House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 2 Superannuation (Government Co-contribution for Low Income Earners) (Consequential Amendments) Bill 2003

Outline of chapter

2.1 Schedule 1 to the Superannuation (Government Co-contribution for Low Income Earners) (Consequential Amendments) Bill 2003 amends various Acts in relation to the:

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eligibility for Government co-contributions;

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taxation treatment of Government co-contributions;

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Government co-contribution arrangements for certain Defence personnel and Commonwealth employees;

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review of certain decisions about Government co-contributions administration;

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use of the SHAR for Government co-contributions in some circumstances; and

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interest that may be levied on late repayments of Government co-contribution overpayments.

Context of amendments

2.2 These amendments are as a consequence of the Government Co-contribution Bill, as outlined in Chapter 1.

Summary of new law

2.3 This bill amends legislation to:

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assist in determining the eligibility of persons for Government co-contributions around the employer superannuation support principle;

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enable the taxation treatment of Government co-contributions to mirror that of any other undeducted superannuation contribution;

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make arrangements for certain Defence personnel and Commonwealth employees to receive Government co-contributions in their funds or schemes;

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enable persons to seek review of the information that their superannuation providers give to the Commissioner for the purposes of Government co-contributions; and

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enable the general interest charge to be levied on late repayments of Government co-contribution overpaid amounts.

Comparison of key features of new law and current law

Detailed explanation of new law

Preliminary

2.4 This bill may be cited as the Superannuation (Government Co-contribution for Low Income Earners) (Consequential Amendments) Bill 2003.

2.5 Each Act that is specified in Schedule 1 is amended or repealed as set out in the applicable items in this schedule and any other items has effect according to its terms.

2.6 This schedule contains Part 1 (the amendments) and Part 2 (the application of amendments). The application of amendments made by Part 1 applies in relation to contributions made to complying superannuation funds and RSAs on or after 1 July 2002. [Schedule 1, Part 2, item 25]

2.7 For the Commissioner to be satisfied that a Government co-contribution is payable in respect of a person in the Government Co-contribution Bill the person must have employer superannuation support. The Government Co-contribution Bill refers to the provisions in section 82AAS of the ITAA 1936 and the definition of 'not an eligible person' under this provision. The previous provision meant that any type of 'superannuation support', for example, whether this be from a spouse, relative, friend or employer, would mean a person was not an eligible person.

2.8 The policy intention for Government co-contributions was that only those low income earners who also had employer superannuation support should receive a Government co-contribution. In order for this provision to maintain the previous subparagraphs 82AAS(2)(b)(i) and (ii) structure (to reflect the funded and unfunded scheme types), capture this new intent, and maintain a mutual exclusion between those persons who could receive a taxation deduction and those persons who may receive a Government co-contribution, it was necessary to make these amendments.

2.9 The test for 'not an eligible person' is now narrower and related to whether a person had received superannuation contributions (or should have received superannuation contributions) or will receive superannuation benefits out of moneys in connection with their eligible employment. Eligible employment is already defined in the existing provision at subsection 82AAS(1) and used in subsection 82AAS(3) and this continues the use of that term in relation to this new intent.

2.10 As a result, this amendment will repeal paragraph 82AAS(2)(b) and substitute it with the new provision. Therefore, the concept of an eligible person under this new provision will be broader, for example, persons who 'only' receive either spouse, relative or friend superannuation support, will now be entitled to a tax deduction. The previous provision would have classed these people as 'supported'. They could therefore have received a taxation rebate (which will also be repealed by this bill). [Schedule 1, Part 1, item 1]

2.11 The amendment to subparagraph 82AAS(3)(c)(i) of the ITAA 1936 that now inserts the words 'required to be made', has also been made as part of the amendment to paragraph 82AAS(2)(b) [Schedule 1, Part 1, item 1] . This has been done to take account of situations where persons have an obligation to make superannuation contributions on behalf of other persons in connection with the eligible employment of those persons (e.g. superannuation guarantee for their employees). If those obligations are not met this should not affect the status of the person in relation to the eligible person test. Therefore a person who should have received contributions from their employer but did not, is not an eligible person for the purposes of the ITAA 1936. In the Government co-contributions context they can still be seen as having employer superannuation support and receive a Government co-contribution if they are otherwise entitled in the Government Co-contribution Bill. [Schedule 1, Part 1, item 2]

