Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)Chapter 2 Transitional non-concessional contributions cap
Outline of chapter
2.1 Schedule 2 to this Bill amends the Income Tax (Transitional Provisions) Act 1997 to ensure that certain superannuation contributions (such as those made by a friend) made prior to 1 July 2007 are appropriately subject to a cap.
Context of amendments
2.2 New caps on superannuation contributions were introduced as part of the Simplified Superannuation reforms in the Tax Laws Amendment (Simplified Superannuation) Act 2007 and the Superannuation Legislation Amendment (Simplification) Act 2007 .
2.3 From 1 July 2007 the concessional contributions cap limits the amount of concessional (generally assessable for a superannuation entity) contributions that will benefit from concessional tax treatment at a fixed dollar amount per person per year.
2.4 From 10 May 2006 the non-concessional contributions cap limits the amount of non-concessional (generally undeducted) contributions that a person can make into the concessional superannuation environment.
2.5 Contributions made on behalf of someone else are currently included in the assessable income of superannuation entities under section 274 of the Income Tax Assessment Act 1936 , and from 1 July 2007 under Subdivision 295-C of the Income Tax Assessment Act 1997 (ITAA 1997).
2.6 From 1 July 2007 assessable contributions will be subject to the concessional contributions cap, including contributions made by friends (ie, contributions made on behalf of someone else but which are not Government co-contributions or contributions made on behalf of a spouse, employee or child).
2.7 During the period 10 May 2006 to 30 June 2007 the concessional contributions cap does not operate. Whilst the non-concessional contributions cap does operate for this period the contributions made by a friend are not covered by this cap.
2.8 As a result, these contributions made by a friend will not be capped during the transitional period and this will allow opportunities for excessive contributions to be made into the concessional superannuation system before 1 July 2007, with only a 15 per cent tax applying to the contribution (if the fund is complying).
2.9 The Treasurer and the Minister for Revenue and Assistant Treasurer issued joint Press Release No. 131 on 7 December 2006 with the introduction of the first Simplified Superannuation Bills into Parliament. This Press Release stated that the Government would act to address any avoidance activities that are undertaken in the Simplified Superannuation system, with the date of effect of any such measures to be backdated to 7 December 2006.
Summary of new law
2.10 Amendments are proposed to section 292-80 of the Income Tax (Transitional Provisions) Act 1997 to include certain contributions made after 6 December 2006 but before 1 July 2007 on behalf of someone else as non-concessional contributions and thus subject to the non-concessional contribution cap.
2.11 This will include contributions made by friends for each other but will not include contributions that are not included in the assessable income of the entity (such as spouse contributions, contributions on behalf of children and Government co-contributions) or contributions on behalf of an employee (as these are, in one way or another, already limited or capped during that period).
Comparison of key features of new law and current law
| New law | Current law |
| Non-concessional contributions for the 10 May 2006 to 30 June 2007 period will include contributions made after 6 December 2006 on behalf of someone else (eg, a friend) who is not an employee and where that contribution is included in the assessable income of an entity. Such contributions will therefore be subject to the non-concessional contributions cap in that period. | Neither the concessional contributions cap or the non-concessional contributions cap will include contributions made after 6 December 2006 and before 1 July 2007 on behalf of someone else who is not an employee and where that contribution is included in the assessable income of an entity. |
Detailed explanation of new law
2.12 The definition of 'non-concessional contributions' for the period between 10 May 2006 and 30 June 2007 will be amended to include certain contributions, such as those made by a friend. [Schedule 2, item 1, paragraph 292-80(3)(b )]
2.13 A contribution will be included in the non-concessional contributions for a person if the contribution is made in respect of another person and that other person is not an employee of the entity making the contribution and the contribution is included in the assessable income of the superannuation provider in relation to the plan to which the contribution is made. [Schedule 2, item 2, subsection 292-80(7 )]
2.14 An employee, for the purposes of this measure, is a person that is treated as an employee for the purposes of Division 290 of the ITAA 1997. [Schedule 2, item 2, subsection 292-80(8 )]
Application and transitional provisions
2.15 This is a transitional provision for the purposes of the Simplified Superannuation reforms. These amendments commence immediately after the commencement of Schedule 1 to the Tax Laws Amendment (Simplified Superannuation) Act 2007 however its effect is that it applies to contributions made after 6 December 2006 and before 1 July 2007.