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
Superannuation Legislation Amendment (Superannuation
Contributions Tax) Bill 1997
Date Introduced: 2 October 1997
House: House of Representatives
Portfolio: Treasury
Commencement: Royal Assent, 5 June 1997 for
Schedule 9
To amend certain Acts dealing with the superannuation surcharge
for 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 who are members of unfunded, or mainly unfunded
defined benefits schemes.
The reader is referred to the Digest for the Superannuation
Contributions Tax (Members of Constitutionally Protected
Superannuation Funds) Assessment and Collection Bill 1997.
These amendments ensure that the superannuation contributions
surcharge applies to those people mentioned above who are entitled
to superannuation benefits under the Acts referred to in the
following Schedules:
- Schedule 1 - Amendments of the Superannuation Act
1976
- Schedule 2 - Amendments of the Superannuation Act
1990
- Schedule 3 - Amendments of the Parliamentary Contributory
Superannuation Act 1948
- Schedule 4 - Amendments of the Governor General Act
1974
- Schedule 5 - Amendments of the Judges' Pensions Act
1968
- Schedule 6 - Amendments of the Defence Force Retirement and
Death Benefits Act 1973
- Schedule 7 - Amendments of the Military Superannuation and
Benefits Act 1991
- Schedule 8 - Amendments of the Defence Act 1903
- Schedule 9 - Amendments of the Superannuation Contributions
Tax (Application to the Commonwealth -Reduction of Benefits) Act
1997
Accordingly, the amendments will ensure that the superannuation
contributions surcharge applies in respect of 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.However, serving
federal Judges are constitutionally protected from the
surcharge.
The amendments by the Bill deal with either unfunded or largely
unfunded defined benefits schemes. In these cases there is no
superannuation fund from which to pay the surcharge liability as is
done with the accumulation schemes.The surcharge tax legislation
provides for the deferral of the payment of the tax, except where
the surcharge is pre-paid by a scheme member.It is notionally
accumulated during a member's service and paid by the scheme
trustee or administrator when the member's benefits become
payable.The superannuation provider is required to maintain a
surcharge debt account for each scheme member and the member's
account will be debited each year with any surcharge amount advised
by the ATO.In order to ensure that no advantage is obtained by the
deferral of the payment of the surcharge in unfunded or partially
funded schemes, interest on the balance of the account, at the 10
year Treasury bond rate, as defined in the surcharge tax
legislation, will be added to the surcharge debt on an annual
basis. When a benefit becomes payable, the provider must pay the
total amount in the surcharge debt account of the member to the ATO
before the benefit is paid.
The Bill ensures that reductions in benefits in respect of the
surcharge are made in a manner which is fair and equitable taking
into account the complexities of defined benefits schemes.However,
any reduction must not be more than fifteen per cent of the
employer-financed component of the benefit that accrued after 20
August 1996.
The Bill also ensures that trustees are able to meet their
surcharge liability.
The following discussion deals with amendments to the nine
Acts.
Schedule 1 - Amendments of the Superannuation Act
1976
Items 1 to 3 deal with definitions of
accumulated contribuitons, surcharge debt account and
surcharge deduction amount.
Item 4 amends subsection 42(5A) of the 1976 Act
to make the Board and Fund subject to taxation under the
Superannuation Contributions Tax (Assessment and Collection) Act
1997.
Items 5 to 13 deals with the reduction of an
age retirement pension where there is a surcharge debt.When a
member reaches standard retirement age, the rate of pension is to
be worked out by the method provided by section 80A (see item
52).Items 14 and 15 deal with the case where there
is an additional age retirement pension and any residual lump sum
benefits.In this case, the rate of pension is to be worked out by
the method provided by section 80C (see item 52).
Items 16 to 20 deal with the reduction of early
retirement pension where there is a surcharge debt.When an early
retirement age pension becomes payable to a person who has a
surcharge debt, the rate of pension is to be worked out by the
method provided by section 80A (see item 52).
