Bills Digest No. 61   1997-98 Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Bill 1997


Numerical Index | Alphabetical Index

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

Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Bill 1997

Date Introduced: 2 October 1997
House: House of Representatives
Portfolio: Treasury
Commencement: Royal Assent

Purpose

To provide for the assessment and collection of the superannuation surcharge from members of constitutionally protected superannuation funds.

Background

This Background is written for the following six Bills :

  • Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Bill 1997;
  • Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Bill 1997;
  • Superannuation Contributions Tax Imposition Amendment Bill 1997;
  • Termination Payments Tax Imposition Amendment Bill 1997;
  • Superannuation Contributions and Termination Payments Taxes Legislation Amendment Bill 1997; and
  • Superannuation Legislation Amendment (Superannuation Contributions Tax) Bill 1997

These six Bills complete a package of legislation designed to give a legislative framework to the introduction of a superannuation contributions surcharge for high income earners.For further background the reader is referred to Bills Digest Nos. 124-130 1996-97which discusses the preliminary seven Bills introduced into Parliament in February 1997 dealing with the superannuation surcharge.Such legislation was introduced pursuant to a revenue measure announced in the 1996-97 Budget.Briefly, the Government sought to reduce the concessional treatment provided to superannuation for high income earners.A 'surcharge' was to apply to superannuation members whose taxable income and superannuation contributions (employer / self employed) exceeded $70,000.The surcharge would be imposed at the rate of 0.001% for each $1 of annual income in excess of $70,000 with a maximum of 15% achieved when taxable income and superannuation contributions reached $85,000.

The surcharge would apply to both accumulated benefit funds and defined benefit funds.Accumulated benefit funds (more common in the private sector) are those superannuation funds where the member's benefit depends on the performance of the funds and how their superannuation contributions and earnings have accumulated.Defined benefit funds (more common in the public sector) do not depend on the fund's performance.In defined benefit funds, the member's benefits are defined (often by a formula), and usually depend on the number of years of contributions of the member and their final salary.

It is estimated that the revenue impact of the surcharge will be $480 million in 1997-98, $470 million in 1998-99 and $530 million in 1999-2000.

While the policy to reduce superannuation concessions to high income earners was simple, the design of its administration to realise such policy was quite complex and faced considerable opposition from the superannuation industry and other key players.The following lists a chronology of various events in relation to the somewhat problematic path of the previous superannuation contributions surcharge legislation.

Date             Event                                                      

August 1996      Superannuation Surcharge announced in Budget, applying to  
Budget           all funds.  An Actuarial Advisory Committee was            
                 established to report on the application of the            
                 superannuation contributions surcharge to defined benefit  
                 funds and unfunded and constitutionally protected          
                 schemes.                                                   

September 1996   At an address to the Association of Superannuation Funds   
Salary           of Australia (ASFA), the Taxation Commissioner, Mr         
sacrifice        Carmody advised that the Tax Office was aware of the       
arrangements to  possibility of salary packaging arrangements to defeat     
be thwarted      the proposed superannuation surcharge, and would take      
                 appropriate action if such planning practices emerged.     

October 1996     Assistant Treasurer, Senator Kemp, advised at an ASFA      
Surcharge        Conference in Brisbane that the Tax Office and the         
collection       Insurance and Superannuation Commission were consulting    
mechanisms to    extensively with industry to discuss the development of    
be reviewed      efficient and effective mechanisms related to the          
                 administration of the surcharge.                           

December 1996    The Tax Office established an Implementation Advisory      
ATO considers    Group to oversee the process of implementing the           
implementation   superannuation surcharge measure with a view to            
issues           developing optimal solutions to implementation issues.     

February 1997    Details of how the proposed superannuation contributions   
Treasurer        surcharge would apply to constitutionally protected        
announces        schemes, defined benefit schemes, unfunded schemes and     
surcharge        golden handshakes were outlined in the Treasurer's Press   
implementation   Release, 5 February 1997.  The Treasurer observed there    
details          were constitutional issues associated with applying the    
                 proposed administrative and payment mechanisms to some     
                 schemes, in particular those run by the Commonwealth and   
                 State Governments.  The Government would consult with the  
                 States and Territories to achieve a workable outcome for   
                 their schemes.                                             

February 1997    A package of five superannuation-related Bills was         
Surcharge Bills  introduced into Parliament to give legislative effect to   
introduced       the superannuation contributions surcharge and             
                 termination payments surcharge for higher income earners.  
                  These Bills dealt with the assessment and collection,     
                 imposition and consequential amendments to the surcharge.  

