Explanatory Memorandum
(Circulated by the authority of the Minister for Employment and Workplace Relations and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)Chapter 6 - Sustaining the superannuation contribution concession: consequential amendments and application provisions
Outline of chapter
6.1 This chapter explains the amendment of existing provisions in the tax law and other Commonwealth laws that are necessary as a result of implementing the sustaining the superannuation contribution concession measure. It also explains when the measure begins to apply.
6.2 Several consequential amendments are made to the Income Tax Assessment Act 1997 (ITAA 1997) and Taxation Administration Act 1953 (TAA 1953) to give effect to the sustaining the superannuation contribution concession measure contained in Schedule 3 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 (Bill).
6.3 The key consequential changes contained in Schedule 4 of this Bill are to Commonwealth defined benefit superannuation schemes established under the Superannuation Act 1976 (SA 1976) (Commonwealth Superannuation Scheme), Superannuation Act 1990 (SA 1990) (Public Sector Superannuation Scheme), Parliamentary Contributory Superannuation Act 1948 (PCSA 1948) and the Governor-General Act 1974 (GGA 1974) which are within the Finance portfolio. Schedule 4 of this Bill allows a person to request that they be paid a lump sum amount from their superannuation scheme to meet their debt account discharge liability, when a superannuation benefit becomes payable from one or more of the person's defined benefit superannuation interests.
6.4 The amendments enable a lump sum to be paid from a superannuation interest in the above superannuation plans to meet a member's liability for debt account discharge liability. This results in the member's superannuation benefits being reduced.
Consequential and miscellaneous amendments
Consequential and miscellaneous amendments to the tax law
New defined terms
6.5 Defined terms for assessed Division 293 tax, deferred to a debt account, debt account discharge liability, deferral reversal, defined benefit contributions, defined benefit tax, Division 293 tax, Division 293 tax law, end benefit, low tax contributions, release entitlement and taxable contributions are included in the dictionary in the ITAA 1997. [Schedule 3, Part 2, item 10, definition of assessed Division 293 tax, debt account discharge liability, deferral reversal, deferred to a debt account, defined benefit contributions, defined benefit tax, Division 293 tax, Division 293 tax law, end benefit, low tax contributions, release entitlement and taxable contributions in subsection 995-1(1) of the ITAA 1997]
General interest charge and shortfall interest charge
6.6 A reference to payment of Division 293 tax or shortfall interest charge is included in the index of provisions that deal with the liability for the general interest charge. [Schedule 3, Part 2, item 13, subsection 8AAB(4) of the TAA 1953]
6.7 A reference to payment of a debt account discharge liability is included in the index of provisions that deal with the liability for the general interest charge. [Schedule 3, Part 2, item 14, subsection 8AAB(4) of the TAA 1953]
6.8 Minor technical amendments have also been made to the provisions in Schedule 1 to the TAA 1953 around tax-related liabilities to include shortfall interest charge for Division 293 tax and also to clarify the existing treatment of liabilities for shortfall interest charge for various other taxes. [Schedule 3, Part 2, items 17 and 19, table items 37AA, 37AB, 37AC and 41 in subsection 250-10(2) of Schedule 1 to the TAA 1953]
Consequential amendments to other Commonwealth laws
Overview
6.9 Schedule 3 of the this Bill, amongst other things, permits an individual to request that they be paid a lump sum amount from their superannuation scheme to meet their debt account discharge liability, when a benefit becomes payable from one or more of the individual's defined benefit superannuation interests.
6.10 The amendments in Schedule 4 to the Bill allow this request to be made in respect of the superannuation schemes established under the GGA 1974, PCSA 1948, SA 1976 and the SA 1990. The amendments also provide that where such a request is made, the individual's superannuation benefits are reduced to take account of the payment.
6.11 For the purposes of this Bill, the superannuation provider is:
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- in respect of the GGA 1974 and the PCSA 1948, the Secretary of the Department of Finance and Deregulation (Finance Secretary); and
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- in respect of the SA 1976 and the SA 1990, the trustee of the schemes under those Acts, the Commonwealth Superannuation Corporation (CSC).
Amendment of the Governor-General Act 1974
6.12 Part 1 of Schedule 4 amends the GGA 1974. It allows a release authority lump sum to be paid by the Finance Secretary, if the person presents a release authority to the Finance Secretary issued under item 3 of the table in subsection 135-10(1) in Schedule 1 to the TAA 1953.
