Bills Digest No. 32 2002-03
Superannuation (Government Co-contribution for Low Income
Earners) 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 (Government
Co-contribution for Low Income Earners) Bill
2002
Date Introduced:
27 June 2002
House: House of Representatives
Portfolio: Treasury
Commencement:
Royal
Assent
To provide for superannuation contributions to
be made by Government for the benefit of low income earners.
Federal and State legislation require employers
to make provision for employees' retirement by making them
contribute to superannuation funds on behalf of their
employees.(1) In addition to using compulsion, the
Federal income tax laws provide numerous incentives to encourage
employers and employees to contribute to superannuation funds,
including the following:
-
- employer superannuation contributions (for the benefit of
employees) are deductible to the employer
-
- superannuation fund earnings and capital gains are taxed at
concessional rates
-
- employee (or undeducted) superannuation contributions are
exempt from tax
-
- superannuation benefits taken at retirement age are taxed at
concessional rates
-
- an 18 per cent rebate on spouse contributions of up to $3000
per annum to the superannuation fund of a spouse who has an
assessable income of $10 800 or less per annum. The rebate phases
out and is not available when the low-income spouse's assessable
income is $13 800 or more per annum.
-
- a 15 per cent tax rebate on the assessable part of certain
annuity or pension payments, and
-
- low income employees are entitled to a tax rebate of up to $100
for personal contributions made to a superannuation fund (called
the 'low income superannuation rebate' (LISR)).
This Bill introduces a Government
co-contribution that will replace the LISR. The LISR is:
-
- payable to an employee who receives any form of employer
superannuation support (but is not a 'self employed person')
-
- a tax rebate of up to $100 for personal contributions made to a
complying superannuation fund
-
- payable to employee's who have assessable (i.e. gross) income
less than $31 000
-
- calculated as ten per cent of the lesser of:
-
- $1000 reduced by 25 cents for each dollar of the taxpayer's
assessable income over $27 000, or
-
- the contribution actually made.(2)
During the 2001 election campaign, the
Government released A Better Superannuation
System(3) containing 13 proposed reforms to
superannuation, including a promise to replace the LISR with a more
generous Government co-contribution for low income earners.
The 2002-03 Budget provided further details
about the implementation of these proposals. The following sections
are reproductions of the Budget announcements on the Government
co-contribution.
A Better Superannuation System
Government superannuation co-contribution for low income
earners
Expenses ($m)
| |
2002-03
|
2003-04
|
2004-05
|
2005-06
|
|
Australian Taxation Office
|
-
|
95.0
|
100.0
|
105.0
|
Explanation
From 1 July 2002, a Government superannuation
co-contribution will be introduced in place of the existing rebate
for personal superannuation contributions made by eligible low
income earners. The co-contribution will match personal undeducted
contributions by low income earners made on or after
1 July 2002.
A maximum co-contribution
of $1000 will be payable in respect of individuals whose
assessable income and reportable fringe benefits do not exceed
$20 000 per annum. The maximum co-contribution will
be reduced by 8 cents for each dollar of assessable income and
reportable fringe benefits over $20 000 (up to
$32 500). The co-contribution will be treated as an undeducted
contribution for tax purposes.
To be eligible for the co-contribution, an
individual must not be aged 71 or more and must be
ineligible to claim a tax deduction for their personal
contributions. Persons who receive spouse, but not employer,
superannuation support will be eligible for a tax deduction for
their personal contributions.
See the related expense measure titled A
Better Superannuation System Government superannuation
co-contribution for low income earners implementation
and administration and also the related revenue measure titled
A Better Superannuation System replacement of the
rebate for personal superannuation contributions in the
Treasury portfolio.
A Better Superannuation System
replacement of the rebate for personal superannuation
contributions
Revenue ($m)
| |
2002-03
|
2003-04
|
2004-05
|
2005-06
|
|
Australian Taxation Office
|
-
|
10.0
|
10.0
|
10.0
|
Explanation
From 1 July 2002, the existing rebate
for personal undeducted superannuation contributions will be
replaced with a more generous Government co-contribution. The
Government co-contribution will match personal undeducted
superannuation contributions made by eligible low income earners up
to a maximum of $1000 a year depending on the individual
s level of income and contributions.
