Bills Digest No. 40 2001-02
Family Law Legislation Amendment (Superannuation) (Consequential
Provisions) Bill 2001
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
Purpose
Background
Main Provisions
Contact Officer & Copyright Details
Family Law Legislation Amendment
(Superannuation) (Consequential Provisions) Bill 2001
Date Introduced: 27 June 2001
House: House of Representatives
Portfolio: Attorney-General
Commencement: Immediately after the commencement
of the Family Law Legislation Amendment (Superannuation) Act
2001.
To address a number of taxation difficulties
which would apply due to the splitting of a superannuation account
under the new family law regime dealing with the division of
superannuation interests.
For general information on the splitting of
superannuation interests on the separation of a couple refer to the
Digest for the Family Law Legislation Amendment (Superannuation)
Bill 2001.
Eligible Termination Payments
(ETP)
Payments from superannuation funds may be
classified as ETPs which receive concessional tax treatment. There
is no need for there to be an actual termination of employment for
the classification to apply, payment from the fund being sufficient
to bring the payment within the ETP regime. The actual taxation
treatment of a superannuation ETP amount will depend on a number of
variables, such as the period of service of the employee, the
employee's age and the taxpayer's reasonable benefit limits
(RBL).
When a superannuation ETP is available to a
taxpayer but their entitlement has been split under the new family
law superannuation arrangements, the current tax laws mean that the
member of the fund would be eligible to concessional treatment of
their entitlement as an ETP while their spouse would not be
eligible for the concessional treatment.
Item 3 of Schedule 1 will
insert a new section 27ACA dealing with ETPs and
non-member spouses. Proposed sub-section 27ACA(1)
provides that if the superannuation payment would be an ETP for the
member it will also be taken to be an ETP for the non-member
spouse. The proposed section also contains formulas for determining
the split of the various components which comprise the ETP which
again seek to put the non-member spouse in the same position as the
member regarding the taxation of the ETP (this is achieved through
the definition of the 'corresponding amount' which provides for the
non-members share of the ETP to be treated as if it were received
by the member).
Proposed section 27ACB provides
that where there has been a transfer to a non-member under the
superannuation splitting arrangements and the amount transferred
would have been an ETP prior to the transfer it will continue to
have this status in the hands of the non-member to which it has
been transferred.
Section 140M of the Income Tax Assessment
Act 1936 (ITAA36) provides for people who pay ETPs to provide
certain information to the Commissioner. Item 7
will extend this obligation to splitting arrangements involving an
ETP.
Reasonable Benefits Limits
If a person's entitlements exceed their RBL the
excess amount is taxed at marginal rates rather than the
concessional rates which apply to superannuation RBLs (for 2000-01
the RBLs were $506 092 for lump sums and $1 012 181
for pensions). Proposed section 140ZFA provides
that any pension payable to a non-member is to be assessed against
their pension RBL (lump sums are assessed under section 140ZF),
while amendments to section 140ZP provide that if an amount has
been assessed against a person's RBL and there is a subsequent
split in their benefit, the amount assessed against the RBL is to
be reduced to reflect the split (items 14 and
15).
Capital Gains Tax
Section 118 of the Income Tax Assessment Act
1997 (ITAA97) deals with situations where capital gains tax
(CGT) does not apply. Proposed section 118-315
will extend this to situations where an agreement to split a
superannuation interest is made or terminated (item
18).
Division 126 of the ITAA97 deals with situations
where there is roll-over relief from CGT, including on breakdown of
a marriage. Proposed section 126-140 provides that
roll-over relief will also be available where assets are
transferred from one small superannuation account to another as a
result of a payment split. As a result of the roll-over relief the
transfer will not generate a CGT liability and the asset's cost
base will remain unchanged. Also, if the asset is CGT free as it
was acquired before 20 September 1985, it will retain that status
after the transfer (item 19)
Superannuation Surcharge
The superannuation contributions surcharge
applies where a person's adjusted taxable income exceeds the
threshold level ($81 493 for 2000-01) and is phased in to a
maximum of 15 per cent when adjusted income exceeds a certain
amount ($98 955 for 2000-01). Proposed section
10A of the Superannuation Contributions Tax
(Assessment and Collection) Act 1997 provides that if there is
a payment split or transfer of part of an interest to a non-member
spouse and there is an existing surcharge liability, the
superannuation provider holding the members contributions is liable
to pay the surcharge. If no superannuation provider is holding
those contributions, the member is liable to pay the surcharge
(item 28).
If a payment split occurs and the member is
liable to pay a surcharge debt, the member's superannuation
provider must pay the debt within one month of making the split
(item 30). If the person is a member of a
'Constitutionally protected' superannuation fund (principally
government funds) and the member has a surcharge liability, the
member will become liable to pay the lower of their debt and 15 per
cent of the employer financed benefit (this addresses the situation
for public defined benefit funds where the member bears the
liability to pay the surcharge and makes it clear that the existing
surcharge liability applies to the member of the fund)
(item 37).
Chris Field
30 August 2001
Bills Digest Service
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ISSN 1328-8091
© Commonwealth of Australia 2000
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2001.
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