Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 5 - Taxable contributions paid for the benefit of children under 18
Outline of chapter
5.1 Schedule 4 to this bill will amend the ITAA 1936 to provide that superannuation contributions made on behalf of persons under 18 years of age (other than by an employer) will not form part of the taxable income of a complying superannuation fund or a RSA provider.
Context of amendment
5.2 This measure was foreshadowed in the Governments election policy statement A Better Superannuation System released on 5 November 2001 a proposal to ensure superannuation is seen as a lifetime strategy with superannuation savings commencing at the earliest possible age.
5.3 In line with the foreshadowed measure, the Government announced in the 2002-2003 Federal Budget the implementation of the commitment to allow parents, relatives and friends to make superannuation contributions of up to $3,000 per 3 year period for the benefit of a person under the age of 18 years.
5.4 This measure will be given effect through amendments to the Superannuation Industry (Supervision) Regulations and Retirement Savings Accounts Regulations, permitting regulated superannuation funds and RSA institutions to accept such contributions. Contributions made by parents, relatives and friends on behalf of a child will not be tax deductible.
Summary of new law
5.5 This measure will ensure that superannuation contributions made on behalf of a person under the age of 18 years (other than by or on behalf of an employer) are not taxable contributions and are therefore excluded from the income of the complying superannuation fund or RSA provider.
| New law | Current law |
|---|---|
| Contributions paid to a complying superannuation fund or RSA in a contribution year by parents, relatives and friends on behalf of a person under the age of 18 years (other than contributions by or on behalf of an employer) will be excluded from the definition of taxable contributions. These contributions will therefore not form part of the taxable income of a complying superannuation fund or RSA provider. | Certain superannuation contributions, such as eligible spouse contributions, made in a year of income are not included in the taxable contributions of a resident superannuation fund or RSA. These contributions do not form part of the taxable income of a resident superannuation fund or RSA provider. |
Detailed explanation of new law
5.6 Part IX of the ITAA 1936 provides, in sections 281 and 299B, that taxable contributions are included in the income of a complying superannuation fund or RSA provider.
5.7 Taxable contributions (as defined in section 274 of the ITAA 1936) generally include contributions made for the purposes of providing superannuation benefits for another person. There are a number of exclusions from what are deemed taxable contributions, including contributions made on behalf of an eligible spouse within the meaning of section 159T of the ITAA 1936.
5.8 Superannuation contributions made by parents, relatives and friends on behalf of a person under the age of 18 years, other than contributions made by or on behalf of an employer, will also be excluded from being a taxable contribution in the hands of a complying superannuation fund or RSA provider. [Schedule 4, items 1 and 2]
5.9 The contribution made on behalf of a child under the age of 18 years, except contributions from any employer, are undeducted contributions defined in subsection 27A(1) of the ITAA 1936. Broadly, undeducted contributions are contributions for which a deduction has not been allowed to the taxpayer or another person. The undeducted contributions component of an ETP is not included in a taxpayers assessable income and is therefore tax free.
Application and transitional provisions
5.10 The measure will apply to relevant contributions made on or after 1 July 2002.
Consequential amendments
5.12 There are no consequential amendments relating to this measure.