Items 21 to 25 deal with the reduction of a
lump sum benefit on involuntary retirement where there is a
surcharge debt.The provisions provide that the lump sum involuntary
retirement benefit payable to a person who has a surcharge debt is
reduced by the amount of the surcharge deduction amount.
Items 26 to 47 deal with the reduction of
invalidity benefit where there is a surcharge debt. Where the CSS
Board approves the retirement of a CSS member on the grounds of
invalidity, various provisions of the 1976 Act provide for the
calculation of the benefit depending on individual circumstance.The
level and type of benefit will vary according to length of scheme
membership (including possible future membership to age 65) and
whether the medical condition that led to the retirement was in
existence prior to membership of the CSS.
The following circumstances all involve a person who receives a
pension and has a surcharge debt.In each of these instances, the
rate of pension is to be worked out by the method provided for in
section 80D (see item 52):
- full pension entitlement - no reduction for pre-existing
condition
- pension and lump sum entitlement - no reduction for
pre-existing condition
- pension only benefit - reduce for pre-existing condition
- pension and lump sum benefit reduced for pre-existing
condition
Where there is a lump sum only benefit and membership is less
than 8 years, the benefit may be reduced or not reduced for a
pre-existing condition.In either case, where the lump sum becomes
payable to a person who has a surcharge debt, the amount of the
benefit is reduced by the surcharge deduction amount.This treatment
also applies to the case of an election for lump sum only benefit
which had a pre-existing condition.
Items 48 and 49 deal with the situation where
there is a partial invalidity pension (PIP) payable to an
invalidity pensioner who has returned to employment. Here the rate
of invalidity pension that was payable to the person prior to his
or her return to employment is used in the calculation of the
PIP.Any reduction of that pension because of a surcharge debt
should not be taken into account for the purposes of calculating
the PIP as the person is again a scheme member and may begin to
accrue a further surcharge debt.The PIP will form part of the
income on which future surcharge debts may be based.
Items 50 and 51 deal with partial invalidity
pension where a member's salary decreases for health reasons.The
PIP payable is calculated by reference to the invalidity pension
that would have been paid if the person had retired on invalidity
grounds at the time of the salary reduction.Such a person may
accrue a surcharge debt during the period when the PIP is paid and
the PIP forms part of the income on which the debt is
calculated.
Item 52 deals with the reduction of pension
benefits where there is a surcharge debt. Depending upon the
circumstances, the surcharge debt is reduced under sections 80A,
80B, 80C and 80D.Section 80A deals with the case where a person's
surcharge debt account is in debt when benefits become payable to
the person.Section 80B deals with the lump sum benefit.Sections 80C
deals with a person who is entitled to additional age retirement
pension or additional early retirement pensions.Section
80D(1)provides for the calculation of a reduced rate of pension
while section 80D(2) provided for the reduced rate of additional
age retirement pension and additional early retirement pension.
Items 58 and 59 deal with the case where a
member ceases to be a CSS member, the productivity contributions
are generally paid as a lump sum.These items provide a reduction of
a productivity benefit where there is a surcharge debt.Unless that
amount has been deducted from another benefit payable under the Act
(eg a pension), only the balance if any should be deducted from the
productivity benefit.
Item 60 provides a reduction of a
Superannuation Guarantee top-up benefit payable where there is a
surcharge debt.Where a person to whom a superannuation guarantee
top-up benefit becomes payable has a surcharge debt, the top-up
benefit should be reduced by the surcharge amount.However, where
part of the amount has been deducted from another benefit payable
under the 1976 Act, only the balance of the amount, if any should
be deducted from the top-up benefit.
Items 61 and 62 provide a deduction of a
surcharge debt amount from the minimum amount payable on death of a
member without dependants.Where a lump sum benefit becomes payable
under that section in respect of a person who has a surcharge debt,
the lump sum benefit should be reduced by the surcharge deduction
amount.