Low income earners are currently entitled to a
maximum rebate of $100 in respect of personal undeducted
superannuation contributions. Eligible persons will still be able
to claim the rebate in respect of contributions made up to
30 June 2002.
See also the related expense measures titled
A Better Superannuation System Government
superannuation co-contribution for low income earners and
A Better Superannuation System Government superannuation
co-contribution for low income earners implementation and
administration in the Treasury
portfolio.(4)
Superannuation expert Dr Vince FitzGerald has
proposed changes to the Government co-contribution that may
increase its impact. Dr FitzGerald suggested that reducing the
Government co-contribution from a dollar for dollar basis to 50
cents for each dollar contributed could enable the level of income
earners targeted to increase range upward from the Government's
proposed $20 000 to $30 000.(5)
Under Dr FitzGerald's proposal, a woman
returning to the workforce at age 45, earning $35 000 a year,
and who works for 15 years until retirement at age 60 could improve
her retirement income from $15 681 a year (or 58.6 per cent of
pre-retirement consumption expenditure) to $17 371 a year (or
64.9 per cent of pre-retirement consumption expenditure) through 15
years of voluntary contributions at $1000 a year with a
co-contribution of $500 a year. Dr FitzGerald also claims that
under his proposal, improved levels of adequacy could be achieved
for a cost not much higher than the estimated cost of the
co-contributions scheme in the 2002 Federal Budget. He claims that
a scheme offering $1 for $2 up to annual income of $30 000
would cost $102 million a year for total extra contributions of
$251 million a year. A scheme offering $1 for $2 up to annual
income of $40 000 would cost $158 million a year for total
extra contributions of $371 million a year.(6)
Pros and
cons of the Government
co-contribution
The following arguments are based on the
assumptions that a Government co-contribution is one possible
method of increasing the retirement savings of low income
earners.
-
- Free money for low income earners. The Bill will improve the
retirement income of lower income earners. Compulsory
superannuation (in particularly the Superannuation Guarantee
system) was designed to improve the retirement income of people
beyond what would be received on the age pension alone. This Bill
targets low income earners, those persons most likely to receive an
age pension, and improves their retirement income.
-
- The Bill improves the vertical equity in the superannuation
system. It provides a targeted incentive for lower income
taxpayers, particularly those earning less than $20 000 per
year, who make personal superannuation contributions. For every
dollar up to $1000 they contribute to a superannuation fund, the
Government will provide a co-contribution on a dollar-for dollar
basis. Persons earning up to $32 000 will also benefit.
-
- The Bill minimises the impact on superannuation funds by
largely using existing superannuation reporting
systems(7) to obtain the information required to
determine eligibility for a Government co-contribution.
-
- The Bill does not impose any additional costs or burdens on low
income earners as it uses existing reporting systems to determine
who is eligible for a Government co-contribution.
-
- The Bill narrows the tax base. It abolishes a relatively
inexpensive rebate (costing $10 million per year) and replaces it
with a Government superannuation co-contribution scheme initially
costing $95 million per year an increased outlay of $85 million per
year.
-
- The Bill does not enhance horizontal equity. Different
taxpayers receive different relative advantages by saving through
superannuation. The Government's major superannuation reforms to
date(8) have been the superannuation surcharge (a tax on
high income earners) and the Government co-contribution (a hand-out
for low income earners). Superannuation policy has been based on a
kind of 'Robin Hood' principle (take from the rich and give to the
poor) rather than detailed economic arguments.
-
- No reduction in complexity for low income earners. The Bill
abolishes a rebate that taxpayers have to apply for on their tax
return. The Bill replaces the rebate with a Government
co-contribution where a low income earner will need to claim their
entitlement to a Government co-contribution by answering
'additional questions on the tax return.'(9) The
taxpayer will have to provide the exact name of their
superannuation fund (including superannuation fund number, member
number, account details).
-
- The Bill entrenches aspects of the superannuation surcharge by
using its reporting system in the collection of information for
assessing entitlement to Government co-contribution. The
superannuation surcharge has been criticised for its complex
administration, clumsy assessment procedures and on-going
administration costs that are born not just by high income earners,
but all superannuation fund members.(10) Basing the
Government co-contribution information provisions on the
superannuation surcharge information collection and reporting
mechanisms entrenches a much maligned and inefficient surcharge
administration system.
-
- Additional costs on superannuation funds. Despite largely using
existing superannuation reporting systems, the Bill will require
superannuation funds to change their systems to report personal
superannuation contributions to the Australian Taxation Office.
Some defined benefit superannuation funds will have to change their
rules to permit the acceptance of Government
co-contributions.(11)
The Bill is comprised of nine parts, each of
which is discussed below.
Part 2 of the Bill sets out the
details of who is eligible for a Government co-contribution, and
the amount of the co-contribution.
Item 6 provides that a
Government co-contribution is payable to a person if:
-
- the person makes an 'eligible personal superannuation
contribution' during an income year, and
-
- the person has employer-supported superannuation for the income
year, and
-
- the person's 'total income' for the income year is less than
$32 500, and
-
- an income tax return for the person has been lodged, and
-
- the person is less than 71 years old at the end of the income
year, and
-
- the person does not hold an eligible temporary resident visa at
any time.