6.13 For a lump sum to be paid by the Finance Secretary the release authority must be provided in accordance with the requirements of Subdivision 135-B in Schedule 1 to the TAA 1953. [Schedule 4, Part 1, item 1, subsection 4BA(1) of the GGA 1974 and Schedule 3, Part 1, item 2, Subdivision 135-B of Schedule 1 to the TAA 1953]
6.14 The amendments to the TAA 1953 in Schedule 3 of this Bill limits the amount that a superannuation provider can make in respect of a release authority relating to Division 293 tax to the lesser of the following amounts:
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- the amount the release authority was issued for;
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- a lower amount specified, by the individual or the Commissioner, in the release authority; or
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- the total amount of all the superannuation lump sums of all the superannuation interests held by the superannuation provider for the person (this recognises that an amount cannot be paid to the extent it exceeds the sum held).
[Schedule 3, Part 1, item 2, section 135-85 of Schedule 1 to the TAA 1953]
6.15 In addition to the limits imposed by the amendments in Schedule 3, these amendments further limit to the maximum amount that can be paid as a release authority lump sum under the GGA 1974 rules. The amendments specify that the amount of a release authority lump sum must not have the effect of reducing the person's allowance to below zero, after taking into account any other reduction under a provision of the GGA 1974. [Schedule 4, Part 1, item 1, subsections 4BA(3) and (4) of the GGA 1974]
6.16 If a release authority lump sum is paid under a release authority issued to the person and the person is entitled to an allowance under section 4(1) of the GGA 1974, the person's rate of allowance is calculated as the applicable percentage of the rate of allowance that would otherwise be payable to the person (noting that this includes any other provision in the GGA 1974 that affects the rate of the allowance). [Schedule 4, Part 1, item 1, subsection 4BA(6) of the GGA 1974]
6.17 The applicable percentage is worked out using a formula set out below:
6.18 Under the formula, the applicable percentage is worked out by subtracting the result of dividing the release authority lump sum by an age factor and dividing this by the basic allowance from 1, then multiplying the total by 100. For the purposes of the formula, the 'basic allowance' is the rate of the allowance that would otherwise be payable to the person (noting that this includes any other provision in the GGA 1974 that affects the rate of the allowance). [Schedule 4, Part 1, item 1, subsection 4BA(7) of the GGA 1974]
6.19 Where the rate of the allowance is affected by the applicable percentage, and the person dies and a spouse allowance becomes payable, the rate of the spouse allowance is the applicable percentage of the spouse allowance that would otherwise be payable to the spouse (noting that this includes any other provision in the GGA 1974 that affects the rate of the spouse allowance). [Schedule 4, Part 1, item 1, subsection 4BA(9) of the GGA 1974]
6.20 For the purposes of calculating the applicable percentage, the Finance Secretary determines the age factor, or the method for working out the age factor, by legislative instrument. [Schedule 4, Part 1, item 1, subsection 4BA(10) of the GGA 1974]
Amendment of the Parliamentary Contributory Superannuation Act 1948
6.21 Part 2 of Schedule 4 amends the PCSA 1948. Part 2 provides that:
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- for the purposes of subsection 18A(1) of the PCSA 1948, if a person has already given a release authority to the Finance Secretary, the person may not subsequently make an election to commute their retiring allowance under that subsection; and
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- for the purposes of subsection 18B(17), if a person has made a previous election under subsection 18(1) of the PCSA 1948, or their retiring allowance has been reduced under section 22SD due to a release authority, the person will not be able to make a subsequent election under subsection 18B(3) of the PCSA 1948 to commute part of their retiring allowance to a lump sum.
[Schedule 4, Part 2, item 3 and 4, subsections 18A(1) and 18B(17) of the PCSA 1948]
6.22 These amendments allows a release authority lump sum to be paid by the Finance Secretary where the person presents a release authority to the Finance Secretary issued under item 3 of the table in subsection 135-10(1) in Schedule 1 to the TAA 1953 (introduced by the amendments in Schedule 3), and at the time the person presents the release authority, either:
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- the person's surcharge debt account is not in debit; or
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- one of the following conditions is satisfied:
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- the person has made an election under subsection 18(1) of the PCSA 1948 to reduce their benefit to take account of the surcharge deduction amount;
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- the 3 month period in which the person has to make an election to reduce their benefit to take account of the surcharge deduction amount under section 18A of the PCSA 1948 must have expired; or
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- the person has given give the Finance Secretary a written notice forgoing the option to reduce their benefit to take account of the surcharge deduction amount as permitted under section 18A of the PCSA 1948.
