Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon Scott Morrison MP and Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)Chapter 6 Low income superannuation tax offset
Outline of chapter
6.1 Schedule 4 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (the TLA Bill) amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 to enable eligible low income earners to receive the low income superannuation tax offset.
6.2 Unless otherwise indicated, all legislative references are to the Superannuation (Government Co-contribution for Low Income Earners) Act 2003. All legislative amendments referred to in this Chapter are contained in the TLA Bill 2016.
Context of amendments
6.3 The low income superannuation tax offset compensates low income individuals for the tax that their superannuation fund or retirement savings account provider pays on concessional contributions to the individual's superannuation.
Summary of new law
6.4 Concessional contributions are generally contributions to a superannuation fund that receives concessional tax treatment. Concessional contributions are generally 'before tax' contributions that include an employer's superannuation guarantee contributions, contributions made under a salary sacrifice arrangement and an individual's personal contributions that are deducted.
6.5 The low income superannuation tax offset seeks to effectively return the tax paid on concessional contributions by an individual's superannuation fund or retirement savings account provider to the person, if the individual is a low income earner up to a maximum capped amount. Low income earners are defined as individuals with an adjusted taxable income of $37,000 or less.
6.6 The maximum amount payable is $500 per year for each eligible individual.
Detailed explanation of new law
6.7 Currently concessional contributions to superannuation are taxed at 15 per cent regardless of the individual's relevant marginal income tax rate. An individual may have an effective tax rate that is lower than 15 per cent. The low income superannuation tax offset will ensure that most individuals who have an effective tax rate below 15 per cent do not pay more tax on their concessional contributions through their fund or retirement savings account provider than if they had received the money as salary or wages and paid tax in their own hands.
6.8 An individual is entitled to the low income superannuation tax offset if they satisfy the following requirements:
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- the individual was not a holder of a temporary visa at any time in that income year other than certain limited situations;
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- at least one concessional contribution has been made by or for that individual in the corresponding financial year; and
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- either:
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- the individual has adjusted taxable income for that income year that does not exceed $37,000 and at least 10 per cent of the individual's income for the income year is from business or employment; or
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- 12 months after the end of the income year the Commissioner reasonably believes there is insufficient information to determine the taxpayer's adjusted taxable income and estimates it does not exceed $37,000 and at least 10 per cent of the individual's income for the income year is from employment.
- [Schedule 4, item 2, section 12C]
Example 6.1 Entitlement to the low income superannuation tax offset
Kerry is an Australian resident. She has an adjusted taxable income of $35,000 which comprises $1,000 in interest from her savings and $34,000 from working part time. Kerry's employer makes superannuation guarantee contributions on her behalf. These employer contributions are concessional contributions for Kerry. Kerry is entitled to receive the low income superannuation tax offset with respect to the tax paid on her concessional contributions, as greater than 10 per cent of her income is from her employment.
6.9 There is no taper of adjusted taxable income. Individuals who have an adjusted taxable income of more than $37,000 will not be eligible for the low income superannuation tax offset.
6.10 Adjusted taxable income is defined in Schedule 3 to the A New Tax System (Family Assistance) Act 1999 (disregarding Clauses 3 and 3A of that Schedule) as including taxable income, adjusted fringe benefits total, target foreign income, total net investment loss, tax-free pensions or benefits, and reportable superannuation contributions less any deductible child maintenance expenditure for that year.
6.11 When an individual does not lodge an income tax return (for example, if an individual is under the tax-free threshold), the Commissioner of Taxation (Commissioner) will determine eligibility for the low income superannuation tax offset based on information available to the Australian Taxation Office (ATO). The Commissioner will generally do this at the end of 12 months after the end of the individual's income year.
6.12 The Commissioner can have regard to a broad range of information when determining eligibility for the low income superannuation tax offset. This includes information already held within the ATO which has been collected for another purpose, as well as information from other agencies with respect to the components of an individual's adjusted taxable income and an individual's member contribution statement. The Commissioner can also use information relating to an individual's tax file number if this has been provided to the ATO for another purpose.