March 1997       A further two Bills were introduced into Parliament.       
Further          These Bills provided for the notional application of the   
Surcharge Bills  superannuation contributions surcharge to members of       
introduced       non-contributory Commonwealth superannuation schemes (eg   
                 judges).  These two Bills and the five surcharge Bills     
                 introduced in February were referred to the Senate Select  
                 Committee on Superannuation for report by March 1997.      

March 1997       Denis Rose QC provided preliminary advice on the           
Constitutional   constitutional validity of the proposed surcharge, which   
validity         was submitted to the Senate Select Committee on            
questioned       Superannuation by the Business Council of Australia.       

March 1997       The superannuation contributions surcharge bills were      
Surcharge Bills  passed by the House of Representatives with Government     
passed with      amendments, to be debated in the Senate in the Budget      
amendments by    session of Parliament.  Important  amendments included     
House of         dealing with the Constitutional issues raised by Denis     
Reresentatives   Rose QC to ensure the constitutional validity of the       
                 scheme, clarifying that the surcharge applied to exempt    
                 public sector superannuation schemes, changing the         
                 definition of 'holder' so that it covered unfunded         
                 defined benefits schemes and a provision for the           
                 calculation of the notional surchargeable contributions    
                 for members of defined benefit schemes.                    

March 1997       The Senate Select Committee on Superannuation reported on  
Senate           the superannuation surcharge legislation.  In the report,  
Committee        Government Senators recommended that the Senate pass the   
report on        legislation, subject to certain technical amendments       
surcharge        proposed by the Government which were subsequently passed  
                 by the House of Representatives (see above).  The Labor    
                 and Democrat Senators, however, considered that it was     
                 inappropriate for the Government to require Parliament to  
                 pass legislation which could be constitutionally invalid.  
                  They also recommended an alternative collection           
                 mechanism.                                                 

May 1997         The legislation was passed with further amendments aimed   
Surcharge Bills  at ameliorating its effect on redundancy payouts and low   
passed with      income earners who failed to provide their tax file        
amendments       number (TFN).  Also, the word 'surcharge' was changed to   
                 'tax'.                                                     

June 1997        The seven Bills dealing with the Superannuation            
Surcharge Bills  Contributions Tax and the Termination Payments Tax         
receive assent   received Royal Assent.                                     

Accordingly, superannuation legislation is currently in place to deal with most private sector schemes which are accumulation funds.

The remaining six superannuation surcharge Bills complement the existing legislation.These Bills and their consequential amendments to various statutes will ensure that the superannuation contributions surcharge applies to all high income earners and includes Federal Parliamentarians, new federal Judges and certain tribunal members with the status of a judge, Commonwealth sector civilian employees, Defence Force Personnel and the Governor-General and certain State public servants.

Main Provisions

This Assessment and Collection Bill ensures that the superannuation contributions tax will apply to members of constitutionally protected superannuation funds and has effect from 20 August 1996.

The existing surcharge legislation applies a surcharge or tax on the superannuation providers.Certain State superannuation funds however, are protected constitutionally from revenue measures. This Bill overcomes constitutional problems posed in relation to members of State-run defined benefit funds by imposing the liability on the member rather than on the superannuation fund.The surcharge liability for a member for a year will be accumulated in a surcharge debt account (maintained by the Taxation Commissioner) for the member and will be payable by the member when the member's superannuation benefit becomes payable.The member will have the option of paying off the debt as it arises once an amount of surcharge has been assessed.

Part 1 deals with preliminary matters to the Bill.Clause 7 provides that the Act does not apply tomembers (of a constitutionally protected superannuation fund) who are State judges at the commencement of the Act.

