Bills Digest 81 1996-97 Retirement Savings Accounts (Consequential Amendments) Bill 1996


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WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History

Retirement Savings Accounts (Consequential Amendments) Bill 1996

Date Introduced: 4 December 1996
House: House of Representatives
Portfolio: Treasury
Commencement: The day on which the Retirement Savings Accounts Bill 1996 commences.

Purpose

The Bill amends a number of Acts to place Retirement Savings Accounts (RSA) in generally the same position as superannuation funds. The main amendments relate to:

  • the taxation treatment of RSAs;
  • giving the Superannuation Complaints Tribunal jurisdiction to determine various complaints relating to RSAs;
  • providing a collection mechanism for a levy on RSA providers to fund the supervision of RSA providers; and
  • ensuring that contributions to RSAs will be taken into account for purposes of superannuation guarantee requirements.

Background

Refer to the Digest for the Retirement Savings Accounts Bill 1996.

Main Provisions

Taxation

The taxation treatment of RSAs is dealt with in Schedule 13 of the Bill. Currently, superannuation funds are subject to a concessional rate of tax (15%) if they comply with the Superannuation Industry (Supervision) Act 1993 (SIS) which provides for prudential standards. Where the standards are not complied with, normal company and trust tax rates apply. Section 26AFB of the Income Tax Assessment Act 1936 (ITAA) provides that where a superannuation fund pays a benefit to a member, which will normally receive concessional tax treatment as an eligible termination payment (ETP), and the fund has failed to comply with the SIS Act the benefit is to be included in normal income, thus being subject to a higher tax rate. The section also provides the Commissioner of Taxation (the Commissioner) with power to determine that the section will not apply to such a benefit, so that it will receive the concessional tax rate available to ETPs. Item 6 of Schedule 13 will amend section 26AFB to extend these rules to retirement savings accounts (RSA). Concessional tax treatment for a benefit will not be available if the requirements of the Retirement Savings Accounts Act 1996 (if enacted) are satisfied. The Commissioner will also be given power to exempt people from the operation of the section as it applies to RSAs in a similar way as the current powers in relation to other superannuation products.

Section 26D of the ITAA provides that where a person has paid foreign tax on certain income then part of the amount of tax payable is to be included in their Australian assessable income. Item 8 of Schedule 13 provides that in calculating the amount that is determined to be foreign income, benefits paid from a RSA, or an insurance policy paid for by a RSA benefit, are deemed to be Australian income. The amendment is of a technical nature and aims to ensure that tax on a RSA benefit cannot be evaded by arrangements that would exempt the benefit as it has been subject to tax, at a lower rate, in a foreign country.

Employer contributions to superannuation funds are generally deductable to the employer so long as they are within the limits contained in section 82AAC, which allow a higher deductible contribution as the employees age increases. Item 25 of Schedule 13 provides that contributions to RSAs are to be deemed to be contributions to a complying superannuation fund. However, to be deductible, the contributor must also comply with Item 28 of Schedule 13 (which amends section 82AAT of the ITAA) which provides that the deduction will only be available if the contributor is an eligible person (this term is defined in section 82AAS and is, basically, a person who is not to receive superannuation benefits during the relevant year of income); the contribution was made for superannuation or death benefits; and appropriate written notices have been given to, and acknowledged by, the RSA provider (this enables the RSA provider to know the extent to which contributions were deducted and so to calculate their future tax treatment as deducted and non-deducted contributions are treated differently when payment of a benefit occurs). The requirements are substantially the same as those currently contained in section 82AAT for existing superannuation products.

Items 33 to 74 amend the treatment of income and deductions relevant to RSAs for life insurance companies. The taxation of life insurance companies is very complex with different tax treatment applying to various components of the companies income. In relation to superannuation contributions, the basic rules are that contributions are exempt (other than untaxed roll-over amounts) and that a deduction is allowed for expenses incurred in attracting the contributions, such as wages, training and research. The amendments contained in Items 33 to 74 have the effect of placing RSA contribution and expenses in the same situation as superannuation contributions and expenses. More specifically, proposed sub-division AA of Division 8 of Part III of the ITAA deals with the calculation of the RSA component of a life assurance companies income and provides that that component is to receive the concessional 15% rate of tax. The components of RSA income will be taxable contributions and other amounts credited to RSAs that are not paying a benefit in the relevant income year. If the RSA is paying a benefit, income credited to that account will be exempt.

Capital gains tax: CGT is currently not payable on the disposal of a superannuation right (eg. on the transfer of such rights to another fund or roll-over entity). Item 106 will insert a new section 160ZZJA into the ITAA that provides that CGT will also not apply to RSAs.

Other amendments contained in Schedule 13 insert references to RSAs where there are currently references to superannuation accounts to ensure standard treatment and make similar amendment to those described above in other provisions of the ITAA. Supervisory Levy

Superannuation funds currently pay a levy to cover the cost to the Insurance and Superannuation Commission of supervising the industry. Similarly, it is proposed that RSA providers will pay a levy to meet the costs of ISC supervision of RSAs. The levy will be imposed by the Retirement Savings Accounts Supervisory Levy Bill 1996. While that Bill formally imposes the levy, Schedule 1 of this Bill provides the mechanism for the collection of the levy.

The levy will be payable by a RSA provider when they lodge their annual return (Item 10). A penalty will be imposed if the levy is not paid by the due date (Item 12), and the ISC will be given power to remit all or part of both the levy and any late payment penalty (Item 15). Also refer to the Digest for the Retirement Savings Accounts Supervisory Levy Bill 1996. Complaints

The Superannuation Industry Complaints Tribunal has the role of determining complaints relating to the conduct and decisions of superannuation fund trustees and insurers. The Tribunal first attempts to resolve complaints through conciliation but if this is unsuccessful, may substitute its own decision for that of the trustee/insurer. The Tribunal does not impose a fee on those lodging a complaint, and is funded through the levy on superannuation funds. Schedule 2 of the Bill proposes to extend the jurisdiction of the Tribunal to complaints relating to RSAs, and the majority of the amendments in the Schedule deal with the addition of RSAs and RSA providers in the relevant provisions of the Superannuation (Resolution of Complaints) Act 1993. Major amendments relate to:

  • complaints relating to alleged unfair or unreasonable conduct by a RSA provider in relation to the opening of a RSA (proposed section 15E);
  • complaints relating to decisions that affect the holder of the RSA or others that may receive benefits under the RSA (proposed section 15F);
  • those who may make a complaint: generally those with a interest in the benefits available under a RSA, including beneficiaries and administrators of deceased estates (proposed section 15G);
  • the ability of the Tribunal to stay all or part of a decision of a RSA provider pending the final determination of the complaint; and
  • extending to RSA providers the power of the Tribunal to vary or set aside a decision.

Bankruptcy

Schedule 3 will amend the Bankruptcy Act 1966 to place RSAs in the same position as superannuation assets held by a bankrupt. Basically, a persons superannuation assets up to their reasonable benefits level are not to be divided between the bankrupts creditors. Items 4 and 5 of Schedule 3 will extend this protection to a person's RSA, while Item 10 provides that terms in an RSA that allow a RSA to be included in a bankrupts assets, or an act of assignment of a RSA due to bankruptcy, are void. Superannuation Guarantee

Schedules 14 and 15 will ensure that contributions to RSAs are taken into account for purposes of the superannuation guarantee requirements.

Contact Officer and Copyright Details

CHRIS FIELD
31 January 1997
Bills Digest Service
Information and Research Services

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1997

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1997.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 14 July 1997


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