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Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013

Introduced into the House of Representatives on 15 May 2013

Portfolio: Financial Services and Superannuation

Overview

1.1        This bill seeks to make a number of amendments to existing tax and superannuation legislation.

1.2        Schedule 1 to the bill seeks to increase the concessional contributions cap temporarily from $25,000 to $35,000 for the 2013-14 financial year for individuals aged 60 years and over, and to $35,000 for the 2014-15 financial year and later financial years for individuals aged 50 years and over. The temporary cap will cease when the general cap indexes to $35,000. This increase follows the reduction from $50,000 to $25,000 that took effect from the 2012-2013 income financial year.

1.3        Schedule 2 to the bill seeks to ensure that the low income superannuation contribution (LISC) operates effectively. The LISC is a payment of a maximum of $500 that may be made to persons with an adjusted taxable income below $37,000. The LISC was introduced in 2012 in order to ensure that individuals who have a marginal tax rate below 15 per cent do not end up paying 15 per cent tax on their concessional contributions, that is, to ensure that they would not be paying more than if they had received the money as salary or wages and paid tax at their marginal rate.

1.4        Schedule 3 to the bill seeks to reduce the tax concession for concessionally taxed superannuation contributions of very high income earners by 15 per cent. The Superannuation (Sustaining the Contribution Concession) Imposition Bill 2013 contains the mechanism by which the tax concession is reduced.

1.5        Schedule 4 to the bill seeks to make consequential amendments to legislation concerning some of the Commonwealth defined benefit superannuation plans where members of those plans are affected by the reduction in the tax concession for concessionally taxed superannuation contributions.  

Compatibility with human rights

1.6        The bill is accompanied by a number of self-contained statements of compatibility, embedded in the sections of the explanatory memorandum which deals with the Schedule in question. Separate statements of compatibility are provided for the amendments proposed by Schedules 1 and 2. No separate statement of compatibility is provided in relation to the amendments proposed by Schedule 3. However, a joint statement of compatibility is provided in relation to the amendments proposed by Schedules 3 and 4 at the end of the section of the explanatory memorandum discussing Schedule 4.

Schedule 1 (increasing the cap for concessional contributions for certain groups)

1.7        The statement of compatibility notes that these amendments engage the right to non-discrimination contained in article 26 of the International Covenant on Civil and Political Rights (ICCPR). This is because the proposed changes treat certain individuals more favourably on the basis of their age. Such differential treatment must pursue a legitimate objective and must be based on objective and reasonable criteria.

1.8        The statement of compatibility states that increasing the cap for concessional contributions:

will encourage older Australians to improve the adequacy of their retirement savings at a time in their lives when they are often better placed to make additional contributions to their superannuation. In addition, it recognises that these individuals may not have received superannuation contributions throughout their working life as the superannuation guarantee arrangements were progressively introduced from 1992.[15]

1.9        As it has previously stated, the committee notes that the encouragement through favourable tax treatment of superannuation savings can be viewed as promoting the right to the enjoyment of just and favourable conditions of work under article 7 of the International Covenant on Economic, Social and Cultural Rights (ICESCR), the right to social security under article 9 of the ICESCR, and the right to an adequate standard of living under article 11 of the ICESCR. Accordingly, it considers that the promotion of the goal of supporting persons over the age of 50 to accumulate sufficient superannuation, given they will not have benefited from the current compulsory superannuation scheme for as long as those in younger age cohorts will have by the time they retire, may be viewed as a legitimate goal.

1.10      The committee notes that the overall cost to the revenue of this measure is set out in the explanatory memorandum.[16] The explanatory memorandum also notes that around 171,000 people will benefit from the changes in 2013-14 and 363,000 will benefit in 2014-15, when compared with the current cap.

1.11             The committee considers that the proposed amendments in Schedule 1 do not appear to give rise to human rights concerns.

Schedule 2 (low income superannuation contribution)

1.12      Schedule 2 proposes amendments in relation to the LISC. The explanatory memorandum notes that

The LISC will boost the superannuation savings of an estimated 3.6 million individuals for concessional contributions for the 2012-13 income year. This is equivalent to 30 per cent of workers who in 2009-10 only received around 1.2 per cent of superannuation concessions.

In order to ensure that the LISC operates equitably and according to its original policy intent some technical amendments are required to the existing LISC provisions.

The tax-free threshold for 2012-13 was raised from $6,000 to $18,200. With the increase in the tax-free threshold, an estimated one million additional low income earners are no longer required to lodge an income tax return. As a result, the Commissioner of Taxation (the Commissioner) will not receive income tax return information to assess eligibility for the LISC for these individuals.[17]

1.13             The committee considers that this measure will promote enjoyment of the right to just and favourable conditions of work under article 7 of the ICESCR, the right to social security under article 9 of the ICESCR, and the right to an adequate standard of living under article 11 of the ICESCR.

Schedule 3 (reduction of tax concession for very high-income earners)

1.14      The amendments in Schedule 2 will 'reduce the tax concession that individuals with income above $300,000 receive on their concessional superannuation contributions from 30 per cent to 15 per cent by imposing tax under Division 293 of the Income Tax Assessment Act 1997.'[18]

1.15      The statement of compatibility states that the amendments proposed by Schedule 3 do not engage any of the applicable rights and is therefore compatible with human rights.

1.16      However, as follows from the analysis contained in the statement of compatibility on Schedule 1 to the bill, the differential treatment of those with incomes over $300,000 may raise issues under the non-discrimination guarantee of article 26 of the ICCPR. Such differential treatment can be justified by demonstrating that it pursues a legitimate aim and is based on objective and reasonable opportunity.

1.17      The explanatory memorandum explains the rationale for these amendments:

High income earners receive a significantly larger tax concession on superannuation contributions than average income earners. Concessional contributions that are included in the assessable income of superannuation funds are subject to a flat rate of tax of 15 per cent regardless of the income of the individual members of the fund. If the superannuation contributions made for the individual had instead been included in their salary and wages or business income, the high income earning individual would have been taxed on this income at a marginal income tax rate of 45 per cent (excluding the Medicare levy). As a result, currently these individuals effectively receive a 30 per cent tax concession (excluding the Medicare levy) on their superannuation contributions. In contrast, average income earners are subject to a marginal tax rate of 32.5 per cent (excluding the Medicare levy) and effectively receive a 17.5 per cent tax concession (excluding the Medicare levy) on their superannuation contributions.

. . .

The sustaining the superannuation contribution concession measure improves the fairness of the taxation system by ensuring the tax concession received by those individuals earning more than $300,000 is more closely aligned with the concession received by average income earners.

Only around 1.2 per cent — 129,000— people contributing to super in 2012-13 will be affected by the reduced superannuation concession.[19]

1.18      The committee considers that this material provides a justification for the differential treatment between different classes of taxpayers.

1.19             The committee considers that the proposed amendments in Schedule 3 do not appear to give rise to human rights concerns.

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