Item 7 defines 'eligible
personal superannuation contribution' as a contribution made after
1 July 2002 to a complying superannuation fund or retirement
savings account (RSA). Item 8 defines 'total
income' as the sum of a person's assessable income and reportable
fringe benefits for the income year.
Item 9 establishes a general
rule that the Government co-contribution is equal to the sum of the
'eligible personal superannuation contributions' the person makes
in an income year. This general rule is subject to proposed
sections 10, 11, 12,
21, 22 and
23.
Item 10 sets the maximum
Government co-contribution at $1000 for total incomes of
$20 000 and less. For persons with total income between
$20 000 and $32 000, the $1000 maximum is reduced by 8
cents for each dollar by which the person's total income exceeds
$20 000. Item 10 is subject to
proposed sections, 11,
12, 21, 22 and
23.
Item 11 provides that if the
Government contribution calculated under items 9
and 10 is less than $20, the amount of Government
co-contribution is to be increased to $20.
Item 12 enables the Government
co-contribution to be increased by an interest component if the
Government co-contribution is paid late. The interest is calculated
on:
-
- the amount of Government co-contribution unpaid on the payment
date
-
- the period from the payment date for the Government
co-contribution until the day on which it is paid in full, and
-
- on a daily basis using a rate specified in the
regulations.
How the Commissioner of Taxation determines
whether a Government co-contribution is payable to a person is
covered by Part 3.
Item 13 provides that the
Commissioner of Taxation must determine that a Government
co-contribution can be paid to a superannuation fund if the person
is entitled to a Government co-contribution. Regulations may be
made to prescribe the time in which such determinations are to be
made.
In deciding whether to make such a
determination, item 14 requires that the
Commissioner of Taxation have regard to the income tax return
lodged for the person for the income year, and information about
contributions made to a complying superannuation fund or RSA under
superannuation surcharge legislation.(12) This enables
the Commissioner to determine whether the person has employer
provided superannuation support using the employer contributed
amounts reported by providers under those Acts. In essence, the
Government co-contribution 'piggy-backs' off the information
provided under surcharge legislation. In making a determination,
the Commissioner can also use information provided in statements
given under items 26, 30 and
31.
How a Government co-contribution is paid, namely
to whom and when it is to be paid, as well as the information that
will be given when a co-contribution is paid is covered by
Part 4.
Item 15 provides that where the
Commissioner has determined that a Government co-contribution is be
paid, the Commissioner must determine whether the co-contribution
is to be paid to a member's account in a complying superannuation
fund, RSA, the Superannuation Holding Accounts Reserve (SHAR), the
person or their legal representative. Item 16
requires superannuation fund trustees and RSA providers to repay
Government co-contributions to the Commonwealth (and provide the
Commissioner prescribed information) if the trustee of RSA provider
is unable to credit the member's account with the co-contribution.
Failure to comply is an offence of strict liability.
The Commissioner must also give information in
relation to the co-contribution at the time it is paid to the
trustee of a complying superannuation fund, RSA provider, the
person or their legal representative (item
18).
Overpayments and underpayments of Government
co-contributions are covered by Part 5 of the
Bill.
In some instances, the Commissioner may make a
co-contribution less than the correct amount, that is, makes an
underpayment (item 19(2)). If the Commissioner is
satisfied that there has been an underpayment, the amount of
underpayment must be determined and then paid to the trustee of a
complying superannuation fund, RSA provider, the person or their
legal representative, or SHAR (items 19(1)
(3) and (4)). The Commissioner
must also determine which account the underpaid amount is to be
paid to (item 19(5)). Regulations may also
prescribe the times within which the determination is to be made
(item 19(7)).
Item 20 requires superannuation
fund trustees and RSA providers to repay underpaid amounts to the
Commonwealth (and provide the Commissioner prescribed information)
if the trustee of RSA provider is unable to credit the underpaid
amount member's account. Failure to comply is an offence of strict
liability.
Item 21 enables the Government
co-contribution to be increased by an interest component if the
underpaid amount is paid late. The interest is calculated on:
-
- the amount of unpaid amount that is not paid by its payment
date
-
- the period from the payment date for the unpaid amount until
the day on which it is paid in full, and
-
- on a daily basis using a rate specified in the
regulations.
In some instances, the Commissioner may make a
co-contribution greater than the correct amount, or make a
co-contribution to a person not entitled to such a payment for that
income year. Such a payment is called an overpayment (item
24(2)). If the Commissioner is satisfied that there has
been an overpayment, the amount of overpayment must be recovered by
one of the following methods (item 24(3)):
-
- deducting the whole or part of the amount overpaid from any
Government co-contribution
-
- debiting the whole or part of the amount overpaid an account of
the person in the SHAR
-
- recovering the whole or part of the amount overpaid from a
superannuation fund or RSA provider, the person or their legal
representative as a debt due to the Commonwealth
Part 6 covers the
Commissioner's gathering of information needed to make a decision
about Government co-contributions. Information gathering is an
essential part of the administration of the co-contribution
scheme.
