House of Representatives

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 9 - Tax offsets for spouse contributions

Outline of chapter

9.1 Schedule 7 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (the TLA Bill) amends the tax law to encourage individuals to make superannuation contributions for their low income spouses. This is achieved by increasing the amount of income an individual's spouse can earn before the individual ceases to be entitled to a tax offset for making superannuation contributions on behalf of their spouse.

9.2 All references in this Chapter are to the Income Tax Assessment Act 1997 unless otherwise specified. All legislative amendments referred to in this Chapter are contained in the TLA Bill unless otherwise specified.

Context of amendments

9.3 The measure forms part of the Government's Superannuation Reform Package announced in the 2016-17 Budget. The measure provides an incentive for individuals to contribute to the superannuation accounts of their lower income spouse. The measure improves the flexibility of the superannuation system.

9.4 A tax offset is available to an individual if they make a contribution to a complying superannuation fund or retirement savings account on behalf of their spouse and, amongst other things, the total of the spouse's assessable income, reportable fringe benefits amounts, and reportable employer superannuation contributions for an income year is less than a set threshold amount. Prior to these amendments that threshold was $13,800.

9.5 The amount of this offset for an individual for an income year was equal to 18 per cent of the lesser of:

•

$3,000 less the amount by which the total of the spouse's assessable income, reportable fringe benefits amounts and reportable employer superannuation contributions for the income year exceeds $10,800 (total spouse income); and

•

the sum of the spouse contributions made by the individual in the income year.

9.6 The amount of the offset that an individual is entitled to for an income year cannot exceed $540 (18 per cent of $3,000), even if an individual has more than one spouse in the same income year.

Summary of new law

9.7 Schedule 7 to the TLA Bill increases to $40,000 from $13,800 the total spouse income threshold below which superannuation contributions made by an individual for their spouse entitles the contributing individual to a tax offset.

Comparison of key features of new law and current law

Detailed explanation of new law

9.8 Schedule 7 to the TLA Bill increases the amount of income an individual's spouse can earn before the individual ceases to be entitled to a tax offset when they make superannuation contributions on behalf of their spouse.

9.9 Previously, the threshold for the total of the spouse's assessable income, reportable fringe benefits amounts, and reportable employer superannuation contributions (total spouse income) was $13,800. As a result of the amendments, this threshold is now $40,000. [Schedule 7, item 1, paragraph 290-230(2)(c)]

9.10 The calculation of the amount of the offset for an income year is also changed to account for the increased spouse income threshold. It is now 18 per cent of the lesser of:

•

$3,000 less the amount by which total spouse income exceeds $37,000 (previously $10,800); and

•

the sum of the spouse contributions made by the individual in the income year.

[Schedule 7, item 3, paragraph 290-235(1)(a)]

9.11 This means that an individual is entitled to a tax offset for an income year of the lesser of 18 per cent of their contributions on behalf of their spouse or $540 (18 per cent of $3000) until their spouse's total spouse income reaches $37,000. If the total spouse income of an individual's spouse is between $37,000 and $40,000, the maximum tax offset available to the individual proportionally decreases, until at $40,000 it is reduced to nil.

9.12 Other than this update to account for the increase in the threshold for total spouse income, the amendments do not alter the method for calculating the tax offset for an income year. The amendments also do not change the maximum tax offset amount of $540 that is available to the individual under the current law. This maximum applies even if the individual has more than one spouse during an income year.

Example 9.1 : Tax offset entitlement to low income spouse superannuation contributions - partial entitlement

Eloise and Leon are Australian residents who are married. In the 2017-18 income year, Leon works part time and has a total of $39,000 of assessable income, reportable fringe benefits amounts and reportable employer superannuation contributions (total spouse income).

Eloise makes a contribution of $3,000 on behalf of Leon to his complying superannuation fund during the 2017-18 income year. Accordingly, for the 2017-18 income year, Eloise has spouse contributions of $3,000 and is entitled to a tax offset of $180 calculated as follows:

Amount of the offset = 18% of the lesser of:

•

spouse contributions; and

•

$3000 - (the amount by which total spouse income exceeds $37,000).

Spouse contributions = $3000

$3,000 - (the amount by which total spouse income exceeds $37,000) = $3,000 - ($39,000 - $37,000) = $1,000.

$1,000 is less than $3,000 and therefore the amount of the offset available to Eloise in 2017-18 is

$1,000 x 18% = $180.

Example 9.2 : Tax offset entitlement to low income spouse superannuation contributions - full entitlement

In the 2018-19 income year, Eloise continues to make superannuation contributions for the benefit of Leon. Leon reduces his work hours slightly and has total spouse income of $31,000.

