Explanatory Memorandum
(Circulated by authority of the Prime Minister, the Hon J W Howard MP)Schedule 1 - Amendments of the Governor-General Act 1974
Part 1 - Salary
Section 3 of the Governor-General Act 1974 provides that the annual sum payable for the salary of the Governor-General shall be $58,000.
Item 1 omits the annual sum of $58,000 and substitutes a new annual sum of $310,000.
Item 2 provides that amendments made by the Governor-General Legislation Amendment Act 2001 will not have effect until the current Governor-General leaves office. This provision is included because Section 3 of the Constitution provides that the salary of the Governor-General shall not be altered during his continuance in office.
Part 2 - Superannuation
Item 3 amends subsection 2A(2) by inserting a definition of assessment so that subsequent references in the Act to an assessment are consistent with the Superannuation Contributions Tax (Assessment and Collection) Act 1997.
Item 4 replaces the current definition of basic rate with a definition that incorporates two elements of the retirement allowance for a former Governor-General that are specified in the current Act:
- •
- 60 per cent of the salary of the Chief Justice,
- •
- less other pensions payable by the Commonwealth, a State or a Territory.
These elements are currently located in paragraph 4(3)(a) and subsection 4(4) respectively, separate from the definition of basic rate which is in subsection 4(3B). Bringing these two elements together allows a simpler statement of the formula for calculating a retirement allowance and this is given effect by Item 4.
Item 4 also relocates the definition of basic rate from subsection 4(3B) to subsection 2A(2) Interpretation, which includes other significant definitions.
Item 5 amends subsection 2A(2) by inserting a definition of notice of assessment so that subsequent references in the Act to a notice of assessment are consistent with the Superannuation Contributions Tax (Assessment and Collection) Act 1997.
Item 6 amends subsection 2A(2) by inserting a definition of surcharge so that subsequent references in the Act to a surcharge are consistent with the Superannuation Contributions Tax (Assessment and Collection) Act 1997.
Item 7 expands the definition of surcharge deduction amount to include the amount of any surcharge that the trustee becomes liable to pay as the result of a notice of assessment given after a Governor-General ceases to hold office.
This, with the provisions in Items9 and 12 (subparagraph 4(3)(b)(i) and subsection 4(3B)), will provide for a system in which a former Governor-General or surviving spouse may commute part of a retirement or spouses allowance to meet a surcharge liability in respect of the allowance arising after the Governor-General ceased to hold office.
Item 8 amends subsection 2A(2) by inserting a definition of surchargeable contributions so that subsequent references in the Act to surchargeable contributions are consistent with the Superannuation Contributions Tax (Assessment and Collection) Act 1997.
Item 9 provides for payment of a retirement allowance at a rate that depends on the timing of the issue (or non-issue) of a notice of assessment and the extent to which any payment of a surcharge liability by the trustee justifies a reduction in the allowance. The prescribed percentage defined in subsection 4(3B) is the mechanism by which the effect of payments of surcharge liability by the trustee affects the allowance. An explanation of several possible situations follows.
The proposed paragraph 4(3)(a) describes what could be considered a standard situation:
- •
- the former Governor-General (the person) is about to retire after serving the usual 5 year term (ie the person has not retired early); and
- •
- the ATO has issued a notice of assessment.
The trustee pays the liability, then calculates an appropriate reduction to the rate of allowance (the prescribed percentage) using the formula at subsection 4(3B) (note that the formula will be amended by Item 12). The result of the formula is a percentage of the persons basic rate (ie a percentage of: 60 per cent of the salary of the Chief Justice, less any other pensions or retiring allowances the person receives from the Commonwealth, a State or a Territory).
The provisions proposed for subsection 4(3) will ensure that the prescribed percentage will be not less than 85 per cent (ie a maximum reduction of 15 per cent).
4(3)(b)(i) A notice of assessment has been issued and the surcharge debt account was not in debit when the allowance became payable
In this situation, a notice of assessment given after a Governor-General ceases to hold office can be taken into account to produce a result similar to that in the standard situation. In addition, the situation in which a Governor-General has fully paid a surcharge debt can be dealt with.
4(3)(b)(ii) A notice of assessment has not been issued, but the trustee and the person expect that a notice of assessment will be issued
In this situation, the rate of allowance is set at 85 per cent in the expectation that a notice of assessment will be issued later. If such a notice of assessment were to be issued, the post-retirement commutation provisions (Item 7) and the formula at subsection 4(3B) (Item 12) would lead to recalculation of the rate of the allowance, taking into account any adjustment that may be needed as a result of the reduction to 85 per cent which had already occurred due to the operation of subparagraph 4(3)(b)(ii).
4(3)(b)(iii) A notice of assessment has not been issued, but the trustee and the beneficiary agree that a notice of assessment is unlikely to be issued
In this situation, the rate of allowance is set at 100 per cent of the basic rate in the expectation that a notice of assessment will not be issued and there will be no surcharge liability.
If, notwithstanding the agreement under this subparagraph, a notice of assessment were to be issued later, the post-retirement commutation provisions (Item 13) and the formula at subsection 4(3B) (Item 12) would permit recalculation of the rate of the allowance, taking into account the rate at which the allowance had already been paid.
This provision allows for the trustee and the person (or the persons spouse, spouses or legal representative) to agree in writing that a notice of assessment is unlikely to be issued. As noted in the explanation of Item 9, the effect of this agreement will be to set the allowance at 100 per cent of the basic rate , ie without a deduction in respect of payment of a surcharge liability.
If, notwithstanding the agreement under this subparagraph, a notice of assessment were to be issued later, the post-retirement commutation provisions (Item 13) and the formula at subsection 4(3B) (Item 12) would permit recalculation of the rate of the allowance, taking into account the rate at which the allowance had already been paid.
Following the change to the definition of basic rate made by Item 4, Item 11 replaces subsection 4(3A) and substitutes a formula for the calculation of the spouse entitlement that retains the rate of spouse allowance previously prescribed in the Act.
The new formula performs the same function as the old formula; ie it calculates an appropriate reduction in the allowance in recognition of a surcharge liability that has been paid by the trustee.
The new formula provides a mechanism for the trustee to adjust an allowance if, for example:
- •
- more than one assessment has been issued; or
- •
- no assessment was issued at the time the allowance became payable and an assessment is subsequently issued.
By enabling the allowance to be adjusted in such circumstances, this provision gives effect to the post-retirement commutation provision established by Item 13.
The proposed subsection 4(4) will transfer to the trustee of the Scheme any liability that a former Governor-General, spouse, spouses or estate would otherwise be liable to pay in relation to a notice of assessment pertaining to a superannuation surcharge in respect of the Governor-Generals retirement allowance that is issued after a person ceases to hold office as Governor-General. The provision would apply only if the notice of assessment is passed to the trustee.
If a liability of this kind is transferred to the trustee, the proposed subsection 4(6) requires the recalculation of the prescribed percentage in accordance with the formula at paragraph 4(3B) and thus the retirement allowance will also be recalculated as a result of the amendment made in Item 9 (Item 12 refers).
Item 14 ensures that any Governor-General who held office prior to the introduction of the superannuation surcharge on 20 August 1996 will not be affected by these amendments to the Governor-General Act 1974 .