Bills Digest No. 16 2002-03
Superannuation Legislation Amendment Bill
2002
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
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Superannuation Legislation Amendment
Bill 2002
Date Introduced:
27 June 2002
House: House of Representatives
Portfolio: Treasury
Commencement: Royal
Assent, however, the provisions and measures have various
application dates, which are described below.
Purpose
The purpose of
this Bill is to:
-
- make amendments consequential to the Superannuation (Government
Co-contribution for Low Income Earners) Bill 2002, and
-
- reduce the superannuation surcharge rates by one-tenth of their
current level over 3 years.
For general information on the Government
co-contribution for low income earners, refer to the Bills Digest
for the Superannuation (Government Co-contribution for Low Income
Earners) Bill 2002.
General information on reducing the
superannuation surcharge rates was provided in the Bills Digest for
the original Bill for this measure, Taxation Laws Amendment
(Superannuation) Bill (No. 2) 2002.(1)
During debate on the Taxation Laws Amendment
(Superannuation) Bill (No. 2) 2002 on 27 June 2002, the Government
withdrew the amendments that reduced the superannuation surcharge
rates.(2) These amendments have been reintroduced in
Schedule 2 of this Bill.
All employer contributions, certain 'golden
handshakes' and tax deductible personal contributions made to
superannuation funds for high-income earners are subject to a
surcharge of up to 15 per cent. For the 2002-03 income year, the
surcharge is phased in over the income levels of $90 527 to $109
924 with the surcharge increasing by one per cent for each
additional $1295 of income from $90 527.
During the 2001 election campaign, the
Government released A Better Superannuation
System(3) containing a number of proposed reforms
to superannuation. This document contained 13 election promises.
One of these promises was to reduce the superannuation and
termination payments surcharge rates by ten per cent of their
current level over each of the next three years (a maximum of 1.5
percentage points each year) with a date of effect of 1 July
2002
2002-03 Budget
announcement
The 2002-03 Budget provided further details
about the implementation of these proposals. This section provides
the Budget announcements on this measure.
A Better Superannuation System
reducing the Superannuation Surcharge rate
Revenue ($m)
|
|
2002-03
|
2003-04
|
2004-05
|
2005-06
|
|
Australian Taxation Office
|
-
|
-50.0
|
-120.0
|
-200.0
|
Explanation
From 1 July 2002, the superannuation and
termination payments surcharge rates will be reduced by one tenth
of their current levels for each of the next three income years. As
a consequence, the maximum surcharge rates will be reduced to 13
per cent in 2002-03, 12 per cent in 2003-04 and 10 per cent in
2004-05 and succeeding years.
Further, in keeping with its election
commitment, the Government will review the surcharge arrangements
after three years to determine whether any further changes are
required.(4)
Item 1 inserts a new
paragraph 82AAS(2)(b) into the Income Tax
Assessment Act 1936. The Superannuation (Government
Co-contribution for Low Income Earners) Bill 2002 provides
circumstances when a Government co-contribution is payable. One
circumstance is when a person has employer-supported superannuation
and is not an 'eligible person' as defined by section
82AAS of the Income Tax Assessment Act 1936. The
existing definition of 'eligible person' excludes persons receiving
superannuation support from a spouse, relative, friend or employer.
The Government's co-contribution is to be paid to low income
earners who also had employer superannuation support. The current
definition of 'eligible person' would make the co-contribution
payable to a wider range of people. The amendment introduced by
this item widens the definition of 'eligible person' and therefore
narrows the test for 'not an eligible person' to ensure that only
low income earners who also had employer superannuation support
should receive a Government co-contribution.
Item 3 repeals
Subdivision AAC of Division 17 of Part III of the
Income Tax Assessment Act 1936, and therefore the low
income superannuation rebate for personal superannuation
contributions by low income earners (the rebate being replaced by
the Government co-contribution).
Items 4 to 6
amend the Income Tax Assessment Act 1936 to ensure that
Government co-contributions are not included in the taxable income
of superannuation entities, nor subject to the superannuation
surcharge.
Items 7 and
8 amend the Income Tax Assessment Act
1997 to ensure that Government co-contributions paid to a
person directly, their legal representatives or the superannuation
holding accounts reserve (SHAR) are exempt from tax.
The rules of one of the two defence personnel
superannuation schemes (the Defence Force Retirement and Death
Benefits Scheme) prevent it from accepting Government
co-contribution payments for its members. Item 9
amends the Military Superannuation and Benefits Act 1991
to authorise the Minister for Defence to authorise the Military
Superannuation Benefits Board to accept Government co-contribution
payments for members of the Defence Force Retirement and Death
Benefits Scheme.
