Bills Digest No. 169 2003-04
Superannuation Laws
Amendment (2004 Measures No. 1) Bill 2004
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 Laws Amendment (2004
Measures No. 1) Bill 2004
Date
Introduced: 27 May
2004
House: House of Representatives
Portfolio: Treasury
Commencement:
Royal
Assent
The purpose of the Superannuation
Laws Amendment (2004 Measures No. 1) Bill 2004 (the Bill) is to
alter the eligibility criteria for access to the government
co-contribution and to make some administrative and technical
amendments to the Superannuation (Government Co-contribution
for Low Income Earners) Act 2003 (the Co-contribution Act) to
ensure the smooth operation of the government co-contribution
system.
The Co-contribution Act commenced on 12 November 2003 and
applies to the 2003‑04 and later years of income. It provides
for contributions to be made by the government towards the
superannuation of low income earners.
Currently, to be eligible for a government co-contribution in
the 2003-04 year of income an individual must have made personal
contributions to a complying superannuation fund, have employer
supported superannuation and have total income(1) of
less than $40 000 for the year of income. Where an individual
is eligible for the government co-contribution the government will
match dollar for dollar an individual s personal contributions up
to the individual s maximum co-contribution amount. For individuals
whose total income is $27 500 or less the maximum
co-contribution amount payable is $1000. For individuals whose
total income is between $27 500 and $40 000 the maximum
co-contribution amount decreases at a rate of eight cents for every
dollar earned above $27 500.
An individual does not have to apply for the government
co-contribution. Provided they lodge a tax return for the relevant
year of income, the Australian Taxation Office will determine,
using information collected from superannuation surcharge member
contribution statements provided by superannuation providers, if an
individual is eligible for a government co-contribution payment and
calculate the amount that is to be paid into their superannuation
fund.
More background information and history of the government
co-contribution can be found in the Bills Digests for the
Superannuation (Government Co-contribution for Low Income
Earners) Bill 2002 (the S(GCLIE) Bill 2002) and the Superannuation
(Government Co-contribution for Low Income Earners) Bill 2003
(the S(GCLIE) Bill 2003).
On 14 March 2004 the Minister for Revenue and the Assistant
Treasurer, Senator the Hon. Helen Coonan announced that the
Government was going to extend the Government s superannuation
co-contribution measure by:
[widening] the eligibility criteria to include
people who earn less than $450 a month and aren t eligible for
superannuation contributions from their employer.(2)
Currently to be eligible to receive a Government co-contribution
a recipient must, amongst other things, have
employer‑supported superannuation. Employer‑supported
superannuation is defined in the Co-contribution Act as someone who
has received contributions on their behalf in connection with their
eligible employment.
The main beneficiaries will be those employees who are paid less
than $450 in a month and part-time workers under 18 years of age
who are not caught by the superannuation guarantee
system.(3) Along with award superannuation, the
superannuation guarantee system is the main way low paid and young
employees receive employer‑supported superannuation. Without
this change an employee paid less than $450 in a month or is under
18 years of age and working part-time falls outside the
superannuation guarantee system and usually does not receive
employer supported superannuation as currently defined in the
Co-contribution Act.
This Bill is expected to result in a cost to revenue of $195
million over the forward estimates ($45 million in 2004-05, $50
million in 2005-06, $50 million in 2006-07 and $50 million in
2007-08).
Currently, under sections 82AAS and 82AAT of the Income Tax
Assessment Act 1936 (ITAA 1936), a person is not entitled to a
claim a tax deduction for personal superannuation contributions if
they receive or are entitled to employer superannuation support.
The proposed amendments in this Bill do not affect the conditions
in the section 82AAS and 82AAT of the ITAA 1936.
