July 1983;
· already received some of their superannuation benefits or
contributed an employment termination payment;
· chose to withdraw their benefits as a lump sum or as a
pension;
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Regulation impact statement
· claimed a deduction; and
· the type of pension product purchased, if the recipient elected
to receive their benefits as a pension.
8.18 The complexity of the superannuation taxation arrangements
impacts on all retirees, irrespective of the amount of money they have
accumulated in superannuation. This complexity confuses retirement
decisions, clouds the incentive to invest in superannuation and imposes
unnecessary costs.
8.19 The transition to retirement is a significant time in a person's life
and the superannuation taxation arrangements unnecessarily complicate
this transition. People must pay for professional advice or spend hours of
time trying to understand the tax treatment of their superannuation.
8.20 Individuals who receive their benefits may not know if they
have exceeded their reasonable benefit limit (RBL) (and hence will be
required to pay additional tax) until they have lodged their tax return for
the period in which the benefits were received.
8.21 The Peter Hendy and Dick Warburton authored report,
International Comparison of Australia's Taxes, noted that Australia is one
of the only countries in the world to tax superannuation at three points. It
suggested that the taxation of both contributions and benefits serves to
exacerbate system complexity and imposes high compliance costs.
8.22 The report of the Taskforce on Reducing Regulatory Burdens on
Business, Rethinking Regulation, described Australia's superannuation
system as highly complex and recommended that high priority be given to
comprehensive simplification of the tax rules for superannuation benefits.
Options
Option One: Removal of the tax levied on superannuation benefits paid
from a taxed source to individuals aged 60 years and above
8.23 All lump sum and pension payments (including pensions which
commenced before 1 July 2007) would be tax free when paid to
individuals aged 60 and over from a taxed source (where contributions
and earnings tax has been paid). Additional concessions would be
introduced for benefits paid from untaxed sources (where contributions
and earnings tax has not been paid, primarily affecting public servants and
members of the military), to ensure a similar tax treatment between
benefits paid from taxed and untaxed sources. RBLs would be abolished
for all individuals.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
8.24 As the tax treatment of employment termination payments is
based on RBLs, the employment termination rules would also be
modified.
Benefits
Individuals (including the self-employed)
8.25 The elimination of benefits tax would have a significant impact
on an individual's retirement income. An average income earner whose
sole contribution to superannuation comprises superannuation guarantee
(SG) payments over a working life of 40 years would have an additional
lump sum of around $37,000 in retirement or an additional $136 per week
if they took their benefit as a superannuation pension.
8.26 Individuals aged over 60 receiving lump sum or pension
payments from a taxed source would not need to include details of these
payments in their tax returns, lowering their taxable income and therefore
potentially lowering the tax paid on other income. This would increase
the incentive for individuals to undertake work while drawing down on
superannuation.
8.27 The report of the Taskforce on Reducing Regulatory Burdens on
Business, Rethinking Regulation, highlighted that the greatest area of
complexity in the current superannuation system is the taxation of end
benefits. For example, under the current system, a lump sum may include
up to eight different parts taxed in seven different ways.
8.28 Option One would yield significant simplicity benefits for
retirees. The thousands of Australians who turn 60 each year and choose
to retire would have a much simpler system to face when deciding how to
draw on their superannuation. They would no longer need to pay for
expensive financial advice on the tax treatment of their superannuation
benefits. Independent evidence given to the House Standing Committee
on Economics, Finance and Public Administration inquiry into improving
the superannuation savings of people under age 40 stated that this advice
can currently cost in the order of $3,000 to $10,000 depending on the
complexity.
8.29 The reduction in complexity could also be expected to decrease
the costs facing superannuation schemes in delivering their services over
the longer term, potentially benefiting individuals through a reduction in
fees and charges. The impact of the reduction in complexity for
superannuation funds is explored in paragraphs 8.32 to 8.34.
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Regulation impact statement
8.30 The February 2006 update of the Australian Bureau of Statistics'
Retirement and Retirement Intentions Survey indicated that 19 per cent of
people in the labour force intend to retire between the ages of 55 and 59.
The continued application of benefits tax for individuals aged under
60 who receive payments from both taxed and untaxed sources would
provide an incentive for these individuals to remain in the workforce and
leave their superannuation benefits in their funds until they turn age 60. If
an individual chooses to work and contributes to superannuation in this
time, their retirement savings would be further boosted through additional
contributions and earnings.
Employers
8.31 Employers would benefit from a reduction in the number of
forms required to process an employment termination payment
entitlement.
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.32 The removal of benefits tax would reduce the myriad of rules
and red tape that superannuation funds must contend with when paying
out a benefit. Funds would no longer need to report benefit payments
paid to members and commutations of pensions for RBL purposes. As
most superannuation pensions would be tax free, funds would no longer
be required to withhold tax instalments from these benefits and provide
recipients with a payment summary. The requirement to withhold tax
from lump sum payments paid to a person aged 60 or over would be
removed, and funds would no longer be required to provide payment
summaries to these taxpayers.
8.33 Funds would also benefit through the reduction in the number of
benefit components on which records must be maintained (reduced from
eight to two).
8.34 The reduction in complexity achieved through the removal of
end benefits tax could also be expected to decrease the costs facing
superannuation schemes in delivering their services.
Government
8.35 The Australian Taxation Office (ATO) would experience a
reduction in the number of taxpayers who are required to lodge tax returns
each year (around 152,000 taxpayers per annum based on 2004-05 tax
return data) as a result of the abolition of end benefits tax.
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8.36 The ATO would also experience an associated reduction in
income tax return processing and potentially debt collection cases due to a
reduction in the number of clients in the income tax system.
Costs
Individuals (including the self-employed)
8.37 The proposed removal of end benefits taxation would require
revisions to the existing superannuation contribution rules to ensure
appropriate limits on the level of tax concessions provided to individuals.
These revisions and their impacts are discussed in paragraphs 8.55 to
8.74.
8.38 Individuals may need to seek clarification and advice on the new
arrangements from financial planners and superannuation funds.
Employers
8.39 Employers who pay employment termination payments would
need to update their systems and processes to reflect the new employment
termination arrangements.
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.40 Superannuation funds may incur short-term costs associated
with the need to review and adapt existing record-keeping systems and
processes (both electronic and manual); however, these costs would be
recovered from fund members over the longer term.
8.41 In addition, superannuation funds would incur implementation
costs associated with training staff, updating product disclosure
statements, and communicating the changes to members.
Government
8.42 The ATO may require additional resourcing to update its
technical and information products (electronic and printed) to advise its
clients of the proposed changes.
Option Two: Removal of the tax on superannuation contributions
8.43 The 15 per cent tax levied on superannuation contributions
would be abolished for all individuals.
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8.44 Option Two would also necessitate changes to end benefits
taxation to reflect that some benefits have been subject to the tax on
contributions while others have not.
Benefits
Individuals (including the self-employed)
8.45 The elimination of the tax on contributions would impact on an
individual's retirement income. An average income earner whose sole
contribution to superannuation comprises SG payments over a working
life of 40 years would have an additional $17 per week if they took their
benefit as a superannuation pension.
8.46 Option Two may increase the incentive for individuals to make
additional salary sacrifice contributions, further improving retirement
incomes. It may also increase the incentive to work, by decreasing the
effective tax paid by individuals on their labour income. However,
increases in retirement income generated by the removal of the tax on
contributions would be clawed back to some degree by the pension assets
test.
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.47 The abolition of the tax on contributions would benefit
superannuation funds by increasing the level of funds available for
investment, potentially generating higher earnings. Superannuation funds
may also receive some cost savings by no longer having to withhold tax
on contributions.
Other
8.48 Employers and the Government would not receive additional
benefits.
Costs
Individuals (including the self-employed)
8.49 Option Two may further complicate the taxation of benefits. It
would require both the apportioning of the amount of benefits on which
tax was paid and a new lump sum component to be added for benefits
accumulated from the removal of the tax on contributions. This
component would then be taxed at an additional 15 per cent to what
currently applies.
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8.50 In addition, the 15 per cent superannuation pension rebate
introduced in 1988 to compensate individuals for the imposition of the tax
on contributions would need to be abolished for any part of a pension
accumulated after the removal of the tax on contributions.
8.51 Individuals would continue to include superannuation lump sum
or pension payments in their assessable income, maintaining the
disincentive to work while drawing down on superannuation.
Other
8.52 Employers, superannuation funds and the Government would
not incur additional costs.
Recommendation
8.53 It is recommended that Option One be adopted.
8.54 Option One is considered preferable to Option Two, as the
benefits expected from Option One are greater than those for Option Two
and the associated costs would be less.
· A key objective of the Government's reforms is to reduce the
complexity imposed on retirees. The complexities of the
current system would remain if the tax on superannuation
contributions was reduced or even removed.
· The abolition of end benefits taxation, coupled with the
reduction in the age pension assets-test taper rate envisaged
in paragraphs 8.94 to 8.104, will result, on average, in higher
retirement incomes than the removal of the tax on
contributions at a lower cost. Option One will also provide
individuals with greater incentives to remain in the workforce
until at least age 60.
· The ongoing compliance savings for both individuals and
superannuation funds from the abolition of end benefits tax
and RBLs are substantially larger than the initial
implementation costs.
· Removing the tax on contributions:
- would not have the same benefits on participation as the
removal of end benefits tax as the draw down of
superannuation would be included in the assessable
income of the taxpayer, potentially increasing the tax on
their work income; and
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- would result in a significantly higher cost to revenue.
Simplification of contribution rules
Problem identification
8.55 Currently, individuals must contend with complex and
prescriptive rules when deciding to contribute to superannuation.
Employers are able to claim a full deduction for contributions made on
behalf of an employee up to the employee's age-based limit; in 2006-07
the aged-based limits are:
· $15,260 for individuals aged under 35 years;
· $42,385 for individuals aged 35 to 49; and
· $105,113 for individuals aged 49 to 69.