[Schedule 4, Part 2, item 5, section 22SC of the PCSA 1948]
6.23 For a lump sum to be paid by the Finance Secretary the release authority must be provided in accordance with the requirements of Subdivision 135-B in Schedule 1 to the TAA 1953. [Schedule 4, Part 2, subsection 22SC(1) of the PCSA 1948]
6.24 The amendments to the TAA 1953 in Schedule 3 limit the amount that a superannuation provider can pay in respect of a release authority to the lesser of the following amounts:
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- the amount the release authority was issued for;
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- a lower amount specified, by the individual or the Commissioner, in the release authority; or
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- the total amount of all the superannuation lump sums of all the superannuation interests held by the superannuation provider for the person (this recognises that an amount cannot be paid to the extent it exceeds the sum held).
[Schedule 3, Part 1, item 2, Subdivision 135-B of Schedule 1 to the TAA 1953]
6.25 In addition to the limits provided by the amendments in Schedule 3, these amendments add further limitations to the maximum amount that can be paid as a release authority lump sum under the PCSA 1948. Under the amendments to the PCSA 1948, the amount of a release authority lump sum must not have the effect of reducing the person's retiring allowance to below zero, after first taking into account a person's surcharge adjustment, then any reduction under section 22DI of the PCSA 1948 (which deals with special payments during deferral period), and then any reduction for family law under Part VAA of the PCSA 1948. [Schedule 4, Part 2, item 5, section 22SD of the PCSA 1948]
6.26 If a release authority lump sum is paid under a release authority issued to the person and the person is entitled to a retiring allowance under section 18 of the PCSA 1948, the person's rate of retiring allowance is calculated as the applicable percentage of the rate of retiring allowance that would otherwise be worked out under section 18 (noting that this includes any other provision in the PCSA 1948 that affects the rate of the retiring allowance). [Schedule 4, Part 2, item 5, subsection 22SE(1) of the PCSA 1948]
Example 6.25 : Use of a release authority under the PCSA 1948
A release authority has been paid in respect of a person who is entitled to a retiring allowance. The rate of the person's retiring allowance is $80,000 per annum (after any other provisions in the PCS Act that affect the rate of allowance have been accounted for). The applicable percentage is 90 per cent. The rate of the retiring allowance, taking account of the payment under the release authority, is the applicable percentage of the rate of the relevant retiring allowance. In this case, 90 per cent of $80,000, or $72,000 per annum.
6.27 The applicable percentage is worked out using a formula set out below:
6.28 Under the formula, the applicable percentage is worked out by subtracting the result of dividing the release authority lump sum by an age factor and dividing this by the basic rate from 1, then multiplying the total by 100. For the purposes of the formula, the 'basic rate' is the rate of the retiring allowance that would otherwise be worked out under section 18 for the person at the time the retiring allowance becomes payable (noting that this includes any other provision in the PCS Act that affects the rate of the retiring allowance). [Schedule 4, Part 2, item 5, subsection 22SE(2) of the PCSA 1948]
6.29 For the purposes of calculating the applicable percentage, the Finance Secretary determines the age factor, or the method for working out the age factor, by legislative instrument. [Schedule 4, Part 2, item 5, subsection 22SE(4) of the PCSA 1948]
Amendment of the Superannuation Act 1976
6.30 Part 3 of Schedule 4 amends the SA 1976. Part 3 repeals the existing definition of 'benefit' at section 3(1) of the 1976 Act, and replaces it with a new definition of benefit which expressly includes release authority lump sums, but excludes certain payments made out of the Fund. The new definition enables release authority lump sums to fall within the appropriation included in subsection 112(2) of the SA 1976.
6.31 It also provides that amounts held in the Fund that were previously transferred in from other superannuation funds and are paid to a person under paragraphs 110SN(2)(a) and 130D(3)(a), are to be reduced by any payment in respect of a release authority issued under item 1 or 2 of the table in subsection 135-10(1) in Schedule 1 to the TAA 1953. [Schedule 4, Part 3, item 6, definition of benefit in subsection 3(1) of the SA 1976]
6.32 These amendments allow a release authority lump sum to be paid by CSC if a person presents a release authority issued under item 3 of the table in subsection 135-10(1) in Schedule 1 to the TAA 1953 introduced by Schedule 3 to this legislation, and, at the time they provide a release authority to CSC, the person:
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- gives a written notice to CSC specifying which of their benefits is to be reduced to take account of the release authority lump sum; and
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- if the person has a surcharge debt account, makes a written election in respect of that debt.