Items 10 to 15 amend the
Small Superannuation Accounts Act 1995 to enable the SHAR
to hold Government co-contribution payments. The amendments
include:
-
- a definition of Government co-contribution (item
12)
-
- the circumstances in which the Commissioner of Taxation can
transfer a persons SHAR balance (including Government
co-contribution) to another superannuation entity (item
14), and
-
- the handling and crediting of deposits to, and withdrawals
from, SHAR (item 15).
Items 16 and
17 amend the Superannuation Act 1976 to
redefine the definition of 'transfer amount' to enable payment of
an individual member's Government co-contributions to the
Commonwealth Superannuation Scheme.
Items 18 to
21 amend the Superannuation Contributions Tax
(Assessment and Collections) Act 1997 and the
Superannuation Contributions Tax (Members of Constitutionally
Protected Superannuation Funds) Assessment and Collections Act
1997 to clarify that Government co-contributions do not form
part of the surchargable contributions of a defined benefit
superannuation scheme.
Items 22 and
23 amend the Superannuation (Resolution of
Complaints) Act 1993 to enable persons to complain to the
Superannuation Complaints Tribunal about Government co-contribution
statements provided by superannuation entities to the Commissioner
of Taxation.
Item 24 amends the Taxation
Administration Act 1953 to allow the Commissioner of Taxation
to impose a general interest charge for the late payment of
repayment of overpaid amounts of Government co-contribution.
Item 25 provides that the
amendments made by schedule 1 apply in relation to
contributions made to complying superannuation funds and retirement
savings accounts on or after 1 July 2002.
Items 16 and
17 commence on the latter of Royal Assent, or
immediately after the commencement of item 48 of schedule 1 to the
Superannuation Legislation (Commonwealth Employment) Repeal and
Amendment Act 2002 (that is, on 1 July 2002).
All other items in schedule 1
commence the day on which the Bill receives the Royal Assent.
Item 1 adds a new
subsection 5(1) into the Superannuation
Contributions Tax Imposition Act 1997 (SCT Act) that changes
the definitions in a formula used to calculate the superannuation
surcharge. This simplifies the calculation of the surcharge over
the years in which the surcharge rate is reduced each year. The new
terms in the formula do not affect the indexation of the
thresholds, only the maximum rate of surcharge levied over the next
three financial years.
Item 3 inserts a
new subsection 5(1)
(formula) into the SCT Act to substitute a new
formula for calculating the surcharge to incorporate the new
definitions in item 1.
Item 9 adds a
new subsection 5(1A) into the
Superannuation Contributions Tax (Members of Constitutionally
Protected Superannuation Funds) Imposition Act 1997 (SCTMCPSF
Act) that changes the definitions in a formula used to calculate
the superannuation surcharge. This simplifies the calculation of
the surcharge over the years in which the surcharge rate is reduced
each year. The new terms in the formula do not affect the
indexation of the thresholds, only the maximum rate of surcharge
levied over the next three financial years.
Item 11 inserts a
new subsection 5(1)
(formula) into the SCTMCPSF Act to substitute a
new formula for calculating the surcharge to incorporate the new
definitions in item 9.
Item 17 adds a new
subsection 5(1AA) into the Terminations
Payment Tax Imposition Act 1997 (TPTI Act) that changes the
definitions in a formula used to calculate the superannuation
surcharge. This simplifies the calculation of the surcharge over
the years in which the surcharge rate is reduced each year. The new
terms in the formula do not affect the indexation of the
thresholds, only the maximum rate of surcharge levied over the next
three financial years.
Item 19 inserts a
new subsection 5(1)
(formula) into the TPTI Act to substitute a new
formula for calculating the surcharge to incorporate the new
definitions in item 9.
Constitutionally protected superannuation
schemes(5) have complicated methods of calculating
superannuation surcharge, primarily due to the design of such
schemes. For members of these schemes, superannuation surcharge
liability accumulates in a 'surcharge debt account.' The member's
liability is the lesser of the amount in the 'surcharge debt
account' and 15 per cent of the employer contribution (reflecting
the current maximum surcharge rate). Trustees of certain
constitutionally protected superannuation funds can reduce the
benefits payable to members of such funds by no more than 15 per
cent of the employer financed component that accrued after the
commencement of the surcharge to discharge a surcharge
liability.
The items in this Part 2 of Schedule
2 enable trustees to reduce this employer component of a
benefit by the following amounts:
-
- 13.5% for the amount that accrued in the 2002-03 financial
year
-
- 12% for the amount that accrued in the 2003-04 financial
year
-
- 10.5% for the amount that accrued in the 2004-05 financial
year.
The new reduction amounts are implemented
by:
-
- Item 24, which replaces subsection
6C(3) of the Defence Force Retirement and Death
Benefits Act 1973
-
- Item 25, which replaces subsection
4E(3) of the Parliamentary Contributory Superannuation
Act 1948
-
- Item 26, which replaces subsection
80A(3) of the Superannuation Act 1976
-
- Items 27 and 28, which
replace subsections 4(1) and 4(2)
of the Superannuation Contributions Tax (Application to the
Commonwealth Reduction of Benefits) Act 1997
-
- Items 29, 30 and
31, which replace paragraphs
15(6)(b) and 15(6AA)(d) and
15(6A)(b) of the Superannuation Contributions
Tax (Members of Constitutionally Protected Superannuation Funds)
Assessment and Collection Act 1997.