Employers are denied a deduction for contributions above the relevant
limit. The age-based limits are a source of complexity in the
superannuation system.
8.56 The proposed abolition of RBLs and end benefits taxation would
create an incentive for high-wealth individuals to transfer large amounts
of assets currently held outside of superannuation to the concessionally
taxed superannuation system. The existing contribution rules would
therefore need to be streamlined and tightened to ensure appropriate limits
are applied on the level of tax concessions provided to individuals.
Options
Streamlined rules for concessional contributions
8.57 Age-based limits would be removed and a uniform limit on
concessional contributions of $50,000 per person per annum would apply.
These contributions would be taxed at 15 per cent. The proposed limit
has been set with reference to the current median age-based limit.
8.58 Where the ATO identifies that a person's concessional
contributions have exceeded $50,000 in a financial year, the amount in
excess of $50,000 would be taxed at the top marginal rate (plus the
Medicare levy). Excess concessional contributions would be included in
the cap on non-concessional contributions (see paragraphs 8.61 to 8.63).
8.59 In cases where a tax file number (TFN) has not been quoted, the
top marginal rate (plus the Medicare levy) would be withheld from
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concessional contributions over $1,000. The $1,000 threshold would not
apply to new accounts.
8.60 Employers would be able to claim a full deduction for all
contributions to superannuation funds made on behalf of their employees
under age 75.
New rules for post-tax (non-concessional) contributions
8.61 A cap of $150,000 per year on the amount of non-concessional
superannuation contributions a person can make would apply. Eligible
individuals under age 65 would be able to bring forward two years of
contributions to accommodate larger one-off payments.
8.62 Where the ATO identifies that a person has breached the cap,
excess contributions would be taxed at the top marginal rate plus the
Medicare levy.
8.63 Superannuation funds would only be able to accept
non-concessional contributions for or on behalf of a member if the
member's TFN has been quoted to the trustee.
Impact analysis
Benefits
Individuals (including the self-employed)
8.64 The proposed removal of age-based limits would provide scope
for employees under age 35 to make larger contributions to
superannuation through salary sacrifice arrangements, as their employers
would be able to claim a full tax deduction for all contributions. The
current age-based limit for individuals less than age 35 is $15,260
per annum, compared to the proposed limit of $50,000 per annum.
Employers
8.65 Employers would benefit from their ability to claim a full
deduction for superannuation contributions made on behalf of employees
up to age 75. They would no longer be required to monitor the level of
superannuation contributions against age-based limits to determine if they
can claim a deduction.
Other
8.66 Superannuation funds and the Government would not receive
additional benefits.
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Costs
Individuals (including the self-employed)
8.67 The proposed cap on non-concessional contributions may impact
unfavourably on a small number of individuals who wish to transfer
amounts greater than $450,000 (allowing for the two year bring forward
arrangements) into superannuation.
8.68 The cap on non-concessional contributions is expected to impact
on relatively few individuals.
8.69 It is estimated that currently less than one per cent of people
aged 65 and below who make non-concessional contributions to
superannuation would contribute more than $450,000 in a year. The
impact of the cap on these individuals would be mitigated through a
number of exemptions and transitional arrangements.
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.70 While additional tax payable for excess concessional
contributions would be levied on individual members, superannuation
funds may be required to arrange for the payment of the additional tax if
requested by a member.
8.71 In addition, superannuation funds would be required to withhold
tax on concessional contributions where a member's TFN has not been
reported, and refund tax withheld if the TFN is subsequently reported.
Government
8.72 The ATO would require additional resourcing to manage the
increased administrative workflow resulting from the need to monitor the
level of individuals' concessional and non-concessional contributions and
assess tax on excess contributions.
Other
8.73 Employers would not incur additional costs.
Recommendation
8.74 It is recommended that the proposed streamlined rules for
concessional contributions and non-concessional contributions be
adopted. The new rules will allow individuals to contribute more
concessionally taxed money into superannuation from a younger age and
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will be significantly easier to understand. While the new rules may
impact unfavourably on a very small number of individuals and will
involve implementation and ongoing costs for superannuation funds, they
will be mitigated through a number of exemptions and transitional
arrangements and will play a key role in the fiscal sustainability of the
Government's reform package.
Simplification of payment rules
Problem identification
8.75 The Government recognises that for the superannuation system
to be efficient, superannuation rules and regulations must be
understandable, send clear signals and provide appropriate incentives.
Impediments, complexity and rigidity should be minimised.
8.76 The existing rules regulating matters such as how benefits are to
be taken, coupled with the forced payment of benefits once an individual
reaches age 65 and no longer satisfies the work test (ie, has not worked at
least 40 hours during a consecutive 30 day period in a financial year), are
complex and limit individual choice.
8.77 These rules discourage market innovation, and result in
decisions being driven by product tax / social security treatment. In
addition, they impose unnecessary costs on superannuation funds which
have to administer a work test for all members aged 65 to 74 who have
not yet taken their benefits, to determine whether the benefits of these
members must be paid.
Options
Abolition of compulsory withdrawal
8.78 The requirement for compulsory payment of benefits to
members over age 65 who do not meet the current work test would be
removed -- that is, there would be no forced payment of superannuation
benefits after age 65. The requirement that benefits must be paid out
regardless of a person's work status from age 75 would also be removed.
Streamlined pension rules
8.79 All pensions that meet simplified minimum standards would be
taxed the same on payment.
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Regulation impact statement
8.80 The new minimum standards for pensions commencing on or
after 1 July 2007 would require:
· payments of a minimum amount to be made at least annually,
allowing pensioners to take out as much as they wish above
the minimum (including cashing out the whole amount);
· no provision to be made for an amount to be left over when
the pension ceases; and
· that the pension could be transferred only on the death of the
pensioner to one of their dependants or cashed as a lump sum
to the pensioner's estate.
8.81 The payment rules would specify minimum limits only. No
maximum would apply, with the exception of pensions which are
commenced under the transition to retirement condition of release.
8.82 Pensions which commenced prior to 1 July 2007, which
complied with relevant rules for the transition to retirement measure at the
time, would be deemed to satisfy the proposed requirements.
Impact analysis
Benefits
Individuals (including the self-employed)
8.83 Individuals would benefit from greater flexibility, as they would
no longer be forced to draw down on their superannuation benefits after
age 65. Subject to fund rules, superannuation could be paid out whenever
and however an individual wished. Individuals could withdraw as much
or as little as they wanted from superannuation and it would generally not
need to be included in their tax return. Moreover, individuals would have
the freedom to change their arrangements as their circumstances change.
8.84 Lower drawdowns in the earlier years of a pension would result
in greater capital accumulation and longer pension terms. The changes to
the pension drawdown rules would also improve the likelihood that
pensions will easily adapt to improvements in life expectancy. This
would provide increased certainty that individuals would not outlive their
retirement savings.
8.85 Individuals may also benefit from greater product choice and
lower fees and charges brought on by the deregulation of the pension
product market.
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Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.86 Superannuation funds would no longer have to administer work
tests to determine whether the benefits of members aged between 65 and
74 must be paid out.
8.87 The deregulation of the pension product market would benefit
superannuation funds by providing them with greater scope for
innovation.
Other
8.88 Employers and the Government would not receive additional
benefits.
Costs
Individuals
8.89 Members may need to seek clarification and advice on the new
streamlined rules from their superannuation funds.
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.90 Superannuation funds may need to seek advice about changing
their investment strategies due to possibly changed cash flow
requirements applicable to the new products they would be able to market
in accordance with the new pension rules. They may also need to seek
advice as to whether their trust deeds should be updated to reflect the new
streamlined rules.
8.91 In addition, superannuation funds may also need to manage
enquiries from their members who are seeking clarification and advice
concerning the new streamlined rules.
Other
8.92 Employers and the Government would not incur additional
costs.
Recommendation
8.93 It is recommended that the abolition of compulsory withdrawal
and the introduction of streamlined pension rules be adopted. The
abolition of compulsory withdrawal will provide individuals with greater
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Regulation impact statement
freedom and flexibility. The new pension rules will benefit individuals
through greater product choice and lower fees and charges. While
individuals will face initial implementation costs, they will receive
substantial ongoing compliance savings through these amendments.
Similarly, while superannuation funds may incur initial implementation
costs from the need to change investment strategies, update trust deeds
and advise members of the proposed changes, these costs will be offset by
substantial ongoing compliance savings.
Reduction in the pension assets-test taper rate
Problem identification
8.94 The existing pension assets-test taper rate is very punitive as
retirees must achieve a return of at least 7.8 per cent on their additional
savings to overcome the effect of a reduction in their age pension amount.
8.95 The current assets test also prevents existing retirees with
relatively modest assets but with low incomes from being able to access
the age pension. Under the current system, a single homeowner would
lose part of their pension once their assets exceed $161,500.
8.96 The introduction of more generous pension assets-test rules
would greatly increase incentives to save.
Options
Halving the pension assets-test taper rate
8.97 The pension assets-test taper rate would be halved from
20 September 2007 so that recipients only lose $1.50 per fortnight (rather
than $3) for every $1,000 of assets above the relevant threshold.
Abolishment of the assets-test exemption for complying income streams
8.98 The 50 per cent assets-test exemption for complying income
streams would also be abolished from 20 September 2007, with all new
pensions receiving uniform age pension treatment. Retaining the
assets-test exemption would enable high wealth individuals to access the
age pension.
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Impact analysis
Benefits
Individuals (including the self-employed)
8.99 The proposal to halve the assets-test taper rate would mean that
retirees would need to achieve a return of 3.9 per cent on their additional
savings before they are better off in net income terms -- that is, after
taking into account the withdrawal of the age pension. Based on the
current age pension, the proposal would enable a single retiree
homeowner to have around an additional $172,000 of assets before losing
the age pension, while a couple could have approximately $287,000 of
additional assets. The proposal would therefore generate significant
incentives for individuals to work and save.