6.33 Any lump sum paid by CSC in compliance with a release authority must be in accordance with Subdivision 135-B in Schedule 1 to the TAA 1953. [Schedule 4, Part 3, item 11, section 146RB of the SA 1976]
6.34 In order to allow CSC to pay a release authority lump sum amount, the member must specify which of their benefits is to be reduced to reflect the release amount. This benefit can be either a lump sum to which the person is entitled to be paid, or about to become entitled to be paid, or a pension that the person is entitled to be paid, or has started to be paid. While the person may specify more than one benefit to be reduced to cover the release amount, all of one benefit must be reduced to zero first before the next benefit can be reduced. [Schedule 4, Part 3, item 11, section 146RC of the SA 1976]
Example 6.26 : Election of the benefits to be reduced
Member A has two benefit components that have become payable. Benefit A is valued at $750 and benefit B, $750. Member A presents CSC with a release authority for $1,000 and elects for a release authority lump sum of $1,000.
Member A must specify in the election which of the two benefits they want CSC to draw down first. CSC must draw down the first benefit to a zero balance before the remaining $250 can be drawn down from the second benefit. That is, the member could not elect, say, to draw down $500 from benefit A and $500 from benefit B.
6.35 Where the member has a surcharge deduction amount, one of the following three conditions must be satisfied at the time that the member presents CSC with their release authority:
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- the person must make an election under section 80C of the SA 1976 to reduce their pension benefit to take account of the deduction amount; or
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- the period in which the person has to make an election to reduce their benefit to take account of the surcharge deduction amount must have expired (section 80C provides the relevant time period to be 3 months after the pension becomes payable); or
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- the person must give CSC a written notice forgoing the option to reduce their pension benefit to take account of the surcharge deduction amount as permitted under section 80B of the SA 1976.
[Schedule 4, Part 3, item 11, subsection 146 RB(2) of the SA 1976]
6.36 The amendments in Schedule 3 include provisions limiting the amount that a superannuation provider can make in respect of a release authority to the lesser of the following amounts:
- •
- the amount the release authority was issued for;
- •
- a lower amount specified, by the individual or the Commissioner, in the release authority; or
- •
- the total amount of all the superannuation lump sums of all the superannuation interests held by the superannuation provider for the person (this recognises that an amount cannot be paid to the extent it exceeds the sum held).
[Schedule 4, Part 1, item 2, sections 135-85 and 135-95 of Schedule 1 to the TAA 1953]
6.37 In addition to the limits contained in the amendments in Schedule 3, these amendments include a further limitation on the maximum amount that can be paid as a release authority lump sum under the SA 1976. The amendments specify that the amount of a release authority lump sum must not have the effect of reducing the person's benefit(s) specified in the election below zero, after first taking into account a person's surcharge deduction amount, then any early release amounts given under section 79D of the SA 1976, and then any family law reductions. [Schedule 4, Part 3, item 11, section 146RD of the SA 1976]
Example 6.27 : Limits on benefits payable in respect of a release authority under the SA 1976 - general case
The maximum amount that can be released in respect of Member A's release authority as ascertained by under section 135-85 of Schedule 1 to the TAA 1953 is $100. However, the maximum amount that may be paid in respect of the release authority under section 146RC of the SA 1976 is $50. Therefore, the maximum release authority lump sum payable is $50.
Example 6.28 : Limits on benefits payable in respect of a release authority under the SA 1976 - prior release
Member B presents a release authority to CSC. The benefit the member has elected to reduce is valued at $10,000, although the member also has a surcharge deduction amount of $500 and a previous release of $1,000 on financial hardship grounds under section 79 of the SA 1976. Therefore the maximum benefit that the member has available is $8,500 ($10,000 - $500 - $1,000).
6.38 No other provision in the SA 1976 (apart from a person's surcharge deduction amount, any early release amounts given under section 79D, and any family law reductions) can operate to reduce the amount of a release authority lump sum. [Schedule 4, Part 3, item 11, subsection 146RD(3) of the SA 1976]
6.39 If a person elects for part of their lump sum benefit to be reduced, that benefit is to be reduced by the release authority lump sum amount.