Nevertheless, removing the requirement for
employer‑supported superannuation and replace it with test
dependent on the proportion of their income earned from eligible
employment (which is not reliant on a person actually being
eligible for employer‑supported superannuation) could result
in a person being able to claim a tax deduction for personal
superannuation contributions and receiving the government
co‑contribution. Consequently, the provisions relating to a
person claiming a tax deduction for personal superannuation
contributions must be amended so that a person eligible for the
government co-contribution from also being able to claim a tax
deduction for their personal superannuation contributions.
Item 1 amends the note following subsection
82AAT(1) of the ITAA 1936 so that rather than telling the reader
that under section 26-80 of the Income Tax Assessment Act
1997 (ITAA 1997) the deduction under section 82AAT will be
denied if the contribution is made more than 28 days after the
person turns 70 years of age it will inform the reader that section
26-80 of the Income Tax Assessment Act 1997 provides for
cases where the deduction under subsection 82AAT(1) will not
apply.
Item 2 inserts proposed paragraph
26-80(3)(c) into the ITAA 1997 so that a person is denied
a deduction under section 82AAT of the ITAA 1936 if they are
entitled to a government co-contribution.
Item 3 provides that the amendment made by
item 2 of the Bill will apply to the 2004-05 year
of income and later years of income.
Currently a person must satisfy a number of criteria set out in
section 6 of the Co‑contribution Act to be eligible for the
government co‑contribution. One of the criteria is that the
person must be in receipt of employer‑supported
superannuation. Items 4 and 5
amend the Co‑contribution Act so that from 2003‑04 year
of income a person will be eligible for the government
co‑contribution even though they do not receive
employer‑supported superannuation.
To be eligible for the government co-contribution a person must
meet all of the following conditions:
-
the person makes an eligible personal superannuation
contribution during an income year (paragraph 6(1)(a)), and
-
the person has employer-supported superannuation for the income
year (paragraph 6(1)(b)), and
-
the person s total income for the income year is less than the
higher income threshold ($40 000 for the 2003-04 year of
income(4)) (paragraph 6(1)(c)), and
-
an income tax return for the person has been lodged (paragraph
6(1)(d)), and
-
the person is less than 71 years old at the end of the income
year (paragraph 6(1)(e)), and
-
the person does not hold an eligible temporary resident visa at
any time during that year of income (paragraph 6(1)(f)).
Item 4 amends paragraph 6(1)(b) of the
Co-contribution Act removing the requirement that the person has
employer-supported superannuation for the income year and replacing
it with a requirement that the person must have 10 per cent or more
of their total income for the year of income attributable to
eligible employment. Item 5 removes the definition
of employer-supported superannuation in subsection 6(2) of the
Co-contribution Act and replaces it with a definition of eligible
employment. This definition refers to the definition of eligible
employment in Subdivision AB of Division 3 of Part III of the ITAA
1936.
The result of these two amendments is that for the 2003-04 year
of income a person will be eligible for the government
co‑contribution if the person:
-
receives 10 per cent or more of their total income as an
employee for the purposes of the Superannuation Guarantee
Administration Act 1992 (the SGAA), and
-
they meet the other requirements in paragraphs 6(1)(a) and
6(1)(c) to (f) of the Co‑contribution Act.
The amendments widen the eligibility criteria as they permit
employees who do not receive employer contributions, such as
superannuation guarantee contributions due to the fact they satisfy
one of the exceptions in the SGAA, to be eligible for a government
co‑contribution. The current eligibility criteria require the
member to have employer contributions made on their behalf.
Item 6 provides that the amendments made by
items 4 and 5 of the Bill apply
to government co-contribution for the 2003-04 year of income and
later years of income.
Currently under the Co‑contribution Act where the
Commonwealth is late in making a co‑contribution payment to
an eligible person, they are required to pay interest to the
eligible person on the unpaid amount. Currently references to
interest on unpaid amounts in the Co‑contribution Act refer
to a rate specified in the Superannuation (Government
Co‑contribution for Low Income Earners) Regulation 2004.
Part 1 amends the interest on unpaid amounts
provisions of the Co‑contribution Act so that the interest
rate will be determined by referring to the base interest rate
defined in section 8AAD of the Administration Act.