Other
8.100 Employers, superannuation funds and the Government would
not receive additional benefits.
Costs
Individuals (including the self-employed)
8.101 From 20 September 2007, an assets-test exemption would no
longer apply for certain income streams. However, the effects of the
removal of the exemption are expected to be offset for most individuals
through the reduction in the assets-test taper rate.
8.102 The abolition of the assets-test exemption is required to limit the
scope for wealthier individuals to access the age pension. If the assets-test
exemption was maintained, the age pension could potentially be extended
to high wealth individuals, undermining the spirit of the age pension
arrangements.
Other
8.103 Employers, superannuation funds and the Government would
not incur additional costs.
Recommendation
8.104 It is recommended that the reduction in the assets-test taper rate
be adopted. The reduction will encourage and reward individuals to work
and make additional savings, supporting the Government's objective of
encouraging self-provision in retirement.
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Improved incentives for superannuation contributions by the
self-employed
Problem identification
8.105 Under the current system, the self-employed may have less
incentive to contribute to superannuation than employees.
8.106 Under the current system, employers are able to claim a full
deduction for contributions made on behalf of employees up to the
relevant age-based limit. In addition, low and middle income employees
are eligible for the Government's co-contribution scheme (which matches
$1.50 for every $1 of post-tax superannuation contributions made by low
and middle income employees, up to a maximum of $1,500 for employees
earning below $28,000 and phasing out completely for employees earning
over $58,000).
8.107 In contrast, self-employed persons are only entitled to claim a
full deduction for the first $5,000 contributed to a complying
superannuation fund in a financial year. Contributions above this amount
are 75 per cent tax deductible, up to a maximum deduction equal to the
relevant age-based limit. Moreover, self-employed persons are not
eligible for the Government's co-contribution scheme.
8.108 The current contribution arrangements for the self-employed
may discourage the self-employed from making larger contributions to
superannuation.
Options
Removal of the 75 per cent limit on deductions for superannuation
contributions over $5,000 made by the self-employed
8.109 The deductibility of superannuation contributions by the
self-employed (and other persons who are currently eligible for a
deduction) would be treated in the same way as contributions made for the
benefit of employees. That is, the self-employed would be able to claim a
full deduction for all contributions made to accumulation schemes on their
own behalf up to age 75.
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Extension of the Government's co-contribution scheme to the
self-employed, effective from 1 July 2007
Impact analysis
Benefits
Individuals (including the self-employed)
8.110 The increased deductibility of superannuation contributions and
the Government co-contribution, coupled with the abolition of end
benefits taxation and the reduced age pension assets-test taper rate would
bring significant benefits to the self-employed.
8.111 A self-employed individual earning $28,000 and contributing
$2,500 per annum to superannuation over a working life of 40 years
would be expected to have an increase in their benefit at retirement of
over $88,000 or $113 per week if they took their benefit as a
superannuation pension.
8.112 A self-employed individual with less time remaining in the
workforce would still stand to gain considerably under the proposed
incentives. A self-employed individual earning $90,000 and contributing
$12,000 to superannuation per annum over a working life of 20 years
would be expected to have an increase in their benefit at retirement of
over $83,000 or $160 per week if they took their benefit as a
superannuation pension.
8.113 Consultation with industry suggests that self-employed people
who currently seek professional advice on superannuation are likely to
seek less advice as a result of the proposed changes, saving an average of
around $50 each per year.
Other
8.114 Employers, superannuation funds and the Government would
not receive additional benefits.
Costs
Other
8.115 Individuals, employers, superannuation funds and the
Government would not incur additional costs.
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Regulation impact statement
Recommendation
8.116 It is recommended that the self-employed be allowed full
deductibility for their contributions to superannuation and given access to
the Government's co-contribution scheme. These amendments will
address the inequities of the existing arrangements for the self-employed,
improve retirement incomes and provide cost savings for the
self-employed.
Improvement and simplification of the arrangements to find, transfer and
consolidate lost superannuation
Problem identification
8.117 Since 1 July 2004, members of most superannuation funds have
been able to move their superannuation benefits into a fund of their choice
(portability), subject to some limited exceptions.
8.118 Portability is further complemented by the Lost Members
Register maintained by the ATO. The Lost Members Register contains
details of accounts that individuals may have lost track of (the actual
money remains with the relevant funds). Individuals who may have lost
track of their superannuation can search the Lost Members Register
(for free) to identify their accounts, and then, using portability, organise
for those accounts to be consolidated if desired. At 30 June 2005, the
Lost Members Register held records of approximately 5 million accounts
with a total value of around $8 billion.
8.119 The Government's initiatives on choice and portability have
significantly improved the ability of individuals to manage and take
control of their superannuation.
8.120 However, the Government considers there is scope to make
transferring and consolidating accounts simpler and easier by further
improving the operation of the portability and Lost Members Register
arrangements.
· The absence of standardised portability documentation
imposes unnecessary administrative costs on superannuation
funds as they are often required to seek additional
information from members when processing a transfer
application.
· The 2005 Australian National Audit Office audit report on
the ATO's administration of the Lost Members Register
found that while the ATO has implemented strategies and
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mechanisms to promote awareness of, and enable access to,
the Lost Members Register, an evaluation of the effectiveness
of its strategies and tools to reunite people with their lost
superannuation would be timely.
· Improvement and simplification of the arrangements to find,
transfer and consolidate lost superannuation may ultimately
reduce the number of accounts on the Lost Members Register
by encouraging individuals to increase their engagement with
their superannuation.
Options
A staged approach to address the number of lost accounts would be
adopted
8.121 The process would commence in 2006 07 with a rationalisation
and improvement of existing processes for lost member identification and
the introduction of a standardised portability form. The maximum time
period in which a transfer must occur would be reduced from 90 days to
30 days.
ATO to contact lost members
8.122 In 2007-08, the ATO would move to a more proactive role by
contacting lost members by phone and mail. This would include targeting
members with small balances to facilitate direct repayment or
consolidation with an active account utilising the standardised portability
form.
8.123 By 2009-10, members would be able to electronically request
consolidation of their accounts via a facility on the ATO's website.
Impact analysis
Benefits
Individuals (including the self-employed)
8.124 The development of a standardised portability form would
facilitate account consolidation, and would reduce the need for
individuals' direct involvement.
8.125 Requests for account transfers would be processed more quickly,
increasing the likelihood that individuals' superannuation assets would be
held in accounts that reflect their immediate preferences (eg, fees and
charges and level of insurance coverage).
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Regulation impact statement
8.126 Streamlining the portability arrangements would encourage
individuals to claim and consolidate their accounts, eliminating multiple
fees and charges and allowing individuals to claim the full entitlement of
their accumulated superannuation benefits in retirement.
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.127 The use of a standardised portability form and proof of identity
requirements would potentially reduce the need for funds to seek
additional information from members, thereby decreasing the costs of
processing a transfer application.
Government
8.128 Over time, the ATO would have lower administration
costs through a reduction in the number of accounts listed on the
Lost Members Register.
Other
8.129 Employers would not receive additional benefits.
Costs
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.130 Some funds may be required to update their existing
administrative systems (both electronic and manual) to meet the
30-day rule.
Government
8.131 The ATO would require additional resourcing to manage the
increased administrative workflow resulting from greater efforts to reunite
lost members with their superannuation.
Other
8.132 Individuals and employers would not incur additional costs.
Recommendation
8.133 It is recommended that the proposed staged approach to
improving the portability and Lost Members Register arrangements be
adopted. The amendments will provide individuals with substantial
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ongoing compliance savings which will significantly outweigh the initial
implementation and ongoing compliance costs of superannuation funds
and the costs stemming from the ATO's increased administrative
workflow.
Improvement of self-managed superannuation fund compliance
Problem identification
8.134 The Government is concerned at the level of compliance with
superannuation law by self-managed superannuation funds and the level
of trustee education and their understanding of their responsibilities.
8.135 Approved auditors operate as a key integrity element in the
regulation of self-managed superannuation funds by providing
independent assurance that a self-managed superannuation fund is
complying with its regulatory obligations. However, there are concerns
with the oversight being provided by approved auditors.
8.136 A survey by CPA Australia found that 30 per cent of
self-managed superannuation fund members do not realise they are also a
trustee of their fund. A lack of awareness results in higher levels of
non-compliance, risks the fund being declared non complying and puts
members' retirement incomes at risk.
8.137 The current penalty regime for self-managed superannuation
funds does not provide sufficient flexibility for the ATO in administering
the law.
8.138 Currently if an in specie contribution (eg, business real property
or shares) is made to a fund by an employer for the benefit of an
employee, the employer may incur a fringe benefit tax (FBT) liability. A
contribution made by a payment of money that meets certain conditions is
specifically excluded from FBT.
8.139 The Financial System Inquiry recommended that `... as far as
practicable, the regulatory agencies should charge each financial entity for
direct services provided, and levy sectors of industry to meet the general
costs of their regulation'. The current $45 self-managed superannuation
fund levy has not changed since 1999 and no longer adequately covers the
cost of the ATO's regulation of self-managed superannuation funds. The
current supervisory level for small (less than five members) Australian
Prudential Regulation Authority regulated funds is $500.
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Regulation impact statement
Option One: Improvement of regulatory processes within existing
frameworks
8.140 This approach would include:
· simplifying self-managed superannuation fund reporting
requirements by replacing the current requirement for
multiple reports with a single annual report;
· making the Auditor Contravention Report an approved form;
· improving the level of education and assistance provided by
the ATO to self-managed superannuation funds trustees;
· introducing additional legislative changes to assist in the
prevention and management of compliance problems in
self-managed superannuation funds; and
· removing the application of FBT to in specie transfers of
assets to superannuation funds.