Items 64 and 65 deal with a deduction of a
surcharge deduction amount from a transfer value payable to an
eligible superannuation scheme.A person who has elected for
preservation who subsequently joins a superannuation scheme which
is an eligible superannuation scheme for the purposes of the 1976
Act may elect to pay a transfer value to that scheme in lieu of
eligibility for deferred benefits.Any surcharge deduction amount
must be deducted from the transfer value before it is paid to the
eligible superannuation scheme.
Item 66 to 74 deal with the reduction of
deferred benefits where there is a surcharge debt.Various formulae
are calculated to reduce a person's surcharge deduction amount
depending upon the deferred benefits which become payable, due to
age or early retirement, invalidity retirement or death.
Item 75 provides that the Board, with the
advice of the Australian Government Actuary,may determine the
factors, having regard to a person's age and any other relevant
factor, for the conversion of the surcharge deduction amount to an
annual amount.This annual amount is required to reduce standard or
additional pension benefits payable under the 1976 Act where the
person has had a surcharge debt when the benefits become
payable.Such factors are to be usedin the reduction of standard
pension and invalidity pension and in the reduction of additional
pension.Any determination made must be published in the
Gazette.
Item 76 provides that the Board is a separate
entity to the Commonwealth and is liable to pay the surcharge under
the Superannuation Contributions Tax (Assessment and
Collection) Act 1977.
Item 77 provides that regulations made under
the Act within 12 months of the commencement of this Bill, may be
made with a retrospective date no earlier than the date of
commencement.
Schedule 2 - Amendments of the Superannuation Act
1990
Item 1 amends paragraph 26(1)(a) to provide
that the PSS Board and PSS Fund are liable to taxation under the
Superannuation Contributions Tax (Assessment and Collection)
Act 1997.
Item 2 inserts new section 37A to remove any
doubt that for the purpose of the surcharge tax legislation and in
its capacity as a superannuation provider, the Board is distinct
from the Commonwealth and is therefore liable under the legislation
to pay surcharge on the surchargeable contributions of
members.Subsection 37A(2) provides that the amounts payable under
the surcharge tax legislation are to be paid from the Consolidated
Revenue Fund, which is appropriated accordingly.
Schedule 3 - Amendments of the Parliamentary Contributory
Superannuation Act 1948
Items 1 and 2 insert the definitions of
surcharge debt account and surcharge deduction
amount.
Item 3 amends subsection 4(4A) of the Act to
provide that a member of Parliament is taken to be employed by the
Commonwealth, This amendment is made as a consequence of Item 4
which includes a reference to the employer-financed component of a
benefit payable under the Parliamentary Contributory Superannuation
Scheme (PCSS).
Item 4 amends section 4E and determines the
surcharge deduction amount.The Trust must determine the amount it
considers reasonable to reduce the benefits when they become
payable to a person, and must take into account the person's
surcharge debt account, the value of the employer component and the
value of the benefits which were likely payable for the purposes of
working our the notional surchargeable contributions factors under
the Superannuation Contributions Tax (Assessment and
Collection) Act 1997.The amount determined by the Trust may
not be more than 15% of the employer- financed component which
accrued after 20 August 1996.
Items 5 to 10 deal with the reduction of
retiring allowance and lump sum in respect of the surcharge
debt.Accordingly, Item 10 provides that where a
retiring allowance becomes payable, the rate of retiring allowance
is to be reduced in accordance with a specified formula, which
takes into account how much the surcharge deduction amount reduced
the basic retiring allowance.The formula will also take into
account any parliamentarian who has been entitled to a retiring
allowance and is re-elected.Where a lump sum only benefit becomes
payable, the benefit is to be reduced by the member's surcharge
deduction amount.Items 5 to 9 are consequential
amendments to Item 10 to ensure that benefits
payable are subject to the surcharge reduction provisions.
Items 11 to 13 deal with the member's election
to pay a surcharge debt out of a commutation lump sum.These items
enable a member who elects to commute a retiring allowance to a
lump sum to also elect to pay off the surcharge to the Commonwealth
out of the lump sum, and that the commutation lump sum is reduced
by the surcharge deduction amount.
