Bills Digest no. 97 2006–07
Income Tax (Former Complying Superannuation Funds)
Amendment Bill 2007
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
Financial Implications
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Income Tax
(Former Complying Superannuation Funds) Amendment Bill
2007
Income Tax
Rates Amendment (Superannuation) Bill 2007
Income Tax
Amendment Bill 2007
Income Tax
(Former Non-resident Superannuation Funds) Amendment Bill
2007
Date introduced: 7 February
2007
House:
Representatives
Portfolio:
Treasury
Commencement:
Immediately after the commencement of the Tax Laws Amendment
(Simplified Superannuation) Act 2006
The following Bills amend various Acts that impose a
tax on superannuation funds. These Bills are:
-
Income Tax Rates Amendment (Superannuation) Bill 2007
-
Income Tax Amendment Bill 2007
-
Income Tax (Former Non-residents Superannuation funds) Amendment
Bill 2007, and
-
Income Tax (Former Complying Superannuation Funds) Amendment
Bill 2007.
The changes made by these Bills are consequential ones flowing
from the passage of the Tax Laws Amendment (Simplified
Superannuation) Bill 2006 (Main Bill) now before Parliament. As
such, the background to these changes is set out in the Library s
Bills Digest on the Tax Laws Amendment (Simplified Superannuation)
Act 2006 and the Bankruptcy Legislation Amendment (Superannuation
Contributions) Act 2007.(1)
These changes were first announced in the Budget speech for the
2006 07 budget.(2) Since then the Government has made
significant changes to the first announced proposals in response to
consultation with both industry and the wider public. The
announcement of these later changes was given in a series of press
releases from the Treasurer and Assistant Treasurer and Minister
for Revenue during the latter half of 2006.(3)
Press and industry comments on the overall simplified
superannuation package are set out in the Library s Bills Digest on
the Tax Laws Amendment (Simplified Superannuation) Bill 2006 and
the Bankruptcy Legislation Amendment (Superannuation Contributions)
Bill 2007.(4)
Arguments for and against the provisions of the overall
superannuation simplification package are set out Library s Bills
Digest on the Tax Laws Amendment (Simplified Superannuation) Bill
2006.(5)
Political comments on the overall superannuation simplification
package are set out in Library s Bills Digest on the Tax Laws
Amendment (Simplified Superannuation) Bill 2006.(6)
There are no financial implications arising from this particular
Bill. The financial implications of the overall superannuation
simplification package are discussed in the Library s Bills Digest
on the Tax Laws Amendment (Simplified Superannuation) Act
2006.(7)
The tax law changes discussed below are contained in separate
bills for constitutional reasons.
The Rates Bill amends many of the superannuation related
provisions of the Income Tax Rates Act 1986 (Rates Act).
These changes are necessary to implement the Simplified
Superannuation changes contained in the Main Bill.
Item 6 of Schedule 1 of the
Rates Bill inserts the definition of the term employment
termination remainder in to subsection 3(1) of the
Rates Act.
Under the simplified superannuation changes an employment
termination remainder is that amount of an employment termination
payment that exceeds the limit(s) on an employment termination
payment (see following comment on current limit).
In turn, an employment termination payment is a payment received
solely as a consequence of the termination of a person s
employment. Such payments will not include superannuation amounts.
From 1 July 2007 employment termination payments will refer only to
redundancy payments and such additional payments commonly known as
golden handshakes.
Under arrangements starting from 9 May 2006 (date of the budget
speech in which the simplified superannuation arrangements were
first announced) employees in certain circumstances can contribute
up to $1 000 000 to a superannuation fund, from an
employment termination payment (i.e. golden handshake) and not be
assessed as having an employment termination remainder.
Item 7 repeals the current definition of ETP
(also employment termination payment) in the Rates Act.
Item 9 amends subsection 3(1)
of the Rates Bill to define the term maximum rate provision as the
provisions, to be inserted in the Income Tax Assessment Act
1997 and the Income Tax (Transitional Provisions) Act
1997, by the Main Bill.
The definition of the term employment termination remainder
discussed above in item 6 includes the term
maximum rate provision . By defining this term with reference to
these other provisions the imposition of the maximum tax rate of
46.5 per cent on the employment termination remainder is
ensured.
Item 20 amends the definition of special income
component in subparagraph 3(1)(b)(ii) of the Rates
Act. The current definition is repealed and replaced with a
definition referring to the sum of the superannuation remainder of
taxable income and the employment termination remainder of taxable
income.