8.141 Option One would also involve the provision of additional
funding for the ATO to regulate self-managed superannuation funds by
raising the supervisory levy to $150 (see cost recovery impact statement
in paragraphs 8.185 to 8.208).
Impact analysis
Benefits
Employers
8.142 Employers would benefit from not having to pay FBT on in
specie contributions made on behalf of their employees.
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.143 Simplified reporting requirements would make it easier for
self-managed superannuation fund trustees to meet their compliance
obligations, potentially reducing the costs of compliance.
8.144 The increase in direct costs resulting from the rise in the
supervisory levy would be partially offset by a decrease in compliance
costs through streamlined and more efficient collection processes. The
supervisory levy would be collected at the same time as the fund's income
tax liability.
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8.145 Using the Business Cost Calculator, the simplified arrangements
are estimated to produce an average compliance saving of $80 per annum
for each self-managed superannuation fund.
Government
8.146 The appropriate level of regulation would enhance self-managed
superannuation fund compliance while maintaining freedom and
flexibility -- key priorities of Australia's retirement income policy. A
standard Auditor Contravention Report would improve communication
between auditors and the ATO, allowing auditors to quickly and easily
alert the ATO to incidences of non compliance.
8.147 Option One would provide the ATO with additional tools to
enforce self-managed superannuation fund compliance (eg, the application
of administrative penalties where self-managed superannuation funds fail
to lodge returns or make false or misleading statements).
8.148 The rise in the supervisory levy would allow the ATO to
broaden its self-managed superannuation fund compliance activities,
ensuring the integrity of the proposed limits on contributions. The
broadening of the ATO's education activities would assist the ATO in
ensuring that self-managed superannuation fund trustees understand their
obligations and responsibilities.
8.149 The ATO's estimated costs of regulating self-managed
superannuation funds are based on total costs over the forward estimates
period. The estimated costs would be broadly offset by the collection of
the supervisory levy, and an improved rate of collection, over the same
period.
8.150 The revenue impact of the increase in the supervisory levy is
estimated to be $55 million over the forward estimates period.
Other
8.151 Individuals would not receive additional benefits.
Costs
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.152 The increase in the supervisory levy would increase a
self-managed superannuation fund's direct costs by $105 per annum.
However, ATO data suggests that the annual cost of running a
self-managed superannuation fund ranges from around $1,500 to $12,000
210
Regulation impact statement
for larger funds. In this context, an increase in the levy of $105 per
annum would not add significantly to the running costs of a self-managed
superannuation fund.
8.153 Administrative penalties for the late or non-payment of the levy
would also increase direct costs.
Government
8.154 The ATO may need additional resourcing to implement the more
direct supervisory activities envisaged in Option One.
8.155 The Government may experience a very minor decline in
revenue as a result of the proposal to exempt in specie contributions from
FBT, although this cannot be quantified.
Other
8.156 Individuals and employers would not incur additional costs.
Option Two: Introduction of new rules
8.157 This approach would include:
· requiring self-managed superannuation funds to have a third
party independent trustee who would be required to sign off
on all decisions and transactions of the fund;
· setting a minimum balance before individuals can establish a
self-managed superannuation fund; and
· tightening self-managed superannuation fund investment
rules, including limiting the classes of assets in which
self-managed superannuation funds are allowed to invest.
Impact analysis
Benefits
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.158 Self-managed superannuation fund trustees may find it easier to
comply with well-defined and tightly regulated rules. Option Two would
provide trustees with a degree of protection, as the requirement for an
independent trustee may reduce the possibility of the self-managed
superannuation fund inadvertently breaking the law.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
Government
8.159 The introduction of more prescriptive rules would facilitate the
ATO's administration of self-managed superannuation funds.
Other
8.160 Individuals and employers would not receive additional benefits.
Costs
Superannuation funds (including approved deposit funds, RSA providers
and self-managed superannuation funds)
8.161 The degree of flexibility currently afforded to self-managed
superannuation fund trustees would be significantly reduced.
8.162 Compliance costs (in terms of both time and money) would be
expected to increase through the requirement to employ an independent
trustee.
Government
8.163 The ATO would require additional resourcing to update its
self-managed superannuation fund administration systems.
Other
8.164 Individuals and employers would not incur additional costs.
Recommendation
8.165 It is recommended that Option One be adopted.
8.166 The range of proposals identified in Option One are preferable
to those identified in Option Two, as the benefits expected from
Option One are greater than those for Option Two and the associated costs
would be less.
· Option One will provide the Government with more certainty
over the regulation of self-managed superannuation funds
and their compliance with superannuation law, without
compromising freedom and choice.
· Increased funding for the ATO's self-managed
superannuation fund supervisory activities will enable the
ATO to more efficiently and effectively regulate
self-managed superannuation funds and target problem funds.
212
Regulation impact statement
· The education initiatives proposed in Option One will
improve community awareness and understanding of the laws
relating to self-managed superannuation funds, reducing the
likelihood of unintentional non-compliance and reinforcing
the integrity of retirement income policy.
Estimates of compliance costs and compliance savings
8.167 Table 8.1 details the ATO's estimates of net potential
compliance costs and compliance savings from Simplified
Superannuation.
8.168 The implementation and on-going compliance costs and
compliance savings identified in the table relate to the key policy
proposals discussed above, along with minor policy proposals, transitional
and administrative arrangements which are not separately identified in this
regulation impact statement.
Table 8.1
Implementation Ongoing
savings/(costs) savings/(costs)
$ million $ million per year
Individuals* (10.7) 76.0
Employers** (29.4) 8.7
Funds (including (180.6) 32.2
self-managed
superannuation funds)***
* Key implementation costs for individuals relate to learning and education.
These compliance costs are expected to be offset by ongoing compliance savings
generated from the abolition of end benefits tax, RBLs, and improved arrangements
to find and transfer superannuation.
** The implementation costs for employers reflect only the proposed changes
to employment termination payment rules, which mainly affect large companies (see
paragraphs 8.14 to 8.54). It is expected that these compliance costs would be offset
by ongoing compliance savings from the streamlined arrangements for employment
termination payments.
*** Key implementation costs for superannuation funds relate to a need to
review and adapt record-keeping systems and processes (both electronic and manual),
particularly in relation to the proposed arrangements for the quotation of TFNs
(see paragraphs 8.55 to 8.74); learning and education; and advice and planning.
These compliance costs are expected to be offset by ongoing compliance savings
generated from the abolition of end benefits tax, RBLs, streamlined pension rules,
and, for self-managed superannuation funds, streamlined reporting requirements.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
8.169 The Government will provide additional funding of $500 million
over the next four years to the ATO, Department of Families, Community
Services and Indigenous Affairs, Centrelink and Department of
Veterans' Affairs to administer the Simplified Superannuation reforms.
8.170 Estimates of potential compliance costs and compliance savings
are based on assumptions about the time taken and level of expertise
required to perform compliance tasks under both the current system and
the proposed arrangements. The estimates are therefore sensitive to
changes in these assumptions.
Fiscal impact
8.171 Taken together, Simplified Superannuation is expected to result
in an aggregate fiscal cost of $7.2 billion over the forward estimates
(including administration costs). As noted in paragraph 8.54, the abolition
of the tax on contributions would result in a significantly higher cost to
revenue.
Consultation
8.172 The Government has undertaken extensive consultation with a
range of employer, consumer, industry and professional groups since the
announcement of A Plan to Simplify Superannuation on Budget night,
9 May 2006. In addition to delivering numerous presentations and
attending meetings across Australia, Treasury officials participated in
forums with independent groups.
8.173 Industry bodies consulted by Treasury during the three-month
consultation period include: AMP; Association of Independent Retirees;
Association of Superannuation Funds of Australia; Association of Tax and
Management Accountants; Australian Bankers Association; Australian
Chamber of Commerce and Industry; Australian Institute of
Superannuation Trustees; Business Council of Australia; Chartered
Professional Accountants Australia; Corporate Superannuation
Association; Council of Small Business Organisations of Australia; CPA
Australia; EquipSuper; Financial Planners Association; Industry Funds
Forum; Institute of Actuaries of Australia; Institute of Chartered
Accountants of Australia; Investment and Financial Services Association;
Law Council of Australia Superannuation Committee; Mercer Human
Resources Consulting; National Institute of Accountants; Small
Independent Superannuation Funds of Australia; Self-Managed
Superannuation Fund Professionals Association of Australia; Taxation
Institute of Australia; and Taxpayers Association of Australia.
214
Regulation impact statement
8.174 Key stakeholders expressed strong support for the key elements
of A Plan to Simplify and Streamline Superannuation on the basis that
they will simplify the administration of superannuation, provide retirees
with greater flexibility, improve incentives to work and save, decrease
costs and enhance the operation of the superannuation system. The bulk
of the feedback received by the Government centred on administrative,
operational and transitional issues.
8.175 Community members were also given the opportunity to make
comments and submissions on A Plan to Simplify and Streamline
Superannuation through the `Simpler Super' email service and the
Superannuation Hotline. At the conclusion of the consultation period on
9 August 2006, the Simpler Super service had received 1,127 emails while
the Superannuation Hotline received 3,645 telephone enquiries.
8.176 The views expressed by stakeholders and members of the
community during the three month consultation period were examined
and considered by the Government. Overall, the Government received
over 1,500 submissions and comments on the plan. The main issues
raised in submissions related to the contribution rules and their associated
administration, the parity of the proposed treatment of benefits paid from
taxed and untaxed sources and the taxation of death benefits for non
dependants. Issues outside A Plan to Simplify and Streamline
Superannuation were also raised, including the work test in relation to
contributions made by persons aged 65 or over, full deductibility for all
contributions and commutation of complying income streams.
8.177 The feedback received by stakeholders and members of the
community resulted in a number of changes to the reforms proposed in
A Plan to Simplify and Streamline Superannuation, which have been
reflected in the Government's final policy decision, Simplified
Superannuation. For example:
· The plan did not propose indexation of the limit on
concessional contributions and the cap on non-concessional
contributions. Industry argued strongly that the limit and cap
should be indexed over time.