6.40 If a person specifies that their pension is to be reduced, the person's annual rate of pension prior to the reduction ('pre-reduction annual rate of pension') is to be reduced by the following formula.
The post reduction pension equals:
[Schedule 4, Part 3, item 11, subsection 146RE of the SA 1976]
6.41 For the purposes of the formula, the 'pre-reduction annual rate of pension' will be the actual rate of pension otherwise payable to the person (noting that this includes any other provision in the SA 1976 that affects the rate of pension).
6.42 The conversion factors are to be determined by CSC, and made by legislative instrument.
6.43 If the person's pension has not started to be paid, then the pension is to be reduced from the first pension pay day. If the person's pension has started to be paid, then the pension is to be reduced from the first pension pay day that occurs 14 days after the release authority. [Schedule 4, Part 3, item 11, subsection 146RE(3) of the SA 1976]
Example 6.29 : Reduction prior to income streaming commencing
Member A has elected for a release authority lump sum, and for a reduction to their pension which is about to start to be paid. The member's pension is to be reduced from the first pension pay day.
Example 6.30 : Reduction after income stream commences
Member B has elected for a release authority lump sum and for their pension, which had commenced to be paid, to be reduced. The release authority was given to CSC on the first day of the relevant month. The person's pension will not be reduced until the pay day that occurs on or after the 14th of that month.
Amendment of the Superannuation Act 1990
6.44 Part 4 of Schedule 4 amends the SA 1990. Part 4 repeals the existing definition of 'benefit' at subsection 3(1) of the SA 1990, and replaces it with a new definition which expressly includes release authority lump sums. [Schedule 4, Part 4, item 12, subsection 16(8) of the SA 1990]
6.45 No other amendments to the SA 1990 are made by Schedule 4. In order to allow individuals with a debt account discharge liability to present CSC with a release authority in respect of benefits payable under the SA 1990, amendments to the schemes' trust deed, the Deed to Establish an Occupational Superannuation Scheme for Commonwealth Employees and Certain Other Persons (the Public Sector Superannuation Scheme), will made by legislative instrument.
Application and transitional provisions
6.46 These amendments apply in relation to taxable contributions of very high income earners for the income year beginning on 1 July 2012 and later income years. [Schedule 3, Part 3, item 38, Division 293 of the Income Tax (Transitional Provisions) Act 1997 and item 39]
6.47 The amendments do not impose a liability for an administrative penalty under section 286-75 in Schedule 1 to the TAA 1953 for failure to do something by a particular day, where the day is before Royal Assent of this Bill. This ensures that no administrative penalties can apply before Royal Assent of this Bill. [Schedule 3, Part 3, subitem 39(3)]
6.48 The amendments also provide that the Commissioner is only required to issue a notice to a superannuation provider in respect of the creation of a debt account for in respect of a superannuation interest held by the superannuation provider for the individual from 1 July 2014. [Schedule 3, Part 3, subitem 37(4)]
6.49 The consequential amendments to the GGA 1948, PCSA 1976, SA 1976 and SA 1990 do not have any separate application or commencement provisions. They apply from the day these amendments receive Royal Assent.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Schedules 3 and 4 - Sustaining the superannuation contribution concession
6.50 Schedules 3 and 4 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 (this Bill) and the Superannuation (Sustaining the Superannuation Contribution Concession) Imposition Bill 2013 (SSSCCI Bill) are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .
Overview
6.51 Schedules 3 and 4 to this Bill amend the income tax and superannuation law, the Taxation Administration Act 1953 and legislation concerning Commonwealth defined benefit superannuation plans.
6.52 The purpose of Schedule 3 to this Bill is to reduce the tax concession that individuals with income above $300,000 receive on their concessionally taxed superannuation contributions from 30 per cent to 15 per cent. The SSSCCI Bill contains the mechanism by which the tax concession is reduced. The purpose of Schedule 4 to this Bill is to make consequential amendments to the operation of some of the Commonwealth defined benefit superannuation schemes as a result of the sustaining the superannuation contribution concession measure.
Human rights implications
6.53 Schedules 3 and 4 to this Bill and the SSSCCI Bill do not engage any of the applicable rights or freedoms.
Conclusion
6.54 Schedules 3 and 4 to this Bill and the SSSCCI Bill are compatible with human rights as they do not raise any human rights issues.