Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon Peter Costello MP)Chapter 3 - Regulation impact statement
Policy objective
3.1 The objectives are to boost the superannuation savings of affected individuals, provide incentives for individuals to make additional voluntary savings through the superannuation system and simplify the operation of the superannuation system.
Implementation options
3.2 Assessments of superannuation contributions and termination payments surcharge will no longer be made in respect of surchargeable contributions or termination payments made or received in the 2005-06 or later financial years.
3.3 However, assessments of surcharge relating to surchargeable contributions or termination payments made or received in the 2004-05 or earlier financial years will continue to be issued and payable.
3.4 Where a surcharge debt account has been maintained for a member, this account will remain payable and continue to accrue interest debits as appropriate.
3.5 There was no other practical implementation option to give effect to the Government's policy objectives.
3.6 The alternative of ceasing all activity in relation to the contribution and termination payments surcharges from a specified date could lead to inequitable outcomes as individuals' liability would be dependent on their own, or their fund's, timeliness and accuracy of providing relevant information. For example, individuals who had outstanding surcharge liabilities on that date would no longer need to pay their debt to the Commonwealth.
Assessment of impacts
3.7 There are approximately 600,000 taxpayers who will no longer be surchargeable on contributions and termination payments made or received from 1 July 2005.
3.8 There are over 300,000 superannuation providers, and the Australian Taxation Office (ATO), which will continue to be affected by surcharge assessment and collection activity for contributions and termination payments made or received before 1 July 2005.
3.9 Under 100 unfunded defined benefit and constitutionally protected funds, and the ATO, will also have an ongoing obligation in respect of current members in those funds until those members are paid out.
Analysis of costs/benefits
Compliance and administration impacts - superannuation providers and the ATO
3.10 Superannuation providers will continue to give statements (and other information as necessary) to the ATO, other superannuation providers and members in relation to surchargeable contributions or termination payments made or received in the 2004-05 or earlier financial years.
3.11 Superannuation providers will continue to process assessments (including amended assessments) received from the ATO in relation to surchargeable contributions or termination payments made or received in the 2004-05 or earlier financial years.
3.12 It should also be noted that there is no limit on the timeframes in which superannuation providers are able to vary information previously provided to the ATO. Combined with the fact that taxpayers can amend their own personal income tax assessments (and therefore affect adjusted taxable income for surcharge purposes) amended assessments may continue to be issued by the ATO and be processed (and paid or credited) by superannuation providers and members alike.
3.13 There will be no difference in the requirements faced by superannuation providers who are required to maintain a debt account for a member (ie unfunded defined benefit schemes). This also applies to the ATO, which must maintain debt accounts for constitutionally protected funds. All existing debt account actions will be required to be continued by affected providers and the ATO until all affected members' benefits become payable.
3.14 Superannuation providers will no longer be required to give statements (and other information as necessary) for surcharge purposes to the ATO, other superannuation providers and members in relation to surchargeable contributions or termination payments made or received in the 2005-06 or later financial years. However this will not result in much, if any, change in compliance and administration burden, as much of the information will still be required to be given for the purposes of the Government superannuation co-contribution scheme (co-contribution).
3.15 For instance, the ATO will still require up to 16.5 million member contribution statements (minus some information that was only necessary for surcharge purposes) from all superannuation providers that have received contributed amounts. Furthermore, superannuation providers will still be required to provide each other with the relevant information when transferring members.
3.16 It is unclear therefore whether there will be any savings for superannuation providers or the ATO as a result of the abovementioned changes to the reporting requirements for surcharge purposes. The process of matching income details of individual taxpayers (up to 15 million records) against member contribution statements, will continue for co-contribution purposes.
3.17 Since assessments of superannuation contributions surcharge that apply to surchargeable contributions made or received in the 2005-06 or later financial years will no longer be issued by the ATO to superannuation providers, it is expected there will be a lower number of assessments (including amended assessments) for the ATO and superannuation providers to process in the 2006-07 and later financial years.
3.18 While it is anticipated assessments for the 2004-05 or earlier financial years will continue to be issued at least until the 2008-09 financial year, the volume of these assessments should fall off progressively. In this respect it should be noted that the current legislative arrangements mean that reviews of amended assessments resulting in variations can be completed up to eight years after the relevant year for surcharge purposes.
3.19 There are not expected to be any additional costs for any group affected by the abolition of the surcharge associated with adjusting existing surcharge payment or reporting systems. This is because most superannuation providers will continue to use these same systems to report to the ATO, receive co-contributions from the ATO, repay to the ATO co-contributions unable to be credited to a member's account or repay to the ATO co-contribution overpayments.
3.20 In conclusion, there are not expected to be any additional costs for any group affected and potentially some benefits in the medium term associated with processing fewer assessments, associated workflows and some reduction in reporting requirements.
3.21 The level of compliance and administration benefits that may be potentially realised are not able to be quantified because of the uncertainty of the magnitude of benefits that may eventually be realised, as well as uncertainty in relation to the timing of assessments (and associated workflows) actually ceasing to be significant.
Compliance impacts - superannuation members/taxpayers
3.22 It has been said that the superannuation surcharge was complex and difficult for taxpayers to understand. As a result of its abolition for the 2005-06 or later financial years, it is expected that there would be a reduction in the demand from taxpayers seeking financial advice about the superannuation surcharge and its implications for their retirement savings.
Economic, social and revenue impacts
3.23 Superannuation fund members who may have been affected by the surcharge in future years will have their superannuation and/or retirement savings boosted as a result of the abolition of the surcharge.
3.24 By removing the surcharge, with no corresponding increase in any other superannuation taxes, the concessionality of the superannuation system for affected higher income earners has been increased. This is expected to provide incentives for individuals to make additional voluntary savings through the superannuation system.
3.25 This measure is expected to result in a cost to revenue of $650 million in 2006-07, $875 million in 2007-08, and $990 million in 2008-09.
Consultation
3.26 No consultation on this measure has occurred. The measure was announced in the 2005-06 Budget and there has been a very short timeframe in which to develop the Bill for introduction.
Conclusion and recommended option
3.27 In the short term there are not expected to be any savings for the ATO or superannuation providers, nor any additional costs for those affected.
3.28 In the medium term there are potentially some compliance and administration benefits that may be realised from fewer assessments, associated workflows and some reduction in reporting requirements. There may also be some benefits to taxpayers as a result of less complexity in the superannuation system.
3.29 It is anticipated there will be increased superannuation savings for those who would have been impacted by the surcharge.
3.30 The only alternative to the implementation option chosen would result in inequitable outcomes for individuals with similar circumstances.
3.31 As a result the implementation option described in this statement is the only available practical option to implement the policy objective.