- Simplified Superannuation would permit indexation of
the limit and cap in $5,000 increments.
· A number of concerns were raised regarding the level of the
cap on non-concessional contributions. Key stakeholders and
members of the community sought the introduction of
averaging provisions and requested consideration of certain
exemptions.
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Tax Laws Amendment (Simplified Superannuation) Bill 2006
- Simplified Superannuation would allow individuals
under age 65 to make larger non-concessional
contributions of up to $450,000 by bringing forward two
years of future entitlements. Moreover, the proceeds
from the disposal of small business active assets up to
$1 million and permanent incapacity payments would be
excluded from the cap.
- As a transitional measure, Simplified Superannuation
would allow individuals who meet the work test to
contribute up to $1 million in post-tax contributions
between 10 May 2006 and 30 June 2007 irrespective of
future work status.
· The plan proposed to remove the existing portability
retriggering provisions so that in all cases benefits would be
transferred within 30 days of a transfer request (the
retriggering provisions allow the current 90-day rule to start
again if a fund is required to seek additional information
from a member). Industry expressed a preference for the
30-day rule to commence upon receipt of all information
required to process a transfer request.
- Under Simplified Superannuation, the 30-day rule would
commence upon receipt of a valid and complete transfer
form, consistent with industry's preferred approach.
· The plan did not propose to alter the treatment of invalidity
benefits paid to the self-employed. However, during the
consultation period, industry expressed concern that
employees invalided out of the workforce receive part of
their lump sum tax free, whereas the self-employed are
unable to access this concession due to the requirement for
the termination of employment under current law.
- Under Simplified Superannuation, lump sum invalidity
benefits paid to the self-employed would receive the
same concessional tax treatment afforded to employees.
Conclusion
8.178 Simplified Superannuation encompasses all of the recommended
options in this statement. Taken together, these options will enhance the
fairness, integrity and equity of the superannuation system, and create
more opportunities for individuals to work and save.
216
Regulation impact statement
8.179 The reforms will simplify and streamline the existing
superannuation system, generating substantial improvements and savings
for individuals, employers, superannuation funds and the Government at
the lowest cost.
Implementation and review
8.180 Simplified Superannuation will commence on 1 July 2007, with
the exception of:
· abolition of compulsory withdrawal (10 May 2006);
· reduction in the pension assets-test taper rate and related
changes (20 September 2007); and
· transitional cap and exemptions for non-concessional
contributions (10 May 2006).
8.181 Press Release No. 093 of 5 September 2006, issued jointly by
the Treasurer and the Minister for Revenue and Assistant Treasurer,
announced Simplified Superannuation.
8.182 Following consultation with industry, the implementation
arrangements for the treatment of excess concessional contributions were
modified (see paragraphs 8.57 to 8.60). Under A Plan to Simplify and
Streamline Superannuation, contributions in excess of the concessional
cap would be taxed at the top marginal rate and the ATO would raise a tax
assessment on the fund. However, industry expressed concern that this
approach would impose significant administrative costs on funds. Under
Simplified Superannuation, the additional tax payable on concessional
contributions in excess of $50,000 will be levied on the individual who
can then direct their fund to pay the tax. This approach will minimise
compliance costs for superannuation funds.
8.183 The Government will continue to consult with peak
representative bodies such as Association of Superannuation Funds of
Australia and Investment and Financial Services Association regarding
the implementation of Simplified Superannuation.
8.184 Simplified Superannuation will be subject to ongoing review by
the administering agencies.
217
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Cost recovery impact statement
Purpose
Improvement of self-managed superannuation fund compliance.
8.185 Since 1991 all superannuation funds, including self-managed
superannuation funds, have been subject to a supervisory levy designed to
fund the regulatory costs of ensuring funds comply with superannuation
legislation.
8.186 This approach was confirmed as appropriate by the 1997
Financial System Inquiry which recommended that `... as far as
practicable, the regulatory agencies should charge each financial entity for
direct services provided, and levy sectors of industry to meet the general
costs of their regulation'.
8.187 Cost recovery of general regulatory oversight continues to be
considered appropriate for the entire superannuation industry. Since 1999
regulatory responsibility for superannuation funds has been split between
the ATO (responsible for self-managed superannuation fund regulation)
and the Australian Prudential Regulation Authority (APRA) with separate
levy arrangements applying to self-managed superannuation fund and
APRA regulated funds.
8.188 This statement proposes a material amendment to the cost
recovery arrangements for self-managed superannuation funds to ensure
that amounts collected are broadly sufficient to fund the expected ongoing
costs of effective ATO regulation. Specifically, it is proposed that the
existing self-managed superannuation fund supervisory levy be raised
from $45 to $150.
8.189 The proposed amendment would be implemented as part of a
package of reforms envisaged under Simplified Superannuation,
announced by the Government on 5 September 2006. This statement is
intended to be read in conjunction with the rest of the regulation impact
statement for the reforms.
Background
8.190 The ATO assumed primary responsibility for the supervision of
self-managed superannuation funds in October 1999. Its regulatory role is
currently exercised through the Superannuation Industry (Supervision)
Act 1993 and the Superannuation Industry (Supervision)
Regulations 1994. The ATO is tasked with ensuring that self-managed
superannuation fund trustees comply with their legislative obligations
218
Regulation impact statement
under this legislation. Obligations under this legislation include
requirements to lodge returns, comply with rules on superannuation
contributions and benefit payments, and comply with rules on
superannuation investments.
8.191 Prior to 1999, the supervisory levy paid by self-managed
superannuation funds was set at $200 per annum. The levy was reduced
when the ATO assumed responsibility for self-managed superannuation
funds, as it was considered that the $200 levy would exceed the costs of
the ATO's regulation.
8.192 The current supervisory levy imposed on self-managed
superannuation funds is $45 per annum. This amount has not been
changed since 1999 and no longer covers the cost of the ATO's regulation
of self-managed superannuation funds nor the expected costs of future
regulation. The shortfall between the amount levied and the ATO's
regulatory costs has, to date, been subsidised from general tax revenue.
Australian Government cost recovery policy
8.193 In December 2002, the Australian Government adopted a formal
cost recovery policy to improve the consistency, transparency and
accountability of its cost recovery arrangements and promote the efficient
allocation of resources. Cost recovery policy is administered by the
Department of Finance and Administration and outlined in the Australian
Government Cost Recovery Guidelines and the Review Schedule is
outlined in Finance Circular 2005/09. Cost recovery broadly
encompasses fees and charges related to the provision of Government
goods and services (including regulation) to the private and other
non-government sectors of the economy.
8.194 The policy applies to all Financial Management and
Accountability Act 1997 agencies and to relevant Commonwealth
Authorities and Companies Act 1997 bodies that have been notified, under
section 28 or 43 of the Commonwealth Authorities and Companies
Act 1997, to apply the cost recovery policy. These entities are collectively
referred to as `agencies' for the purposes of the guidelines. In line with
the policy, individual portfolio ministers are ultimately responsible for
ensuring agencies' implementation and compliance with the cost recovery
guidelines.
Policy review -- analysis of activities
Description of activity
8.195 It is proposed that the current supervisory levy be increased
from $45 per annum to $150 per annum to reflect the expected costs of
ATO regulation. While the increased levy would take effect from the
219
Tax Laws Amendment (Simplified Superannuation) Bill 2006
2007-08 financial year, revenue will not be received until the 2008-09
financial year.
8.196 The process for collection of the levy would also be streamlined,
by incorporating the levy into self-managed superannuation fund income
tax assessments. Currently, the levy is collected by a separate process
whereby the ATO issues an invoice to each self-managed superannuation
fund for payment.
Analysis of costs and benefits
Self-managed superannuation funds
8.197 The increase in the supervisory levy would increase a
self-managed superannuation fund's direct costs by $105 per annum.
However, ATO data suggests that the annual cost of running a
self-managed superannuation fund ranges from around $1,500 up to
almost $12,000 for larger funds. In this context, an increase in the levy of
$105 per annum would not add significantly to the running costs of a
self-managed superannuation fund.
8.198 In addition to improving the effectiveness of ATO compliance
activities, the increased funding will also enable the ATO to broaden its
education activities which will assist self-managed superannuation fund
trustees to understand their obligations and responsibilities.
Government
8.199 The provision of additional funding would allow the ATO to
broaden its self-managed superannuation fund compliance activities and
more effectively ensure self-managed superannuation funds are
complying with their legislative obligations. This is especially important
in the context of the growing number and size of such funds.
8.200 The revenue impact of the increase in the supervisory levy is
estimated to be $55 million over the forward estimates period.
Table 8.3: Impact on the underlying cash balance of the increase in
the supervisory levy
2006-07 2007-08 2008-09 2009-10 Total
($m) ($m) ($m) ($m) ($m)
Increase in
supervisory +24.0 +31.0 +55.0
levy
220
Regulation impact statement
Conclusion
8.201 It is recommended that the current supervisory levy be increased
from $45 per annum to $150 per annum, to better reflect the cost of the
ATO's self-managed superannuation fund supervisory activities.
Design and implementation
Basis of charging -- fee or levy
8.202 Cost recovery of the ATO's self-managed superannuation fund
supervisory activities through the imposition of a levy has been in place
for a number of years. The levy remains the most efficient and effective
mechanism for cost recovery.
Legal requirements for the imposition of charges
8.203 Supervisory levies are currently imposed on all superannuation
funds, including self-managed superannuation funds. The legislative
authority for imposing a levy on self-managed superannuation funds is
provided by the Superannuation (Self Managed Superannuation Funds)
Supervisory Levy Imposition Act 1991.
Outline of charging structure
8.204 For simplicity, the levy will be applied at a flat rate of $150 per
self-managed superannuation fund (consistent with current arrangements).
