Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 3 - Superannuation excluded from fringe benefits only when made for an employee
Outline of Chapter
3.1 The amendment made by Part 3 of Schedule 1 ensures that the exclusion of payments to superannuation funds and retirement savings accounts from the term 'fringe benefit' applies only to payments made for the employee, and not to payments made for associates of the employee.
Background to the legislation
3.2 Section 136 of the Fringe Benefits Tax Assessment Act 1986 contains definitions of terms relevant to the administration of that Act, including a definition of the term fringe benefit.
3.3 The definition of fringe benefit includes benefits provided to an employee or an associate of an employee by the employer, an associate of the employer or a third party, in respect of the employee's employment. However, certain payments and benefits are specifically excluded from the definition and therefore exempt from fringe benefits.
3.4 One of the exclusions, contained in paragraph (j) of the definition, is a benefit constituted by, broadly:
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- superannuation contributions paid to a complying superannuation fund;
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- superannuation contributions paid to a non-resident fund in respect of an 'exempt visitor'; or
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- amounts paid to a retirement savings account.
The above will be referred to collectively in this Chapter as superannuation contributions.
3.5 This exclusion has meant that superannuation contributions are excluded from the definition of fringe benefits even if paid for the benefit of an associate.
3.6 The exclusion of these contributions from fringe benefits has made the sacrifice of salary to the superannuation fund of a spouse or associate attractive. This is particularly so for public servants and employees of some tax exempt bodies, since the absence of a deduction for these contributions is of no concern.
3.7 This has enabled employees of tax exempt bodies to salary package in a more tax effective manner than that available to other employees.
Summary of new law
3.8 The amendment ensures superannuation contributions paid for an associate of an employee are no longer excluded from the definition of a fringe benefit.
3.9 Superannuation contributions paid to non-complying funds will continue to be subject to fringe benefits tax (FBT) in all cases except where made for an employee who is also an 'exempt visitor'.
| New law | Current law |
|---|---|
| Superannuation contributions paid to a complying superannuation fund for an employee are excluded from FBT. | Superannuation contributions paid to a complying superannuation fund are excluded from FBT regardless of who the payment is for |
| Superannuation contributions paid to a non-resident superannuation fund for an employee are excluded from FBT if that employee is an exempt visitor. | Superannuation contributions paid to a non-resident superannuation fund are excluded from FBT if paid in respect of an exempt visitor regardless of who the payment is for |
| Payments to a retirement savings account for an employee are excluded from FBT. | Payments to a retirement savings account are excluded from FBT regardless of who the payment is for. |
Detailed explanation of new law
3.10 Amendments made by this Bill ensure that superannuation contributions are included in the definition of fringe benefits if they are paid for the purpose of making provision for superannuation benefits for associates of an employee. [Schedule 1, items 8 to 10]
3.11 It is an intended consequence of this amendment that superannuation contributions made for the benefit of associates of employees will now be subject to FBT, even though such contributions are generally not deductible. Although unusual, this is designed to thwart tax planning arrangements that seek to gain greater tax concessions than were intended to be available.
3.12 This amendment does not affect in any way the ability to make contributions for, or the ability to claim, a rebate for contributions made by an individual on behalf of a low income spouse.
3.13 This amendment does not affect the ability of taxpayers to claim a deduction for superannuation contributions made in respect of employees.
3.14 Superannuation contributions made in respect of associates of employees are not generally deductible. This does not change.
3.15 Table 3.1 summarises the treatment of contributions made by an employer to a complying superannuation fund for the benefit of both an employee and an associate of an employee.
| For whose benefit is the contribution paid? | Is the contribution tax deductible to the employer? | Is the contribution subject to FBT? | Explanation |
|---|---|---|---|
| Superannuation paid for the employee. | Yes | No | Concessional tax treatment, including the exclusion from FBT, is provided to encourage the provision of superannuation for employees |
| Superannuation paid for an associate of the employee. | No | Yes | Superannuation policy intends to provide concessional treatment to contributions for employees only. |
Application and transitional provisions
3.16 The amendments will apply to any superannuation contributions made after introduction of this Bill. [Schedule 1, subitem 11(2)]