Items 14 and 15 deal with the reduction of
benefits payable to a personal representative on death of a
member.These provisions ensure that if a member dies without
dependents, the lump sum benefits payable to the personal
representative is reduced by the member's surcharge deduction
amount.
Items 16 to 18 deal with the repayment of
previous lump sums on re-election to Parliament. Where a former
member who received a reduced lump sum because of a previous
surcharge is re-elected to Parliament and chooses to repay a
previous lump sum entitlement, it is the pre-reduction lump sum
that is to be paid back to the Commonwealth.The amount paid back
will also need to be updated in proportion to increases in
parliamentary allowance since previous retirement, in order to have
the person's previous parliamentary service counted for the benefit
purposes under the Act.
Item 19 deals with the determination with
respect to the surcharge deduction amount by the Trust(with the
advice of the Australian Government Actuary).The Trust must
determine the factors for the conversion of the surcharge deduction
amount to a pension in order to reduce the pension benefits payable
which will allow recovery of an amount paid in respect of the
members' surcharge deduction amount.These factors need to be
unbiased and are to be published in the Gazette.
Item 20 inserts section 26C to provide that the
Trust is the person who manages the PCSS, and ensures that the
information and liability of a member's surchargeable (employer
superannuation) contribution is provided to the ATO.
Schedule 4 - Amendments of the Governor General Act
1974
Items 1, 2 and 3 insert definitions of
Scheme, surcharge debt account and surcharge
deduction amount.
Items 4 to 7 reduce the allowance in respect of
the surcharge debt. New subsection 4(3) provide that, where a
Governor-General who ceases to hold office has a surcharge debt,
the allowance that would otherwise be payable at the rate of 60% of
the Chief Justice's salary is to be reduced in accordance with a
specified formula.The allowance payable to the spouse of a Governor
General is 5/8 of the rate or the reduced allowance that would have
been payable to the former Governor-General having regard to the
reduction resulting from any surcharge deduction amount.Where there
is more than one spouse, the aggregate allowance payable will not
exceed the allowance applicable to the governor-General if he or
she had not died. The trustee of the scheme must determine the
conversion factors used to reduce the allowance in order to recover
an amount paid in respect of a Governor General's surcharge
deduction amount, and must publish such in the Gazette.
Item 8 inserts new proposed section
5A into the Act to provide that the Secretary of the
Department of the Prime Minister and Cabinet, or an officer of the
Department appointed by the Secretary, is the person who manages
the Scheme which ensures that the Governor General's surchargeable
(employer superannuation) contributions are provided to the ATO and
that there is a liability to pay to the ATO the surcharge
accumulated in the surcharge debt account.
Schedule 5 - Amendments of the Judges' Pensions Act
1968
Items 1 to 7 amend section 4 which contains
various definitions.New terms defined are period of exempt
service, period of service as a Judge, qualifying period for a
pension, Scheme, superannuation contributions surcharge and
surcharge debt account.
Items 8 to 17 amend section 6 dealing with the
criteria and qualifications for, and the rates of pension payable
to judges.Various subsections are amended to omit the rates of
pension applicable and will refer to new sections 6A and 6B (see
item 19).
Item 18 deletes subsection 6(3), the provisions
of which now appear in section 4.
Item 19 inserts new proposed sections
6A and 6B.New section 6A replicates the previous section6
and applies to a judge if their surcharge debt account is not in
debit when a pension becomes payable to him or her, and provides
for the rate of pension payable in various circumstances (age,
length of service, permanent disability)A judge may qualify for a
maximum pension of 60% of the appropriate current judicial
salary.Where the maximum pension is not achieved, the rate of
pension is 0.5% for each month of service.Section 6B applies to a
judge when their surcharge debt account is in debit, and requires a
reducedpension of 15% or the lower surcharge rate, depending upon
the circumstances.Where a judge has prior judicial service which
was exempt from the surcharge, the prior service will be exempt
from the reduction.