Eloise makes a contribution of $6,000 on behalf of Leon to his complying superannuation fund during the 2018-19 income year. Accordingly, as Leon's total spouse income does not exceed $37,000, Eloise is entitled to a tax offset of:

Amount of the offset = 18% of the lesser of:

•

spouse contributions; and

•

$3000 - (the amount by which total spouse income exceeds $37,000).

Spouse contributions = $6000

$3,000 - (the amount by which total spouse income exceeds $37,000) = $3,000 - $0 = $3,000.

$3,000 is less than $6,000 and therefore the amount of the offset available to Eloise in 2018-19 is

= $3,000 x 18% = $540.

Example 9.3 : Tax offset entitlement to low income spouse superannuation contributions - no entitlement

In the 2019-20 income year, Eloise continues to make superannuation contributions for the benefit of Leon. Leon has been promoted and has total spouse income of $41,000.

Eloise is not entitled to a tax offset for any contributions made for the benefit of Leon, as Leon's total spouse income is $40,000 or more.

Example 9.4 : Tax offset entitlement to low income spouse superannuation contributions - multiple spouses

Larry and Tess are Australian residents in a de facto relationship. In the 2017-18 income year, Tess works part time and has total spouse income of $25,000.

Larry makes a contribution of $3,000 on behalf of Tess to her complying superannuation fund. Later in the year, Tess and Larry cease their de facto relationship, and Larry and Carmen enter into a de facto relationship. Also during the 2017-18 income year, Larry makes a contribution of $1,000 on behalf of Carmen to her complying superannuation fund during the period of their de facto relationship. Carmen is an Australian resident who works part time during the 2017-18 income year and has total spouse income of $30,000.

Larry is entitled to a tax offset for the 2017-18 income year in relation to his contributions for both spouses but not exceeding $540. Larry is entitled to a tax offset of:

18 % of the lesser of:

•

spouse contributions; and

•

$3000 - (the amount by which total spouse income exceeds $37,000).

Spouse contributions = $4000 ($3000 for Tess and $1000 for Carmen)

$3,000 - (the amount by which total spouse income exceeds $37,000) = $3,000 - $0 = $3,000 (as both Tess and Carmen had total spouse income for 2017-18 that was less than $37,000).

$3,000 is less than $4,000 and therefore the amount of the offset is

$3,000 x 18% = $540.

Consequential amendments

9.13 Prior to these amendments, because of the lower threshold for total spouse income ($13,800) and the higher annual caps on non-concessional contributions ($180,000) it was unlikely that spouse contributions would be made that would result in the spouse having excess non-concessional contributions.

9.14 However, with the changes to the spouse income threshold and the non-concessional contributions cap, including limits on contributions for individuals with a total superannuation balance exceeding the general transfer balance cap (see Chapter 5 for more information), it is more likely that individuals may have a spouse who has:

•

exceeded their non-concessional contributions cap in a financial year or their total superannuation balance equals or exceeds the general transfer balance cap immediately before the start of the financial year; and

•

total spouse income low enough that the individual would ordinarily be entitled to a tax offset for superannuation contributions for their spouse.

9.15 In this situation, an individual could receive the spouse tax offset for a contribution that the spouse withdraws from superannuation as an excess non-concessional contribution.

9.16 To address this, Schedule 7 also makes a consequential amendment to the eligibility criteria for the spouse tax offset. An individual is not entitled to the tax offset for an income year if their spouse's non-concessional contributions exceed the non-concessional contribution cap in the corresponding financial year or their total superannuation balance equals or exceeds the general transfer balance cap immediately before the start of the financial year. [Schedule 7, item 2, subsection 290-230(4A)]

Application and transitional provisions

9.17 The amendments commence from the start of the first day of the first quarter following Royal Assent. [item 4 of the table in clause 2 of the TLA Bill]

9.18 The amendments apply in determining entitlement to the tax offset for spouse superannuation contributions made in the 2017-18 income year and later income years. [Schedule 7, item 4]

STATEMENT OF COMPATIBILITY 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

9.19 Schedule 7 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) 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 .

Outline

9.20 Schedule 7 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 amends the tax law to encourage individuals to make superannuation contributions for their low income spouses. This is achieved by increasing, to $40,000 from $13,800, the total spouse income threshold below which superannuation contributions made by an individual for their spouse entitle the contributing individual to a tax offset.

9.21 This Schedule assists more couples to support each other in saving for retirement, improve fairness and offers greater flexibility in the superannuation system for those who take time out of work, work part time or have 'lumpy' income and therefore have periods in which they make no or limited contributions to superannuation. It does so by encouraging more people to make superannuation contributions to their low income spouse.

Human rights implications

9.22 This Schedule does not engage any of the applicable rights or freedoms as it modifies income thresholds to encourage people to make contributions to superannuation on behalf of their low income spouses.

Conclusion

9.23 This Schedule is compatible with human rights as it does not raise any human rights issues.