Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 - Permanent application of transitional arrangements
Outline of chapter
1.1 This chapter explains the amendments that will make the existing transitional arrangements permanent where they relate to the portion of a termination payment that is subject to surcharge.
Context of reform
1.2 This measure was announced in the 2001-2002 Federal Budget and is designed to improve the operation of the termination payments surcharge and the superannuation contributions surcharge as they apply to employer ETPs, such as redundancies.
1.3 At present, as a transitional measure until 19 August 2001, taxpayers are liable for the termination payments surcharge only on the portion of an employer ETP that accrued after the surcharge was announced on 20 August 1996.
Summary of new law
1.4 This Bill will remove the sunset provisions and continue to apply the termination payments surcharge only to the portion of the termination payment that accrued after 20 August 1996.
| New law | Current law |
|---|---|
| The termination payments surcharge will apply only to the retained amount of an ETP (excluding any post-June 1994 invalidity component or CGT exempt component of such a payment, or an ETP from an employee share acquisition scheme) that accrued post-20 August 1996. | Prior to 20 August 2001, the termination payments surcharge applies only to the retained amount of an ETP (excluding any post-June 1994 invalidity component or CGT exempt component of such a payment, or an ETP from an employee share acquisition scheme) that accrued post-20 August 1996. On or after 20 August 2001, the surcharge will apply to the total retained amount of the ETP (excluding any post-June 1994 invalidity component or CGT exempt component of such a payment, or an ETP from an employee share acquisition scheme) unless there was an entitlement to the payment under a written agreement in place between the employer and the taxpayer before 7.30 pm, by legal time in the Australian Capital Territory, on 20 August 1996. |
Detailed explanation of new law
1.5 The SCT (A & C)A 1997 provides for the assessment and collection of a superannuation contributions surcharge payable on surchargeable contributions made on behalf of high-income individuals after 20 August 1996. Surchargeable contributions include the portion of a termination payment that accrued after 20 August 1996 that is rolled over to a superannuation provider.
1.6 The SCT (MCPSFA)A 1997 provides for the assessment and collection of a superannuation contributions surcharge on high-income members of constitutionally protected superannuation funds.
1.7 The TPT (A & C)A 1997 provides for the assessment and collection of a termination payments surcharge. The surcharge is payable on employer ETPs made to high-income taxpayers from 20 August 1996 in consequence of the termination of their employment. The termination payments surcharge was introduced to prevent employer ETPs being used as a means of surcharge avoidance.
1.8 For a transitional period, the termination payments surcharge only applies to the component of an employer ETP that accrues after 20 August 1996. This transitional period will expire on 19 August 2001.
1.9 This Bill amends subsection 8(2A) of the SCT(A & C)A 1997 to remove the reference to ETPs made before 20 August 2001 and to provide that only the reduced amount of an ETP is used in the calculation to determine the surchargeable amount. The definition of reduced amount inserted in subsection 8(2A) refers to the amount of an ETP remaining after deducting any post-June 1994 invalidity component, CGT exempt component or any part made from an employee share acquisition scheme. [Schedule 1, items 3 and 4, subsection 8(2A)]
1.10 As a result, the contributions surcharge will only apply to so much of an employer ETP (less the amounts mentioned in paragraph 1.9) rolled over to a superannuation provider, that is taken to have accrued after 20 August 1996.
1.11 In relation to members of constitutionally protected superannuation funds, this Bill amends subsection 9(3) of the SCT(MCPSF)A 1997 to remove the reference to employer ETPs made before 20 August 2001, and to provide that only the reduced amount of an ETP is used in the calculation to determine the surchargeable amount. The definition of reduced amount inserted in subsection 9(3) refers to the amount of an ETP remaining after deducting any post-June 1994 invalidity component, CGT exempt component or any part made from an employee share acquisition scheme. [Schedule 2, items 2 and 3, subsection 9(3)]
1.12 As a result, the contributions surcharge will only apply to so much of an employer ETP (less the amounts mentioned in paragraph 1.11) rolled over to a superannuation provider, that is taken to have accrued after 20 August 1996.
1.13 In relation to the termination payments surcharge, this Bill repeals the current section 9 of the TPT(A & C)A 1997 and replaces it with a new section 9. This change will ensure that only the amount of the termination payment that is taken to have accrued after 20 August 1996 will be subject to the termination payments surcharge. [Schedule 3, item 3, section 9]
1.14 The repeal of section 9 also removes current subsection 9(2) of the TPT(A & C)A 1997. Currently, subsection 9(2) provides that where a taxpayer has an entitlement to the payment of a termination payment under a written agreement entered into before 20 August 1996, then the transitional arrangements would continue to apply to that termination payment paid after 20 August 2001. [Schedule 3, item 3, section 9]
Application and transitional provisions
1.15 These amendments to the SCT(A & C)A 1997 and the TPT(A & C)A 1997 take effect from 5 June 1997. The amendments to the SCT(MCPSF)A 1997 take effect from 7 December 1997. This will provide continuity of application of the surcharge and termination payments legislation.
Consequential amendments
1.16 This Bill removes the reference to specified rollover amounts in subparagraph 8(2)(c)(iii) of the SCT(A & C)A 1997 as a result of the permanent application of the transitional arrangements in subsection 8(2A). Specified rollover amounts that constitute amounts accrued after 20 August 1996 are not amounts that should be included as surchargeable contributions from 20 August 2001. Instead, subsection 8(2A) will continue to apply in relation to calculating the proportion of a rolled over employer ETP which is included as a surchargeable contribution. [Schedule 1, item 2, subparagraph 8(2)(c)(iii)]
1.17 Subsection 8(2A) (as currently administered in accordance with Superannuation Contributions Determination SCD 1999/5) provides that the amount to be included as a surchargeable contribution is the total ETP (less the amount of any post-June 1994 invalidity component or CGT exempt component or an ETP from an employee share acquisition scheme) multiplied by the post-20 August 1996 period divided by the total period. (It is expected that Superannuation Contributions Determination SCD 1999/5 will be withdrawn after the date of Royal Assent of this Bill.)
1.18 The definition of specified rollover amount in section 43 is repealed, and reference to the term in subparagraph 13(7)(a)(i) is omitted, as it is no longer referred to in subparagraph 8(2)(c)(iii) of the SCT(A & C)A 1997. [Schedule 1, item 8, definition of specified rollover amount in section 43, item 5, subparagraph 13(7)(a)(i)]
1.19 This Bill also removes the reference to specified rollover amounts in subparagraph 9(2)(c)(iii) of the SCT(MCPSF)A 1997 as a result of the permanent application of subsection 9(3). Specified rollover amounts that constitute amounts accrued after 20 August 1996 are not the amounts that should be included as surchargeable contributions from 20 August 2001. Instead, subsection 9(3) will continue to apply in relation to calculating the proportion of a rolled over ETP which is included as a surchargeable contribution. [Schedule 2, item 1, subparagraph 9(2)(c)(iii)]
1.20 The definition of specified rollover amount in section 38 is repealed, and reference to the term in subparagraph 12(5)(a)(i) is omitted, as it is no longer referred to in subparagraph 9(2)(c)(iii) of the SCT(MCPSF)A 1997. [Schedule 2, item 7, definition of specified rollover amount in section 38, item 4, subparagraph 12(5)(a)(i)]
1.21 As a consequence of the changes, this Bill inserts a definition of rolled over into both the SCT(A & C)A 1997 and the SCT(MCPSF)A 1997. [Schedule 1, item 7, section 43; Schedule 2, item 6, section 38)]