The ATO will manage under-over-recoveries over the medium term.
Sustained under-recoveries will be managed through an amendment to the
levy to reflect the higher costs of supervision; while sustained over
recoveries will be returned to the industry via reduced charges.
8.205 Detailed analysis of the ATO's costs of self-managed
superannuation fund regulation was taken into consideration in identifying
the appropriate levy.
Ongoing monitoring
Monitoring mechanisms
8.206 The ATO would implement an ongoing monitoring process to
assess the efficiency and effectiveness of levy collections. This process
would reflect the Government's cost recovery guidelines and would
ensure the ongoing appropriateness of the levy charged, by periodically
assessing the size of the levy with the costs incurred by the ATO in
discharging its self-managed superannuation fund supervisory
221
Tax Laws Amendment (Simplified Superannuation) Bill 2006
responsibilities. This process would provide an opportunity for continual
improvement of the levy collection arrangements.
Stakeholder consultation
8.207 This statement proposes an increase in the quantum of the
existing levy to reflect necessary costs incurred to ensure effective
regulation, rather than wholesale changes to the arrangements for cost
recovery. As a result, consultation was not considered necessary.
Periodic review
8.208 The ATO will also review the levy collection arrangements and
the adequacy of monitoring processes no later than 30 June 2011 to ensure
the levy continues to provide appropriate cost recovery of the ATO's
functions. The review will be undertaken in accordance with Australian
Government cost recovery policy and a cost recovery impact statement
will be prepared. The purpose of the review will be to ensure that the
supervisory levy collected from self-managed superannuation funds
accurately reflects the ATO's regulatory costs over the medium term.
222
Index
Schedule 1: Main superannuation amendments
Bill reference Paragraph number
Item 1, paragraph 26(1)(a), subsection 26(2) or 3.169
paragraph 23(4BA)(a) of the Income Tax Rates Act 1986
Item 1, section 290-5 1.25, 1.25
Item 1, section 290-10 1.24
Item 1, section 290-60 1.26, 1.27
Item 1, subsection 290-60(4) 1.29
Item 1, subsection 290-65(1) 1.30
Item 1, subsection 290-65(2) 1.31
Item 1, section 290-70 1.35
Item 1, section 290-75 1.35
Item 1, section 290-80 1.33, 1.34
Item 1, section 290-85 1.37, 1.38
Item 1, section 290-90 1.40
Item 1, section 290-95 1.41
Item 1, section 290-100 1.42
Item 1, section 290-150 1.44, 1.45
Item 1, section 290-155 1.50
Item 1, section 290-160 1.46, 1.47
Item 1, subsection 290-165(1) 1.50
Item 1, subsection 290-165(2) 1.48
Item 1, section 290-170 1.52
Item 1, sections 290-170 to 290-175 1.49
Item 1, subsection 290-170(2) 1.53
Item 1, subsection 290-170(3) 1.56
Item 1, subsection 290-170(4) 1.57
Item 1, section 290-180 1.58
Item 1, sections 290-230 to 290-240 1.59
Item 1, sections 292-15 and 292-20 1.63
Item 1, section 292-25 1.64, 1.65
223
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Bill reference Paragraph number
Item 1, sections 292-25 and 292-465 1.68
Item 1, subparagraph 292-25(2)(c)(i) 1.65
Item 1, subparagraph 292-25(2)(c)(ii) 1.65
Item 1, subparagraph 292-25(2)(c)(iii) 1.65
Item 1, subsection 292-25(3) 1.66
Item 1, subsection 292-25(4) 1.67
Item 1, section 292-80 and subsections 292-85(1) and (2) 1.79
Item 1, subsection 292-85(3) 1.86
Item 1, subsections 292-85(3) and (4) 1.85
Item 1, subsection 292-85(4) 1.87
Item 1, section 292-90 1.81
Item 1, paragraph 292-90(1)(b) 1.83
Item 1, subparagraph 292-90(2)(c)(i) 1.84
Item 1, subparagraphs 292-90(2)(c)(ii) and (iii) 1.84
Item 1, subparagraph 292-90(2)(c)(iv) 1.83
Item 1, subparagraph 292-90(2)(c)(v) 1.84
Item 1, subparagraph 292-90(2)(c)(vi) 1.84
Item 1, subsection 292-90(3) 1.84
Item 1, section 292-95 1.92
Item 1, paragraph 292-95(1)(a) 1.93
Item 1, paragraph 292-95(1)(b) 1.96
Item 1, paragraph 292-95(1)(c) 1.94
Item 1, paragraph 292-95(1)(d) 1.95
Item 1, subsection 292-95(5) 1.97
Item 1, subsection 292-100(2) 1.99
Item 1, paragraphs 292-100(2)(b) and (7)(b) 1.103
Item 1, subsections 292-100(3) and (6) 1.99
Item 1, subsection 292-100(4) 1.104
Item 1, subsection 292-100(8) 1.105
Item 1, subsection 292-100(5) 1.99
Item 1, subsection 292-100(7) 1.99
Item 1, subsection 292-100(9) 1.102
Item 1, section 292-105 1.98
224
Index
Bill reference Paragraph number
Item 1, subsection 292-105(2) and Schedule 1, item 25, 1.101
paragraph 292-80(3)(h) of the Income Tax (Transitional
Provisions) Act 1997
Item 1, section 292-165 1.74
Item 1, section 292-170 1.73
Item 1, subsection 292-170(6) 1.75, 1.76
Item 1, paragraph 292-170(6)(d) 1.77
Item 1, subsection 292-170(7) 1.78
Item 1, subsection 292-175(1) 1.71
Item 1, subsection 292-175(2) 1.72
Item 1, subsections 292-230(1) and (2) 1.138
Item 1, subsections 292-230(3) and 310(2) 1.139
Item 1, subsections 292-230(4) and 310(3) 1.140
Item 1, section 292-235 1.142
Item 1, section 292-240 1.143
Item 1, Section 292-245 1.144
Item 1, section 292-250 1.145
Item 1, sections 292-305 and 292-310 1.148
Item 1, subsection 292-305(2) 1.149
Item 1, section 292-315 1.150
Item 1, section 292-320 1.152
Item 1, section 292-325 1.151
Item 1, section 292-330 1.153
Item 1, sections 292-385 and 292-390 1.141
Item 1, section 292-395 1.154
Item 1, section 292-405 1.124
Item 1, subsection 292-410(1) 1.125, 1.131. 1.132
Item 1, subsection 292-410(2) and item 23, section 288-90 of the 1.133
TAA 1953
Item 1, subsections 292-410(3) and (4) 1.134
Item 1, subsections 292-415(1) and (2) 1.126
Item 1, subsection 292-415(1) and subsections 304-15(2) and (3) 1.127
Item 1, subsection 292-415(3) 1.128
Item 1, subsection 292-415(5) 1.129
Item 1, subsection 292-465(1) 1.114
Item 1, subsection 292-465(2) 1.115
225
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Bill reference Paragraph number
Item 1, subsection 292-465(3) 1.116
Item 1, subsection 292-465(4) 1.119
Item 1, subsections 292-465(5) and (6) 1.118
Item 1, subsection 292-465(7) 1.120
Item 1, section 292-470 1.146
Item 1, section 295-5 3.19, 3.95
Item 1, subsections 295-5(2) and (3) 3.21
Item 1, subsection 295-5(2) 3.22
Item 1, section 295-10 3.24, 3.27
Item 1, section 295-15 3.30
Item 1, section 295-20 3.31
Item 1, section 295-25 3.25, 3.32
Item 1, section 295-30 3.34
Item 1, section 295-35 3.35
Item 1, sections 295-85 and 118-350 of the ITAA 1997 3.42
Item 1, subsections 295-85(1) and (2) 3.37
Item 1, subsections 295-85(3) and (4) 3.38
Item 1, section 295-90 3.39
Item 1, section 295-95 3.40
Item 1, section 295-100 3.41
Item 1, section 295-105 3.42
Item 1, section 295-160 3.48
Item 1, sections 295-165, 295-175 and 295-185 3.48
Item 1, section 295-170 3.48
Item 1, section 295-180 3.49, 3.124
Item 1, subsection 295-180(5) 3.125
Item 1, section 295-190, item 1 in the table 3.50
Item 1, section 295-190, item 3 in the table 3.128
Item 1, subsection 295-190(1), item 2 in the table and 3.53
subsection 295-190(4)
Item 1, subsections 295-190(2) and (3) 3.51
Item 1, section 295-195 3.52
Item 1, section 295-200 3.54
Item 1, section 295-205 3.46
Item 1, section 295-210 3.55
Item 1, sections 295-260 and 295-320, item 1 in the table, item 13, 3.57
226
Index
Bill reference Paragraph number
paragraph 320-15(1)(i)
Item 1, section 295-265 3.58
Item 1, section 295-270 3.59
Item 1, section 295-320, item 1 in the table 3.61
Item 1, section 295-320, items 2 and 3 in the table, 3.61
sections 295-325 and 295-330
Item 1, section 295-320, items 4 and 5 in the table 3.61
Item 1, section 295-335, item 1 in the table 3.62
Item 1, section 295-335, item 2 in the table 3.62
Item 1, section 295-335, item 3 in the table 3.62
Item 1, section 295-385 3.64
Item 1, sections 295-390 and 295-395 3.64
Item 1, section 295-400 3.64
Item 1, subsection 295-400(3) 3.64
Item 1, section 295-405, item 1 in the table 3.65