2.12 This amendment repeals Subdivision AAC of Division 17 of Part III of the ITAA 1936 and therefore the previously available taxation rebate for personal superannuation contributions by low income earners. The application of these amendments apply in relation to contributions made to complying superannuation funds and RSAs on or after 1 July 2002. For clarification this means that the rebate is still in force for contributions made before that date and therefore rebates that are claimed in tax returns after the day on which this bill receives Royal Assent. [Schedule 1, Part 1, item 3]

2.13 These amendments ensure that Government co-contributions paid into complying superannuation funds, RSAs and the SHAR are not treated as taxable contributions for the purposes of section 274 of the ITAA 1936. These amendments to the definition of taxable contributions also ensures that for the SCTACA 1997 and the CPF Act 1997 that these Government co-contributions are not treated as surchargeable contributions for accumulation schemes. [Schedule 1, Part 1, items 4 to 6]

2.14 Consistent with the Government's intention that Government co-contributions not be taxable, the amendments to sections 11-10 and 51-65 of the ITAA 1997 mean that Government co-contribution amounts that are paid to the person directly or their legal personal representatives, including amounts paid as a result of claims to the SHAR, are exempt from income tax in the ITAA 1997. According to ordinary concepts, if the amount was paid to the complying superannuation fund or RSA (and not to the person directly or their representative) then it would also not be the person's income. [Schedule 1, Part 1, items 7 and 8]

2.15 This amendment to section 5 of the Military Superannuation Benefits Act 1991 that inserts new subsection 5(1AA) deals with the payment of Government co-contributions to Defence personnel. Of the 2 main Defence personnel schemes, the DFRDB scheme cannot accept Government co-contribution payments for their members. This amendment will allow the Minister of Defence to amend the trust deed of the MSBS to authorise the Military Superannuation Benefits Board to accept Government co-contributions for people who are not MSBS members (in this case DFRDB members) and deal with these under the deed, including:

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the manner in which to deal with these contributions;

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the benefits that will be payable as a result; and

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the circumstances in which the entitlements to receive those benefits will arise.

[Schedule 1, Part 1, item 9]

2.16 This amendment at the end of section 3 of the SSAA 1995 outlines that the accounts in the SHAR may also be used to hold Government co-contributions payable under the Government Co-contribution Bill and that the rules for these deposits differ in some respects from those that apply to other deposits into the SHAR. [Schedule 1, Part 1, item 10]

2.17 The amendments to section 4 of the SSAA 1995 insert definitions of Government co-contribution and complying superannuation fund, for the purposes of the Government co-contribution changes to the SSAA 1995. For an individual a Government co-contribution is one that is payable in respect of an individual under the Government Co-contribution Bill. Complying superannuation fund has the same meaning as it does for the Government Co-contribution Bill. [Schedule 1, Part 1, items 11 and 12]

2.18 The amendment to paragraph 16(b) of the SSAA 1995 will mean that the Commissioner may also close an individual's account if the balance of the account is nil and the balance was withdrawn under a transfer request arising under section 61 of the SSAA 1995 or a transfer out by the Commissioner without a request under new provisions 61A or 91E of the SSAA 1995. [Schedule 1, Part 1, item 13]

2.19 The new provisions that will be located in section 61A of the SSAA 1995 will allow the Commissioner to pay the balance of an individual's account to an RSA of an individual or to the trustee of a complying superannuation fund for the benefit of the individual without a request from the individual, that would previously have been necessary under section 61 of the SSAA 1995.