Part 2 deals with the liability for the surcharge.The superannuation contributions surcharge is payable by the member (Clause 11).This surcharge applies to financial years commencing 1 July 1996, and will be payable if the member's adjusted taxable income is greater than the surcharge threshold for the financial year (Clause 8).The surchargeable contributions for accumulated benefits schemes are based on amounts actually paid to the superannuation providers, but in defined benefits schemes are based on their respective annual salaries multiplied by a notional factor (determined by reference to equivalent accumulated benefits schemes) (Clause 9).The surcharge threshold is $70,000 for the 1996-97 financial year and will be indexed in subsequent years.The new thresholds will be published by the Taxation Commissioner . (Clause 10).

Part 3 refers to the assessment and collection of the superannuation surcharge. Clause 12 requires that a superannuation provider give statements to the Taxation Commissioner at the end of the year setting out particulars including the name and tax file number of the member and the total contributions for the year.In addition, the superannuation Provider must give a statement to the Taxation Commissioner when the benefit a becomes payable to a member.Clause 14 provides that the Taxation Commissioner must assess a member's surcharge for a financial year based on their adjusted taxable income, and provide a copy of assessment with particulars to the member. Clause 15 provides for the deferment of the liability of a member to pay the surcharge, and for interest to accrue on the deferred amount.The Taxation Commissioner is to keep a surcharge debt account for each member, debiting the account with the surcharge and interest (based on the treasury bond rate).The debt becomes payable when the member receives their benefit (lump sum or pension) and must be paid within three months from the date that the Taxation Commissioner gives the member a notice stating their surcharge debt account liability.A member may voluntarily reduce their surcharge debt account, and the Taxation Commissioner is required to acknowledge receipt, credit the payment and notify the member.Clauses 16 and 17 set out circumstances in which assessments may be amended. Where an assessment has been increased, the member must pay interest to the Commonwealth (Clause 18).The Taxation Commissioner may use TFNs for the purpose of this Bill (Clause 19), and a member has rights to object against an assessment where the member is dissatisfied with the Taxation Commissioner's calculation of the adjusted taxable income (Clause 20).

Part 4 refers to the recovery of unpaid surcharge, interest or late payment penalty.Clause 21 provides that the Taxation Commissioner may impose a penalty where a member has failed to make payment of their surcharge liability on the date that it is due and payable andClause 22 provides that debts of surcharge, interest and late payment penalty may be recovered.Where the Taxation Commissioner decides not to remit the whole or part of any interest or late payment penalty, such a decision is subject to review prescribed by the administrative review procedures set out in Clause 25.

Part 5 deals with various administration provisions. The Taxation Commissioner has the general administration of the legislation (Clause 26) and must provide an annual report to the Treasurer (Clause 27).Certain information acquired under the Act is protected and officers administering it are subject to secrecy provisions laid out in Clause 28.Persons who divulge protected information face imprisonment for two years unless the disclosure is appropriate under certain circumstances set out in this clause,ega person may divulge information to a court only for the purposes of the Act.

Part 6 deals with various miscellaneous provisions.Clause 30 provides that assessment is conclusive evidence of the correctness of calculations, and includes copies and certificates signed by the Taxation Commissioner, Deputy Commissioner or a Second Commissioner.Clause 31 provides the power to authorise access to premises, providing the officers carry authorised proof of identity.An occupier of such premises is required to provide all reasonable facilities and assistance tothe authorised officer.Clause 32 gives the power to the Taxation Commissioner (by written notice) to request verbal or written information or documents from a person.The Taxation Commissioner has the power to require such information on oath or affirmation.Clause 33 provides that a superannuation provider must keep records in English (or readily accessible and convertible) which explain all transactions and other acts required by the provider under the Act, so that any liability under the Act can be be readily worked out.Clause 34 gives the Taxation Commissioner the power to collect money from persons who owe money to a member, and such persons must comply with the Taxation Commissioner's direction.Clause 35 states that the Criminal Code applies to all offences under the Act.Clause 36 provides that the Governor-General may make regulations prescribing matters necessary or convenient for the working of the Act.

Part 7 deals with interpretation.Clause 37 contains all the definitions used in the Act.

Contact Officer and Copyright Details

John Harrison
24 October 1997
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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: 24 October 1997

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