Item 32 states
that amendments made in Part 1 of Schedule
2 apply to surcharge in respect of the 2002-03 and
subsequent financial years.
Item 33 states
that amendments made by items 24
to 29 apply in relation to benefits that become
payable on or after 1 July 2002.
Item 34 states
that the amendment made by item
30 continues to apply in relation to benefits that
become payable before that item commences as if
the amendment made by that item had not been made.
Item 35 states
that the amendment made by item
31 applies in relation to superannuation funds
that cease to be constitutionally protected funds on or after 1
July 2002.
Th amendments in schedule 1 of
this Bill contain a miscellany of generally beneficial but minor
consequential amendments. Most of these amendments involve the
treatment of Government co-contributions under taxation
legislation.
The amendments in schedule 2
reduce the superannuation surcharge rates by one-tenth of their
current level over 3 years. These amendments are the subject of
some controversy. The Government is implementing its election
promises to reduce the superannuation surcharge. Apart from
2002-03 Budget Papers, the Government has not produced any
economic analysis of the benefits of this proposal. The Government
could correctly argue that such arguments have been made
elsewhere.(6)
Notwithstanding this omission, the inescapable
conclusion is that this Bill will narrow the tax base and reduce
the tax burden of high income earners by $370 million over the next
four years. The superannuation contributions and termination
payments surcharge are important sources of revenue for the
Government. In 2000-01 surcharge collections alone amounted to
almost $700 million.(7) This Bill will reduce these
collections significantly. The surcharges were introduced as
'equity measures' to make the level of superannuation taxation
concessions available to high income earners more comparable to
those available to middle and lower income earners. The amendments
in Schedule 2 undermine this purpose by increasing
the level of tax concession available to high income earners. The
Government has yet to justify the vertical inequity of this measure
(ie, why high income earners should be treated to this tax cut and
not lower income earners).
The Leader of the Opposition, the Hon. Simon
Crean, MP, argued that this proposal benefits the top 3 per cent of
income earners. His alternative proposal is outlined below.
Our alternative propositions for the use of the
money are these: we can redirect the money earmarked for the few
into cutting the superannuation tax for all Australians from the
present 15 per cent to 13 per cent; or we can cut the tax to 11 and
a half per cent for people over 40 years of age the age when most
people start getting serious about planning for their retirement.
The last option would mean a cut of more than 25 per cent in
superannuation contributions tax. It would add many thousands of
dollars to everyone's retirement income whilst still being
economically responsible. It would be a powerful incentive for
Australians to invest in their own future, helping us to cope with
our future needs. It is a fairer alternative.(8)
It is arguable that reducing the surcharge rates
is a step in the right direction. Much has been written about its
complexity, poor design, and effect on the incentive for employees
to save for their retirement. At the very least, the measures in
the Bill are a small concession to those who would prefer to see
the surcharge abolished altogether.
If the Parliament passes this Bill, the
surcharge legislation will remain on the statute books. Many of the
witnesses to the 23rd report of the former Senate Select Committee
on Superannuation provisions will still be dealing with the complex
administration, clumsy assessment procedures and on-going
administration costs that are born not just by high income earners,
but all superannuation fund members.(9)
-
- http://www.aph.gov.au/library/pubs/bd/2001-02/02bd161.pdf
.
- See Senator the Hon. Helen Coonan, Senate, Debates, 27
June 2002, p. 2963.
- Liberal Party of Australia, 5 November 2001.
- The Hon. Peter Costello, MP, Treasurer, Budget Paper No. 2:
Budget Measures 2002-03, p. 14.
- The Income Tax Assessment Act 1936 section 267(1)
defines these as "a fund that is declared by the regulations to be
a constitutionally protected fund." These are State superannuation
funds that cannot be taxed under the Commonwealth's taxing power
(see South Australia v The Commonwealth 92 ATC 4066). The
funds are listed in Income Tax Regulation 177, schedule 14.
- For example, the 23rd report of the former Senate Select
Committee on Superannuation, Superannuation Surcharge
Legislation.
- Commissioner of Taxation, Annual Report 2000-01, p.
23.
- The Hon. Simon Crean, MP, House of Representatives,
Debates, 16 May 2002, Second Reading Speech, Appropriation
Bill (No. 1) 2002-03, p. 2391.
- See the 23rd report of the former Senate Select Committee on
Superannuation, Superannuation Surcharge Legislation,
especially Chapter 4: The Proposed Collection Mechanism.
David Kehl
15 August 2002
Bills Digest Service
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ISSN 1328-8091
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