Item 20inserts new proposed sections 19
to 21, which deal with the surchargeable contributions,
the trustee of the scheme and the regulations.Subsection 19
provides for the calculation of the surchargeable contributions to
be based on the Judge's annual salary multiplied by the notional
surchargeable contributions factor, which may be prescribed by
regulations.Subsection 20 provides that the Secretary (or a
nominated delegate) of the Attorney-General's Department is the
trustee of the Judges' pension scheme for the purposes of the
surcharge legislation, and that their capacity to reduce the
judge's benefits do not apply to them as trustee for the Pensions
Act Scheme. Section 21 allows the Governor-General to make
regulations in relation to matters arising under the Act.
Item 21 provides that these amendments do not
apply in respect of judges of federal Courts who were appointed
before the schedule commenced operation.
Schedule 6 - Amendments of the Defence Force Retirement and
Death Benefits Act 1973
Item 1 to 2 amend definitions of
benefit and productivity superannuation
benefit.Items 3 to 4 inserts definitions of
surcharge debt account and surcharge deduction
amount.
Item 5 deals with the surcharge deduction
amount.The Defennce Force and Retirement and Death Benefits (DFRDB)
Authority must determine how much to reduce a member's benefits
when they become payable taking into consideration the member's
surcharge account debit, the value of the employer-financed
component and the value of the benefits which would have been
payable.In working out the notional surchargeable contributions
factors, the amount determined by the Authority may not be more
than 15% of the employer-financed component which accrued after 20
August 1996.
Items 6 to 8 deal with the reduction of
retirement pay where the member has not elected to commute part of
their employer-financed benefit to a lump sum. Where this pension
becomes payable to a member whose surcharge debt account is in
debit, the rate of pension is to be adjusted to take account of the
surcharge deduction amount.A determination must be made setting out
a conversion faction.
Items 9 to 10 deal with the reduction of
retirement pay where the member has elected to commute part of
their employer-financed benefit to a lump sum.Where the member's
surcharge debt account is in debit and the member has elected to
discharge the debt from benefits payable under this Act, the amount
of the benefit is adjusted by the amount of the surcharge deduction
amount.Where the lump sum is not sufficient the remaining pension
will be adjusted and provides a determination factor must be taken
into account in adjusting the residual pension.Where a member has
not made an election and the productivity superannuation benefit is
insufficient to discharge the deduction amount, any benefit payable
will be adjusted to take account of the remaining surcharge
account.
Items 11 to 13 deal with the reduction of
invalidity pension for Class A or Class B recipients, being members
who have an incapacity of more than 60% or more than 30%,
respectively, in relation to their ability to undertake civil
employment.Again, where a member's surcharge debt account is in
debit and the member has elected to discharge the debt from
benefits payable, the rate of pension is to be adjusted by taking
into account the surcharge deduction amount.A determination is to
be made setting out a conversion factor that must be taken into
account when adjusting the rate of pension.
Items 14 to 16 deal with the reduction of
invalidity pension for Class C recipients who have an incapacity of
less than 30% in relation to their ability to undertake civil
employment.Again, where a member's surcharge debt account is in
debit and the member has elected to discharge the debt from
benefits payable, the amount of benefit (retirement pay or lump
sum) is to be adjusted by taking into account the surcharge
deduction amount.
Items 17 to 18 deal with the reduction of
invalidity Class C retirement pay where the member has elected to
commute part of their employer-financed benefit to a lump sum.Again
the surcharge debt account is taken into consideration in reducing
benefits as outlined in items 9 to 10.
Items 19 to 23 deal with the reduction of a
spouse benefit.Again the surcharge debt account is taken into
consideration in reducing the benefits as outlined in items 9 to
10.
Items 24 to 28 deal with the reduction of a
spouse benefit.Again the surcharge debt account is taken into
consideration in reducing the benefits as outlined in items 9 to
10.