6.13 These information-sharing provisions do not enable the ATO to gather additional information with respect to an individual but to make use of the information to which the ATO already has access.
6.14 These information-sharing provisions allow the ATO to automatically make a payment of the low income superannuation tax offset to a superannuation fund and operate in conjunction with section 353-10 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) which is a broad information-gathering power of the ATO. This ensures that individuals who are not required to lodge a tax return are not required to apply for the payment of the low income superannuation tax offset.
6.15 In accordance with paragraph 14(1)(d) of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003, the ATO is able to make a payment if the Commissioner is reasonably satisfied that an individual is eligible for the payment based on the information the ATO holds for the individual. However the Commissioner may recover the amount that has been paid if the ATO later obtains information which shows that the person is not eligible for the low income superannuation tax offset. [Schedule 4, item 2, section 12F]
Example 6.2 Payment of the low income superannuation tax offset where individual does not lodge an income tax return
Domenik is a university student and will earn $18,000 as a part time retail shop assistant in the 2017-18 income year and will have superannuation guarantee contributions of $1,710. As Domenik will earn below the tax-free threshold of $18,200 for that income year he may not be required to submit an income tax return. The ATO receives information about Domenik's income and his employer's superannuation contributions from his member contribution statement. The ATO is reasonably satisfied that Domenik is eligible for the low income superannuation tax offset and makes the payment of $256.50 to his superannuation fund.
6.16 The low income superannuation tax offset will normally be paid to a superannuation account of an individual, but can be paid in other ways. For example, it can be paid to the individual, if they have no eligible account and have retired, or to the individual's estate if they have passed away. [Schedule 4, item 2, section 12B]
6.17 Eligible contributions that attract a payment of the low income superannuation tax offset must be concessional contributions of the person. [Schedule 4, item 2, paragraphs 12C(1)(a) and (2)(a)]
6.18 'Concessional contributions' is defined in the Income Tax Assessment Act 1997 (ITAA 1997). Examples of concessional contributions that will be eligible include:
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- superannuation guarantee contributions;
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- notional taxed contributions;
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- allocations from reserves that are concessional contributions;
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- contributions an employer makes under a salary sacrifice arrangement; and
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- personal contributions which are allowed as an income tax deduction.
6.19 As eligible concessional contributions include amounts allocated from a fund's reserves and the notional taxed contributions worked out for a defined benefit interest of an individual, the low income superannuation tax offset may be payable in relation to an amount that is not an actual contribution that has been included in a fund's assessable income as a contribution.
6.20 The ITAA 1997 defines concessional contributions as belonging to a 'complying superannuation plan'. As this legislation incorporates the definition of 'concessional contribution' from that Act, a concessional contribution must for the purposes of the low income superannuation tax offset belong to a complying superannuation plan.
Example 6.3 Allocation of superannuation fund reserves to members
Julia works for a company that has its own corporate superannuation fund. The trustee of the superannuation fund allocates an amount from the reserves of the superannuation fund to every member's interest in the fund. The superannuation fund reports this amount on Julia's member contribution statement. The ATO may make a payment of the low income superannuation tax offset in relation to the amount allocated to Julia's superannuation interest.
Example 6.4 Public sector superannuation fund contributions
Martin is a member of a public sector superannuation scheme. His interest in the fund is a defined benefit interest. Martin's employer is required to make contributions for Martin to fund part of the superannuation benefits payable to him (or his beneficiaries upon his death). These contributions are included in the assessable income of the scheme. These contributions are notional taxed contributions for Martin and are eligible for the low income superannuation tax offset.
Example 6.5 Defined benefit scheme superannuation fund notional taxed contributions
Georgina is a member of a public sector superannuation scheme that is subject to income tax on member's contributions. Her interest in the fund is a defined benefit interest. Notional taxed contributions for Georgina are worked out using the formula in the Income Tax Assessment Regulations 1997. These notional taxed contributions are eligible for the low income superannuation tax offset.