2.20 This pay out may include employer deposits and Government co-contribution deposits, and does not necessarily have to involve Government co-contribution deposits at all. This will facilitate the use of the SHAR for the Government co-contributions measure as an effective holding reserve, and the eventual intention for the Government co-contributions to benefit an individual's retirement, rather than as previously occurred that deposits could not be transferred out without a request from an individual. Where the Commissioner pays out a balance under this new provision the SHAR is debited for that purpose and the individual's account is debited by that amount. A definition of trustee, which has the same meaning as it does for the Government Co-contribution Bill, has also been inserted. [Schedule 1, Part 1, item 14]

2.21 A number of amendments are required to the SSAA 1995 to deal with deposits of Government co-contributions payable in respect of persons into the SHAR. For the purposes of new Part 12A (that has been created to deal with these necessary amendments) deposits will include any interest that may accrue on these deposits. [Schedule 1, Part 1, item 15]

2.22 New sections 91A, 91B and 91C mean that these Government co-contribution deposits are Part 12A deposits and not to be treated as Part 4 employer deposits unless otherwise stated. The new sections also state that only section 33 of the SSAA 1995 will apply to both Part 4 and Part 12A deposits (deposits not held on trust).

2.23 New section 91D means that the Government co-contribution deposits under Part 12A should also not be credited to the SHAR in the same way as other deposits under Part 5. The process that will be followed for these deposits is that an amount equal to the amount to be deposited will be transferred from the Consolidated Revenue Fund to the SHAR. As soon as is practicable after this, the individual's account is to be credited with an amount equal to that deposit.

2.24 New sections 91DA and 91E allow the Commissioner to debit the accounts in the cases where an overpayment of Government co-contribution has occurred under the Government Co-contribution Bill. This may only be done if the account still holds an amount of Government co-contribution deposit, with employer deposits not to be debited for this purpose.

2.25 In respect of other withdrawals the account is not frozen for 14 days for Government co-contribution deposits as it applies for other deposits in the SHAR. In line with new section 61A and the intention for Government co-contribution payments, new subsection 91E(3) means that Government co-contribution deposits should only be transferred to complying superannuation funds or RSAs. This is despite the situation where an individual might request the amount be transferred to a regulated superannuation fund, which may be a non-complying superannuation fund. A complying superannuation fund has the same meaning as for the Government Co-contribution Bill.

2.26 As the deposits under Part 12A are 'Government' co-contributions the refund of deposits provisions of Part 8 of the SSAA 1995 are not necessary for Government co-contribution deposits.

2.27 The amendments proposed for section 130A and subsection 130B(1) of the SA 1976 deal with the acceptance of Government co-contribution payments in relation to employees who are members of the CSS. It will do this by redefining a transferred amount to now include an amount payable in respect of the person under the Government Co-contribution Bill. After subsection 130B(1) new subsection (1A) will be inserted that allows the Commissioner to pay to the CSS Board an amount payable in respect of a person under the Government Co-contribution Bill. These amendments commence on a day which is the later of:

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the day on which this bill receives Royal Assent; and

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immediately after the commencement of item 48 of Schedule 1 to the Superannuation Legislation (Commonwealth Employment) Repeal and Amendment Act 2002.

[Schedule 1, Part 1, items 16 and 17]

2.28 The amendments to paragraphs 8(5)(a) and (b) of the SCTACA 1997, and paragraphs 9(6)(a) and (b) of the CPF Act 1997, will make it clear that surchargeable contributions for the purposes of a defined benefit scheme do not include Government co-contribution paid under the Government Co-contribution Bill. [Schedule 1, Part 1, items 18 to 21]

2.29 The amendments to paragraph 15CA(1)(b) and subsection 15CA(2) of the Superannuation (Resolution of Complaints) Act 1993 will allow persons to make a complaint to the Superannuation Complaints Tribunal if they are persons to whom the superannuation providers have provided statements to the Commissioner under section 26 of the Government Co-contribution Bill. This means that similar review processes for disputes about contribution information will apply for the surcharge and Government co-contributions measures, and this is consistent with the use of the same reporting mechanism likely to be adopted by the Commissioner. [Schedule 1, Part 1, items 22 and 23]

2.30 This amendment to section 23 of the Taxation Administration Act 1953 will allow the Commissioner to impose the general interest charge for the late payment of repayment of overpaid amounts by persons under section 25 of the Government Co-contribution Bill. [Schedule 1, Part 1, item 24]