The employment termination remainder has already been discussed
in item 6 above. A superannuation remainder of
taxable income is defined in item 22, which
inserts the definition of this term into subsection
3(1) of the Rates Act. Briefly, a superannuation remainder
is so much of a superannuation payment made to a person from a
superannuation fund that:
-
is included in their taxable income, and
-
does not give rise to a tax offset under the maximum tax rate
provisions of new Division 301 of the Income
Tax Assessment Act 1997.(8)
Effectively, these amounts are superannuation
payments that are still subject to normal tax upon payment from the
superannuation fund. That is, they are not taxed at concessional
rates upon payment. Under the simplified superannuation changes
these amounts will effectively be amounts above $1 million paid
from an un-taxed superannuation fund. An un-taxed superannuation
fund is one that has not been subject to tax on the contributions
to, or the investment earnings of, that fund.
The special income component is taxed at the top
marginal rate of 45 per cent plus Medicare levy under the
provisions of the Rates Act.
Schedule 1 of the Amendment Bill makes
consequential amendments to the Income Tax Act 1986.
Briefly, items 3 and 5 of the
Amendment Bill ensures that superannuation funds formally taxed
under Part IX of the Income Tax Assessment Act
1936 (ITAA 36) will be taxed under the new provisions of the
Income Tax Assessment Act 1997 (ITAA 97).
Generally, Part IX of ITAA 36 deals with the
taxation of superannuation and related business. Under the
simplified superannuation changes the main legislation governing
the taxation of these businesses will occur in the ITAA 97.
Item 3 of the Non-residents Bill imposes income
tax on an entity known as an Australian superannuation fund .
An Australian superannuation fund is a fund, formerly known as a
resident superannuation fund . The definition of an Australian
superannuation fund is to be inserted into the ITAA 97 in new
section 295-95 of that Act (Item
1, Schedule 1, Main Bill). Item
3 of the Amendment Bill is necessary to ensure that the
tax arrangements included in the simplified superannuation changes
apply to the new category of Australian superannuation fund.
The Income Tax (Former Complying Superannuation Funds) Amendment
Bill 2007 makes consequential amendments to the Income Tax
(Former Complying Superannuation Funds) Act 1994.
Item 1 amends this Act so that such funds are
now taxed under the provisions of the ITAA 97 instead of
Part IX of the ITAA 36. Such changes are
required to ensure consistent tax treatment with other
superannuation funds under the simplified superannuation
changes.
These changes are necessary for the complete implementation of
the simplified superannuation package.
-
Leslie Nielson, Tax Laws Amendment (Simplified Superannuation)
Bill 2006 Bills Digest, no. 65, Parliamentary Library,
Canberra, 2006 07. and Bankruptcy Legislation Amendment
(Superannuation Contributions) Bill 2007 , Bills Digest,
no. 91, Parliamentary Library, Canberra, 2006 07.
-
The Hon. Peter Costello MP, Treasurer, Second Reading Speech,
Appropriation Bill No. 1 2006 07, House of Representatives,
Debates, 9 May 2006, p. 57.
-
Treasury, A Plan to Simplify and Streamline Superannuation -
Detailed Outline, 9 May 2006, A Plan to Simplify and
Streamline Superannuation Outcome of Consultation, 5 September
2006, The Hon. Peter Costello MP, A Plan To Simplify and Streamline
Superannuation Transitional Issues That Apply Immediately , Media
Release, No 57 of 2006, 14 June 2006. Simplified Superannuation
Final Decisions , Media Release, No 93 of 2006, 5 September
2006.
-
Leslie Nielson, ibid.
-
Leslie Nielson, Tax Laws Amendment (Simplified Superannuation)
Bill 2006 Bills Digest, no. 65, Parliamentary Library,
Canberra, 2006 07.
-
Leslie Nielson, ibid.
-
Leslie Nielson, ibid.
-
These new sections are 301-95, 301-105 and 301-115 of the
Income Tax Assessment Act 1997, inserted by the provisions
of the Main Bill.
Leslie Nielson
14 February 2007
Bills Digest Service
Parliamentary Library
This paper has been prepared to support the work of the
Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Parliamentary Library, nor do they constitute professional
legal opinion.
Staff are available to discuss the paper's
contents with Senators and Members and their staff but not with
members of the public.
ISSN 1328-8091
© Commonwealth of Australia 2007
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Published by the Parliamentary Library, 2007.
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