6.21 This low income superannuation tax offset will only apply for amounts of an individual's concessional contributions that are included in the assessable income of a superannuation fund. For example, payments to 'constitutionally protected funds' would be excluded. Similarly, an amount included in an individual's concessional contributions in relation to their defined benefit contributions to an unfunded defined benefit scheme or an unfunded component of a partially funded defined benefit scheme would also be excluded as these amounts are also not taxed as contributions. [Schedule 4, item 2, subsection 12E(3)]
6.22 The amount of the low income superannuation tax offset for an individual is calculated at a rate of 15 per cent of the total eligible concessional contributions for the year up to a maximum payment of $500. However, the amount of the low income superannuation tax offset payable in relation to an income year cannot be less than $10 (if an amount is payable) or more than $500. [Schedule 4, item 2, subsection 12E(2)]
6.23 The general administrative machinery provisions that apply to payments under the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 will apply to the low income superannuation tax offset. [Schedule 4, item 2, section 12B]
6.24 As a result of these provisions applying, when the ATO has made a payment to an individual or their legal representative, the ATO must give information as prescribed in the regulations when the payment is made.
6.25 Similarly, the ATO may be liable to pay interest on late payments and underpayments after certain time periods, as may be prescribed in the regulations, are exceeded. The Commissioner may recover overpayments directly from individuals or funds into which the payment was made.
6.26 In accordance with section 353-15 of Schedule 1 to the TAA 1953, the ATO has broad powers of entry to premises to obtain and make copies of examinable documents to ensure compliance with the Act.
6.27 To ensure that Parliament is kept informed of how the low income superannuation tax offset is operating and details of how much low income superannuation tax offset is being paid, these amendments contain a requirement that the Commissioner must give the Minister quarterly and annual reports to be tabled in Parliament regarding the low income superannuation tax offset. [Schedule 4, item 2, section 12G]
6.28 The Governor-General may make regulations pertaining to the low income superannuation tax offset. This includes prescribing the information that must be included in the reports that the Commissioner must give to the Minister.
6.29 The low income superannuation tax offset is not a tax offset within the meaning of the income tax law. The name instead reflects the operation of the payment in offsetting the tax detriment that eligible low income earners would otherwise face as a result of the flat rate of tax on concessional contributions being in excess of their effective tax rate.
Consequential amendments
6.30 Schedule 3 to the TLA Bill also makes a number of minor consequential amendments to the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 through inserting referencing, adding a note and definitions and to allow for overpayments of low income superannuation contributions to be recovered by offsetting these against payments of the low income superannuation tax offset. An amendment is also made to the Minerals Resource Rent Tax Repeal and Other Measures Act 2014 to ensure that the Commissioner continues to send a notice in situations where the Commissioner has decided that a payment of the low income superannuation contribution that was previously paid should not have been paid and is now recoverable. [Schedule 4, items 3 to 5 and 7 and 8, subsection 49(1) and sections 55 and 56 of the Superannuation (Government Co contribution for Low Income Earners) Act 2003; and subitem 7(2) and item 8 of Schedule 7 to the Minerals Resource Rent Tax Repeal and Other Measures Act 2014]
Application
6.31 The provisions contained in Schedule 4 to the TLA Bill commence on 2 July 2017.
6.32 They apply to the 2017-18 income year and later income years. [Schedule 4, item 6]
STATEMENT OF COMPATABILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016
6.33 Schedule 4 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 is 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
6.34 Schedule 4 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 amends the Sustainable (Government Co-contribution for Low Income Earners) Act 2003 to enable eligible low income earners to receive the low income superannuation tax offset.
6.35 Currently concessional contributions to superannuation are taxed at 15 per cent regardless of the individual's relevant marginal income tax rate. An individual may have an effective tax rate that is lower than 15 per cent. The low income superannuation tax offset will ensure that most individuals who have an effective tax rate below 15 per cent do not pay more tax on their concessional contributions through their fund or retirement savings account provider than on their take-home pay.
6.36 It is expected that around 3.1 million people (almost two-thirds of whom are women) will benefit from the low income superannuation tax offset in 2017-18.
Human rights implications
6.37 This Schedule does not engage any of the applicable rights or freedoms because it ensures that the level of support for low income individuals is maintained.
Conclusion
6.38 This Schedule is compatible with human rights as it does not raise any human rights issues.