It is interesting to note the difference between the rate of
interest that the Commonwealth must pay where it owes money people
under the tax system verses the rate of interest that a taxpayer
must pay where it owes money to the Commonwealth under the tax
system. Generally, in the tax system when a taxpayer has made an
overpayment of tax or the Australian Taxation Office (ATO) is late
in making a refund to a taxpayer, the Commissioner of Taxation is
required to pay interest on an overpayment or late refund payment.
The rate of interest is set in section 214A of the ITAA 1936 which
refers to the base interest rate which is defined in section 8AAD
of the Taxation Administration Act 1953 (the
Administration Act). Section 8AAD of the Administration Act defines
the base interest rate for each quarter as the monthly average
yield of the 90-day Bank Accepted Bills published by the Reserve
Bank of Australia for the middle month of the previous quarter.
When a taxpayer is late in paying a tax assessment the payment is
subject to a penalty called the general interest charge (GIC).
Section 8AAD of the Administration Act defines the annual GIC set
in each quarter as seven percentage points above base interest
rate. Therefore, if the ATO over taxes a taxpayer the interest they
pay as penalty is significantly lower than if the
taxpayer/superannuation provider is late in making a
payment/repayment.
Part 2 amends some of the payments provisions
and underpayment and overpayment provisions. There are time limits
for superannuation providers to credit co‑contribution
amounts to member s accounts (item 7) and time
limits for superannuation fund trustees to repay to the
Commonwealth an underpaid amount where that amount cannot be
credited to the eligible person (item 9).
Items 13 to 15 also impose the
general interest charge on amounts that the superannuation
providers are required to repay if the repayments are not made
within the legislated timeframes.
Currently section 54 of the Co‑contribution Act requires
the Commissioner of Taxation to provide each quarter a report for
the Minister on the operations of the government
co‑contribution. However, it does not specify exactly what
information the Commissioner of Taxation is required to provide.
Part 3 amends the reporting requirements in
section 54 of the Co-contributions Act specifying the information
on the government co-contribution that the Commissioner of Taxation
must provide to the Minister so that the Minister can present a
report to the Parliament from 1 July 2004.
Part 4 is a technical amendment to replace
references to the Superannuation Holding Account Reserve with the
Superannuation Holding Accounts Account.
The Bill achieves the government s objective of improving the
practical and administrative operations of the Co-contribution Act.
It makes a sensible adjustment to the eligibility criteria for the
government co-contribution so that all employees, regardless of
whether they are entitled to have superannuation guarantee
contributions made on their behalf, will be eligible for the
government co-contribution if they meet all the eligibility
criteria. This is where the problem occurs for the government
co-contribution measure. These amendments to the government
co-contribution measure will not help those employees, who
currently cannot afford to make personal contributions, to find the
extra money to benefit from the government co-contribution systems
and these amendments.
The reports that will be published in accordance with section 54
of the Co‑contribution Act should provide some information on
this issue in the future. However, a more interesting report would
be for the Commissioner of Taxation to provide information on the
number of taxpayers whose total income is below the government
co-contribution thresholds, who have received the minimum
superannuation guarantee contribution from their employer but who
do not receive the government co-contribution because they have not
made any personal contributions.
-
Section 8 of the Superannuation (Government Co-contribution
for Low Income Earners) Act 2003 defines total income as the
sum of a person s assessable income and reportable fringe benefits
for the income year.
-
Senator H. Coonan, Matched super extended to one million
more Australians, Press Release, no. C013/04, Department of
the Treasury, Canberra, 14 March 2004.
-
Explanatory Memorandum, p. 5
-
This will increase to $58 000 for the 2004-05 year of
income if the Superannuation Budget Measures Bill 2004 is passed by
parliament and receives Royal Assent.
Graeme Selleck
21 June 2004
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 2004
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Published by the Parliamentary Library, 2004.
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