Item 1, section 295-405, items 2 and 3 in the table and 3.65
section 295-410
Item 1, sections 295-460, 295-465 and 295-480 3.67
Item 1, section 295-470 3.68
Item 1, section 295-475 3.69
Item 1, section 295-485 3.70
Item 1, subsection 295-485(4) 3.71
Item 1, section 295-490 3.72
Item 1, subsection 295-490(1), item 2 in the table 3.52
Item 1, section 295-495, items 1 to 3 in the table 3.73
Item 1, section 295-495, item 4 in the table 3.73
Item 1, section 295-495, item 5 in the table 3.73
Item 1, section 295-545 3.75
Item 1, subsection 295-545(2) and section 295-550 3.76
Item 1, subsection 295-545(3) 3.77
Item 1, subsections 295-545(2) and (3) 3.78
Item 1, section 295-555 3.79
Item 1, subsection 295-555(3) 3.81
Item 1, sections 295-460, 295-465, 295-470 and 295-480 3.129
Item 1, section 295-605 3.96
Item 1, subsection 295-610(1) 3.100
227
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Bill reference Paragraph number
Item 1, subsection 295-610(2) 3.102
Item 1, section 295-615 3.103
Item 1, section 295-620 3.104
Item 1, subsection 295-625(1) 3.105
Item 1, subsection 295-625(2) 3.106
Item 1, subsection 295-625(3) 3.107
Item 1, subsection 295-625(4) 3.108
Item 1, subsection 295-625(5) 3.109
Item 1, subsection 295-675(1) 3.111, 3.112
Item 1, subsection 295-675(2) 3.113
Item 1, section 295-680 3.117
Item 1, section 301-5 2.27
Item 1, section 301-10 2.30
Item 1, section 301-15 2.32
Item 1, subsection 301-20 2.34
Item 1, section 301-25 2.37
Item 1, section 301-30 2.38
Item 1, subsection 301-40(2) and section 307-145 2.43
Item 1, section 301-90 2.46
Item 1, subsection 301-95(1) 2.47
Item 1, subsections 301-95(2) and (3) 2.48
Item 1, section 301-100 2.49
Item 1, section 301-105 2.50
Item 1, section 301-110 2.51
Item 1, subsection 301-115(1) 2.52
Item 1, subsections 301-115(2) and (3) 2.53
Item 1, subsection 301-115(3) 2.54
Item 1, section 301-120 2.55
Item 1, section 301-170 2.56
Item 1, subsection 301-175(1) 2.57
Item 1, subsection 301-175(2) 2.58
Item 1, section 301-225 2.60
Item 1, sections 302-5, 302-195 and 302-200 2.68
Item 1, section 302-10 2.70
Item 1, subsection 302-10(2) 2.70
228
Index
Bill reference Paragraph number
Item 1, subsection 302-10(3) 2.70
Item 1, section 302-20 2.33
Item 1, section 302-35 2.39
Item 1, subsection 302-40(1) 2.40
Item 1, section 302-60 2.72
Item 1, section 302-65 2.73
Item 1, section 302-70 2.74
Item 1, section 302-75 2.74
Item 1, section 302-80 2.76
Item 1, section 302-85 2.77
Item 1, section 302-90 2.78
Item 1, section 302-140 2.79
Item 1, section 302-145 2.80
Item 1, section 303-5 2.75
Item 1, section 304-5 2.81
Item 1, subsections 304-10(1) and 304-10(2) 2.82
Item 1, subsection 304-10(3) 2.83
Item 1, subsection 304-10(4) 2.84
Item 1, section 304-15 2.85
Item 1, subsection 304-15(4) 1.130
Item 1, subsection 304-15(4) and item 23, section 288-100 of the 1.112
Taxation Administration Act 1953 (TAA 1953)
Item 1, Subdivision 305-A 2.86
Item 1, Subdivision 305-B 2.86
Item 1, section 306-5 2.89
Item 1, sections 306-10 and 307-15 2.87
Item 1, paragraph 306-10(b) 2.88
Item 1, section 306-15 2.91, 2.92
Item 1, section 306-20 2.94
Item 1, section 307-5 2.95, 2.96, 2.100
Item 1, subsection 307-5(8) 2.90
Item 1, section 307-10 2.97
Item 1, section 307-120 2.104
Item 1, section 307-125 2.120, 2.121
Item 1, subsection 307-125(3) 2.122, 2.123, 2.124
Item 1, section 307-345 2.62
229
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Bill reference Paragraph number
Item 1, subsection 307-345(2) 2.64
Item 1, section 307-350 2.66
Item 1, subsection 307-350(2) 2.67
Item 1, subsection 307-5(3) 2.103
Item 1, subsections 307-5(5) to (7) 2.101
Item 1, sections 307-65 and 307-70 2.99
Item 1, subsection 307-125(2) 2.127
Item 1, subsections 307-125(4) and (5) 2.136
Item 1, sections 307-130, 307-135 and 307-140 2.135
Item 1, section 307-150 2.144
Item 1, section 307-200 2.137
Item 1, section 307-205 2.125, 2.126
Item 1, section 307-210 2.105
Item 1, section 307-215 2.113
Item 1, subsection 307-220(1) 2.106
Item 1, subsection 307-220(2) 2.108
Item 1, subsections 307-220(2) and (3) 2.107
Item 1, section 307-225 2.109, 2.110, 2.111,
2.112, 2.141
Item 1, section 307-275 2.114
Item 1, subsection 307-275(3) 2.118
Item 1, section 307-280 2.115
Item 1, section 307-285 2.116
Item 1, section 307-290 2.117
Item 1, section 307-295 2.115
Item 1, section 307-400 2.119
Item 1, section 309-5 2.102
Part 2, item 5, section 9-1, item 6, section 9-5, item 40, 3.158
subparagraph 320-15(1)(i), item 14, subsection 320-15(3)
Item 3, subsection 6(1) 3.155
Item 4, section 161AA 3.156
Item 7, section 11-15 and item 8, section 50-25 3.157
Item 8 3.150
Item 8, section 50-25 3.29
Item 9, section 67-25 3.161
Item 10, Subdivision 118-G, item 11, paragraph 118-515(1)(b), 3.159
230
Index
Bill reference Paragraph number
item 12, section 118-520, item 50, section 995-1, definition of
`Australian superannuation fund', item 55, section 995-1, definition
of `endowment policy', item 60, section 995-1, definition of
`foreign superannuation fund', item 65, section 995-1, definition of
`non-arm's length income', item 70, section 995-1, definition of
`quoted (for superannuation purposes)', item 75, section 995-1,
definition of `RSA component', item 80, section 995-1, definition
of `segregated current pension assets', item 85, section 995-1,
definition of `segregated non-current assets', item 90, section 995-
1, definition of `standard component', item 95, section 995-1,
definition of `superannuation fund for foreign residents', item 100,
section 995-1, definition of `whole of life policy'
Item 13, subparagraph 320-15(1)(i), item 14, subsection 320-15(3), 3.160
item 15, section 320-107
Item 18, section 29 of the Income Tax Rates Act 1986 3.98
Item 18, subsection 29(1) 3.163
Item 18, subsection 29(2) 3.165
Item 23, section 288-90 of the TAA 1953 1.136
Item 23, section 288-95 of the TAA 1953 1.137
Item 23, section 288-100 of the TAA 1953 1.136
Item 23, section 288-105 of the TAA 1953 2.142
Item 25, section 290-10 of the Income Tax (Transitional 1.25
Provisions) Act 1997
Item 25, section 292-20 of the Income Tax (Transitional 1.69
Provisions) Act 1997
Item 25, section 292-25 1.65
Item 25, subsection 292-20(3) 1.80
Item 25, subsection 292-80(1) and paragraph 292-80(3)(c ) of the 1.106
Income Tax (Transitional Provisions) Act 1997
Item 25, paragraph 292-80(3)(d) of the Income Tax (Transitional 1.107
Provisions) Act 1997
Item 25, paragraphs 292-80(3)(e) and (3)(h) of the Income Tax 1.107
(Transitional Provisions) Act 1997
Item 25, paragraphs 292-80(3)(f) and (g) of the Income Tax 1.107
(Transitional Provisions) Act 1997
Item 25, subsections 292-80(5) and (6) of the Income Tax 1.107
(Transitional Provisions) Act 1997
Item 25, section 292-80A of the Income Tax (Transitional 1.108
Provisions) Act 1997
Item 25, section 292-80B of the Income Tax (Transitional 1.109
Provisions) Act 1997
Item 25, subsection 292-80(2) of the Income Tax (Transitional 1.121
231
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Bill reference Paragraph number
Provisions) Act 1997
Item 25, paragraph 292-80(2)(c) of the Income Tax (Transitional 1.110
Provisions) Act 1997
Item 25, paragraph 292-80(3)(i) of the Income Tax (Transitional 1.113
Provisions) Act 1997
Item 25, paragraph 292-80(3)(i) of the Income Tax (Transitional 1.111
Provisions) Act 1997 and item 1, subsections 304-15(2) and (3)
Item 25, section 295-610 3.152
Item 25, section 307-345 of the Income Tax (Transitional 2.63
Provisions) Act 1997
Item 25, section 309-37 of the Income Tax (Transitional 2.128
Provisions) Act 1997
Item 25, subsection 309-37(2) of the Income Tax (Transitional 2.129, 2.130
Provisions) Act 1997
Item 25, subsection 309-37(3) of the Income Tax (Transitional 2.131, 2.132
Provisions) Act 1997
Item 25, subsection 309-37(4) of the Income Tax (Transitional 2.133
Provisions) Act 1997