Items 29 to 30 deal with the reduction of an
estate payment following the death of a contributor without
dependents.The surcharge debt is taken into consideration in
reducing the benefit paid to the legal representative.
Items 31 and 32 deal with the reduction of an
estate payment following the death of a contributor without
dependants who have more than one period of service.Again the
surcharge debt accountis taken into consideration in reducing the
benefit paid to the legal representative.
Items 33 and 34 deal with the deduction of a
surcharge deduction amount from a transfer value. Again the
surcharge debt account is taken into consideration in reducing the
employer-financed transfer value benefits as outlined in items 9 to
10.
Items 35 and 36 deal with the deduction of a
surcharge deduction amount from a deferred benefit where a member
has reached the notional retiring age for rank. Again the surcharge
debt account is taken into consideration in reducing the
employer-financed transfer value benefits as outlined in items 9 to
10.
Items 37 and 38 deal with a deduction of a
surcharge deduction amount from a deferred benefit for officers who
have not reached their notional retiring age for rank. Again the
surcharge debt account is taken into consideration in reducing the
employer-financed transfer value benefits as outlined in items 9 to
10.
Item 39 deals with the election relating to
surcharge deduction amount and the Determination with respect to
the surcharge deduction amount.A member or a personal
representative in the case of a deceased member who dies without
leaving dependants, may elect for the surcharge deduction amount to
be paid from the benefits payable under the DFRDB Act instead of
the productivity superannuation benefit payable to the member under
the Defence Act.This election can be made up to one year after a
surcharge deduction amount becomes payable.No election is available
for a widow or orphan since the productivity superannuation
benefits is payable to the member's estate rather than the widow or
orphan).The DFRDB Authority with advice from the Australian
Government Actuary may determine the conversion factors, having
regard to a persona age, to be used to adjust pension benefits
payable to take account of the person's surcharge deduction amount
and must be published in the Gazette.
Item 40 provides that the DFRDB Authority is a
trustee for the purposes of the Superannuation Contributions
Tax (Assessment and Collection) Act 1997.It ensures that the
specific powers given to the Authority to resource benefits under
the Act to take account of the surcharge are not in conflict with
the general discretion given to the trustee of the scheme by
amendment to Section 4 of the Superannuation Contributions Tax
(Application to the Commonwealth - Reduction of Benefits ) Act
1997.
Schedule 7 - Amendments of the Military Superannuation and
Benefits Act 1991
Item 1 amends Section 24 of the Act to ensure
that the superannuation contributions tax applies to the Board and
Fund.Item 2 inserts a new proposed section
42A which provides that the MSB Board is the body liable
to pay the superannuation contributions tax, as it is an entity
distinct from the Commonwealth, and ensures that there may be an
appropriation form the Consolidated Revenue Fund to enable the MSB
Board to pay the tax.
Schedule 8 - Amendments of the Defence Act 1903
Item 1 inserts a new proposed section
53 which will allow the superannuation contributions tax
to apply to the superannuation productivity benefit by providing
that the DFRDB Authority is a trustee for the purposes of the
superannuation contributions tax legislation.
Schedule 9 - Amendments of the Superannuation Contributions
Tax (Application to the Commonwealth -Reduction of Benefits) Act
1997
Items 1 and 2 are consequential amendments to
the DFRDB Act and the Parliamentary Contributory Superannuation Act
to allow the trustee of the schemes established under those Acts to
exercise a discretion to reduce benefits in a fair and equitable
manner having regard to any relevant matters, including:
- the amount in the person's surcharge debt account;
- the level of employer-financed benefit being paid;
- and the level of projected benefit on which the person's
surchargeable contributions are based.
Benefits must not be reduced by more that 15% of the
employer-financed portion of a benefit accrued after 20 August
1996.
John Harrison
24 October 1997
Bills Digest Service
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ISSN 1328-8091
© Commonwealth of Australia 1997
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