This part obliges:
-
- superannuation funds and RSA providers to give statements and
information to the Commissioner (items 26 and
31)
-
- superannuation funds and RSA providers to give statements to
other superannuation funds and RSA providers where contributed
amounts are transferred (item 27)
-
- superannuation funds and RSA providers to give statements to
member on request (item 28)
-
- superannuation funds and RSA providers to provide information
in a particular form required by the Commissioner (item
29)
-
- a member or their legal representatives to provide the
Commissioner with information (when requested to do so)
(item 30)
-
- a superannuation provider to give the Commissioner information
(when required to do so) (item 31)
-
- records to be kept and retained by the superannuation fund/RSA
provider (item 32)
If the Commissioner has reasonable grounds to
believe a superannuation fund or RSA provider has committed an
offence, an infringement notice may be served (item
33).
If an infringement notice has been served, it
has to contain certain information in relation to the person on
whom it is served and the various matters relating to the offence
(item 34).
Parts 7 to 9 provide details of various
administrative matters, including:
-
- the Commissioner having the general administration of the Bill
(item 46)
-
- the review of decision by the Commissioner and under judicial
review under the Administrative Decisions (Judicial Review) Act
1977, but not the Administrative Appeals Tribunal or the
courts (items 49 to 51)
-
- secrecy provisions consistent with other acts administered by
the Commissioner (item 53)
-
- providing a regulation making power enabling the
Governor-General to make regulations (item 55),
and
-
- a dictionary, or an explanation of the terms that are defined
to have a particular meaning when used in this Bill
(item 56).
Low income earners are the beneficiary of this
Bill. They will receive 'free money' in the form of a deposit into
their retirement savings held in their superannuation fund or RSA.
Over time, through additional contributions and the compounding of
interest, recipients will have a higher retirement benefit than
they would have without Government contributions. If higher
retirement incomes for low wage earners are the goal, questions
should arise over whether a Government co-contribution, in the
method proposed by this Bill is the best method to achieve such a
goal. The implementation mechanism should prompt such inquiries: it
uses the information collection mechanism of the superannuation
surcharge, a mechanism that has been derided for its complex
administration, clumsy assessment procedures and on-going
administration costs born by all superannuation fund members.
-
- Superannuation funds are trusts, run and administered by
trustees for the benefit of members.
- See Income Tax Assessment Act 1936, subdivision AAC of
Division 17 of Part III.
- Liberal Party of Australia, 5 November 2001 <http://search.aph.gov.au/search/ParlInfo.ASP?Folder=PRESSREL&Criteria=item_id:646581;&action=bookmark>
- The Hon. Peter Costello, MP, Treasurer, Budget Measures
2002-03 Budget Paper No. 2, pp. 15, 161.
- Barrie Dunstan, 'Charge of the light-on brigade,' The
Australian Financial Review, 7 August 2002.
- Investment and Financial Services Association, Extending
super co-contributions worthy of serious consideration, press
release of 5 August 2002 <http://www.ifsa.com.au/IFSAWeb/ifsapubl.nsf/CommonShow/Media+Releases+Display?OpenDocument&Headline=Extending+super+co-contributions+worthy+of+serious+consideration&URL=/IFSAWeb\common.nsf/AllDocsNF/B15F7F78DB0F5587CA256C0C0021325E?OpenDocument>
- That is, those reporting systems employed under the
Superannuation Contributions Tax (Assessment and Collection)
Act 1997 and the Superannuation Contributions Tax (Members
of Constitutionally Protected Superannuation Funds) Assessment and
Collection Act 1997.
- Except possibly, choice of superannuation fund. This was been
rejected by the previous Parliament and reintroduced in the
Superannuation Legislation amendment (Choice of Superannuation
Funds) Bill 2002.
- Superannuation (Government Co-contribution for Low Income
Earners) Bill 2002, Explanatory Memorandum, p. 35.
- See the 23rd report of the former Senate Select Committee on
Superannuation, Superannuation Surcharge Legislation,
especially Chapter 4: The Proposed Collection Mechanism.
- Superannuation (Government Co-contribution for Low Income
Earners) Bill 2002, Explanatory Memorandum, pp. 33, 34.
- That is, the Superannuation Contributions Tax (Assessment
and Collection) Act 1997, and the Superannuation Contributions Tax
(Members of Constitutionally Protected Superannuation Funds)
Assessment and Collection Act 1997.
David Kehl
4 September 2002
Bills Digest Service
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ISSN 1328-8091
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