Item 27, section 202DHA 3.134
Item 28, paragraph 6(1)(a) 3.137
Item 29, subparagraph 6(1)(a)(xii) 3.138
Item 30, subparagraph 6(1)(e)(v) 3.139
Item 31, paragraph 6(1)(g) 3.140
Item 32, paragraph 299C(1)(a) 3.141
Item 34, paragraph 299P(a) 3.143
Item 35, subsection 299TA(1) 3.144
Item 35, subsection 299TA(2) 3.145
Item 35, subsection 299TB(1) 3.146
Item 35, subsection 299TB(2) 3.147
Item 35, subsection 299TB(3) 3.148
Item 36, section 8ZD 3.120
Item 36, section 8ZE 3.121
Item 36, section 8ZF 3.122
Item 37 3.151
232
Index
Schedule 2: Employment termination payments
Bill reference Paragraph number
Item 1, section 80-5 4.13
Item 1, section 80-10 4.14
Item 1, section 80-15 4.21
Item 1, section 80-20 4.23
Item 1, subsection 82-10(1) and section 82-140 4.26
Item 1, subsection 82-10(2) 4.31
Item 1, paragraph 82-10(3)(a) and subsection 82-10(4) 4.32
Item 1, paragraph 82-10(3)(b) and subsection 82-10(4) 4.33
Item 1, paragraph 82-10(4)(a) 4.36
Item 1 , paragraph 82-10(4)(b) 4.37
Item 1, subsection 82-65(1) 4.41
Item 1, paragraph 82-65(2)(a) and subsection 82-65(3) 4.42
Item 1, paragraph 82-65(2)(b) and subsection 82-65(3) 4.43
Item 1, subsection 82-65(4) 4.44
Item 1, subsections 82-65(5), 70(6) and 75(1) 4.49
Item 1, subsection 82-70(1) 4.46
Item 1, subsections 82-70(2) to (4) 4.47
Item 1, subsection 82-70(5) 4.48
Item 1, subsection 82-75(2) 4.51
Item 1, subsection 82-75(3) 4.52
Item 1, subsection 82-130(1) 4.15
Item 1, subparagraph 82-130(1)(a)(i) and subsection 82-130(2) 4.16
Item 1, subparagraph 82-130(1)(a)(ii) and subsection 82-130(3) 4.17
Item 1, paragraphs 82-130(1)(b) and 82-130(4)(a) and 4.18
subsections 82-130(5) to (8)
Item 1, paragraph 82-130(1)(c) and section 82-135 4.22
Item 1, paragraph 82-130(4)(b) 4.20
Item 1, section 82-145 4.30
Item 1, subsection 82-150(1) 4.27
Item 1, subsection 82-150(2) 4.28
Item 1, section 82-155 4.29
Item 1, section 82-160 4.34
Item 1, Subdivision 83-D 4.64
Item 1, subsections 83-10(1) and (2) 4.54
233
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Bill reference Paragraph number
Item 1 , subsection 83-10(3) 4.55
Item 1, section 83-15 4.56
Item 1, sections 83-70 to 83-115 4.57
Item 1, subsection 83-170(1) and sections 83-175 and 83-180 4.58
Item 1, subsection 83-170(2) 4.60
Item 1, subsection 83-170(3) 4.61
Item 1, subsections 83-175(4) and 83-180(6) and section 82-130 4.62
Item 1, section 83-295 4.38
Item 2, subsections 82-10(1), (2), (5) and (6) 4.67
Item 2, subsections 82-10(3) and (4) 4.68
Item 2, subsections 82-10A(1) and (2) 4.74
Item 2, subsection 82-10A(3) 4.75
Item 2, subsections 82-10A(4) and (6) and section 82-10B 4.76
Item 2, subsections 82-10A(5) and (7) 4.77
Item 2, section 82-10B 4.79
Item 2, sections 82-10B and 82-10D 4.78
Item 2, subsection 82-10C(2) 4.69
Item 2, subsection 82-10C(3) 4.70
Item 2, subsections 82-10C(3) to (5) 4.71
Item 2, section 82-10D 4.72, 4.80
Item 2, section 82-10E 4.82
Item 2, section 82-10F 4.83
Item 2, subsection 82-10F(1) and paragraphs 82-10F(2)(a) and (b) 4.84
Item 2, paragraphs 82-10F(4)(a) and (b) 4.85
Item 2, section 82-10G 4.86
Item 2, section 82-10H 4.87
Items 3 and 4, paragraphs 8C(1)(h) and (i) 4.88
Schedule 3: Indexation
Bill reference Paragraph number
Item 1, section 960-265 7.23
Items 2 and 4 7.26
Items 3, 5 and 6 7.25
Item 7, subsections 960-285(1) and (2) 7.27
234
Index
Item 7, subsection 960-285(3) 7.29
Item 7, subsections 960-285(4) to (6) 7.28
Schedule 4: Reporting
Bill reference Paragraph number
Item 1 to 10 7.59
Items 11 to 14 7.48
Item 15, sections 390-5 and 390-10 7.32, 7.41
Item 15, subsections 390-5(1), (3) and (4) 7.31
Item 15, subsections 390-5(1) and (9) 7.35
Item 15, subsection 390-5(2) 7.34
Item 15, subsections 390-5(5) to (8) 7.37
Item 15, subsection 390-5(9) 7.33
Item 15, subsection 390-5(10) 7.38
Item 15, subsection 390-5(11) 7.36
Item 15, sections 390-10 and 390-25 7.39
Item 15, subsections 390-10(4) to (9) 7.40
Item 15, section 390-15 7.42
Item 15, section 390-65 7.43
Item 15, subsection 390-65(4) 7.44
Item 15, subsections 390-65(5) and (6) 7.45
Item 15, section 390-115 7.46
Item 16 and Schedule 1, item 25, section 292-80 of the Income Tax 7.47
(Transitional Provisions) Act 1997
Schedule 5: Self-managed superannuation funds
Bill reference Paragraph number
Items 1 and 2, subparagraph 136(1)(j)(i) of the Fringe Benefits Tax 6.77
Assessment Act 1986
Items 3, 4 and 5, subparagraph 136(1)(j)(ii) of the Fringe Benefits 6.78
Tax Assessment Act 1986
Items 6 and 7, subsection 995-1(1) of the ITAA 1997 6.25
Item 8 6.26
Item 9, subsection 10(1) and item 10, subsection 10(4) of the 6.70
235
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Bill reference Paragraph number
Superannuation Industry (Supervision) Act 1993
Items 11 to 14, paragraphs 17A(1)(g) and (2)(d) of the 6.52
Superannuation Industry (Supervision) Act 1993
Item 15, subsection 17A(10) of the Superannuation Industry 6.53
(Supervision) Act 1993
Item 16, paragraph 38A(ab) of the Superannuation Industry 6.62
(Supervision) Act 1993
Item 18, paragraph 39(1)(c) of the Superannuation Industry 6.63
(Supervision) Act 1993
Item 19, subsection 39(1B) of the Superannuation Industry 6.64
(Supervision) Act 1993
Item 20, paragraph 129(3)(b) of the Superannuation Industry 6.61
(Supervision) Act 1993
Item 22, paragraph 129(3)(c) of the Superannuation Industry 6.56
(Supervision) Act 1993
Item 23, subsection 129(3AA) of the Superannuation Industry 6.58
(Supervision) Act 1993
Items 24 and 25, section 15DAA of the Superannuation 6.38
(Self Managed Superannuation Funds) Taxation Act 1987
Item 26, section 15DC of the Superannuation (Self Managed 6.34
Superannuation Funds) Taxation Act 1987
Item 27, section 15DD of the Superannuation (Self Managed 6.38
Superannuation Funds) Taxation Act 1987
Items 28 and 29, section 15DE and Note of the Superannuation 6.38
(Self Managed Superannuation Funds) Taxation Act 1987
Item 30, section 15DF of the Superannuation (Self Managed 6.38
Superannuation Funds) Taxation Act 1987
Item 31, subsection 2(1) of the TAA 1953 6.27
Item 32 6.28
Item 33, subsection 8AAB(5), item 13A in the table of the 6.35
TAA 1953
Item 34, subsection 286-75(5) of the TAA 1953 6.41
Item 34, subsection 286-75(6) of the TAA 1953 6.42
Item 35, section 288-85 of the TAA 1953 6.46
Item 35, subsection 288-85(1) of the TAA 1953 6.48
Item 35, subsection 288-85(2) of the TAA 1953 6.47, 6.49
Item 35, subsections 288-85(3) and (4) of the TAA 1953 6.50
Item 36 and Superannuation (Self Managed Superannuation Funds) 6.83
Supervisory Levy Amendment Bill 2006
Item 36 6.84
236
Index
Schedule 6: Government Co-contribution for Low Income
Earners
Bill reference Paragraph number
Items 1, 2, 7 and 8 7.49
Items 3 and 4, section 7 7.51
Item 5, section 7 7.52
Item 6, section 7 7.50
Items 7 and 8 7.53
Item 8, sections 6 and 8 7.54
Schedule 7: Portability and unclaimed money
Bill reference Paragraph number
Item 1, section 50 7.57
Items 2 to 6 7.55
Schedule 8: Social Security Act 1991
Bill reference Paragraph number
Item 1 5.12
Item 2 5.13
Item 3 5.14
Item 4 5.15, 5.16
Item 5 5.17
Item 6 5.18
Item 7 5.19, 5.20
Item 8 5.21
Item 9 5.22
Item 10 5.23, 5.24
Items 11 to 17 5.25
Item 18 5.26
Item 19 5.32
Item 20 5.34
Item 21 5.38, 5.39, 5.40, 5.41,
237
Tax Laws Amendment (Simplified Superannuation) Bill 2006
Bill reference Paragraph number
5.42, 5.43, 5.44, 5.45,
5.46, 5.47, 5.48, 5.49
Schedule 9: Veterans' Entitlements Act 1986
Bill reference Paragraph number
Item 1 5.51
Item 2 5.52
Item 3 5.53
Item 4 5.54
Item 5 5.55, 5.56
Item 6 5.57
Item 7 5.58
Item 8 5.59
Item 9 5.60
Item 10 5.61
Item 11 5.62, 5.63
Item 12 5.64
Item 13 5.65
Item 14 5.66, 5.67
Item 15 5.68, 5.69, 5.70, 5.71,
5.72
Item 16 5.73, 5.74, 5.75
Schedule 10: Definitions and related amendments
Bill reference Paragraph number
Item 10 3.23
Item 19 2.41
Item 36 2.42
Item 66 6.29
238
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