Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 9 - Increase in age limit for superannuation contributions

Overview

9.1 The amendments contained in Schedule 9 of the Bill provide for changes to the Superannuation Guarantee (Administration) Act 1992 and the Small Superannuation Accounts Act 1995. These changes will increase the age threshold from which employers are no longer required to provide superannuation support for their employees. The threshold will be increased from age 65 to age 70.

9.2 The amendments are consistent with the Government's decision to allow individuals over age 65 to continue contributing to a complying superannuation fund or Retirement Savings Account (RSA) until they reach age 70.

Summary of the amendments

Purpose of the amendments

9.3 The amendments will apply to employers who employ individuals beyond age 65. Where this occurs, employers will now be required to provide superannuation support for these employees.

9.4 Schedule 9 will amend the law to:

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increase the age limit threshold set for the purpose of calculating an individual superannuation shortfall under the Superannuation Guarantee (Administration) Act 1992 . The threshold will be increased from age 65 to age 70 [items 1 to2] ;

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amend the Small Superannuation Accounts Act 1995 to increase the age limit from 65 to 70 for accepting deposits into Superannuation Holding Accounts Reserve (SHAR) [items 3 to4] .

Date of effect

9.5 The amendments will apply from 1 July 1997.

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In relation to the Superannuation Guarantee (Administration) Act 1992 , the amendment will apply to the 1997-98 year and all later years [item 2].

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In relation to the Small Superannuation Accounts Act 1995 , the amendment will only apply to deposits made on or after 1 July 1997 that relate to a period of employment that started on or after 1 July 1997 [item 4] .

Background to the legislation

9.6 As part of a range of measures to improve superannuation and retirement incomes arrangements, the Government announced in the 1996-97 Budget that it will allow people over age 65 to continue contributing to a complying superannuation fund or RSA. Individuals will be able to continue contributing up to age 70, provided they maintain a bona fide link with the paid workforce, that is, they are gainfully employed for at least 10 hours per week over the year.

9.7 Generally, the Superannuation Guarantee (Administration) Act 1992 applies to all employers. However, employers are exempted from providing superannuation support in respect of certain employees in certain circumstances. Currently, salary or wages paid to an employee who is age 65 or over are expressly exempted for the purposes of calculating an individual superannuation guarantee shortfall, under paragraph 27(1)(a) of the Superannuation Guarantee (Administration) Act 1992 .

9.8 The Small Superannuation Accounts Act 1995 contains the legislative framework for employers to make payments to SHAR instead of making small superannuation contributions to a superannuation fund. Deposits to SHAR are treated as contributions to a complying superannuation fund for superannuation guarantee purposes.

9.9. Currently a deposit into SHAR for an individual must be accompanied by a deposit form (section 26 of the Small Superannuation Accounts Act 1995 ) which includes certain information as well as a number of declarations concerning the deposit. In particular, section 30 of the Small Superannuation Accounts Act 1995 requires that the deposit form must include a declaration from the depositor that, to the best of their knowledge, the individual was under 65 on at least one day during the period of employment to which the deposit relates.

Explanation of the amendments

9.10 To provide consistency with the increase in the age limit for superannuation contributions as mentioned in paragraph 9.6, the amendments are necessary to increase the age above which superannuation guarantee contributions are not required. This age limit will be increased from age 65 to 70. As a consequence, an amendment is also needed to the Small Superannuation Accounts Act 1995 , to increase the age limit from 65 to 70 for accepting deposits from employers into SHAR.

Amendments to the Superannuation Guarantee (Administration) Act 1992

9.11 The amendments will change the reference to '65' in paragraph 27(1)(a) of the Superannuation Guarantee (Administration) Act 1992 to '70' [item 1] . This will exclude any salary or wages paid to employees aged 70 or over from the calculation of the individual superannuation guarantee shortfall.

Amendments to the Small Superannuation Accounts Act 1995

9.12 The amendments will also change the reference to '65' in section 30 of the Small Superannuation Accounts Act 1995 to '70' [item 3] . This will change the declaration contained in the deposit form (mentioned in paragraph 9.9) to allow employers to make deposits on behalf of employees who were under 70 on at least one day during the period to which the deposit relates.

9.13 The proposed change does not prevent an individual who attains the age of 65 from applying to the Commissioner of Taxation under section 66 of the Small Superannuation Accounts Act 1995 , for payment of their account balance. Will the amendment apply to employees who have already turned 65?

9.14 The amendments will also apply in respect of employees who have already turned 65 before 1 July 1997.

Example

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XYZ Ltd, a group employer, has employed Jedd Bishop since 1 January 1990. XYZ Ltd ceased contributing superannuation in respect of salary or wages paid to Jedd Bishop from 19 May 1997 because this was the day on which Jedd turned 65. Jedd continues to be employed with XYZ Ltd. The amendment will require that XYZ Ltd makes adequate superannuation provision for Jedd in relation to work performed by him from 1 July 1997 onwards.

XYZ Ltd employs Skye Bishop on 12 August 1997. Skye turned 65 on 30 June 1997. This amendment will require XYZ Ltd to make adequate provision for superannuation in respect of salary or wages paid to Skye from 12 August 1997.

In both of these situations:

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provision for superannuation can be made to a complying superannuation fund or to SHAR; and

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failure to do so will subject XYZ Ltd to the superannuation guarantee charge.

When do the amendments apply?

9.15 The amendment to the Superannuation Guarantee (Administration) Act 1992 will apply to the 1997-98 year and all later years. [Item 2]

9.16 The amendment to the Small Superannuation Accounts Act 1995 will only apply to deposits made on or after 1 July 1997 that also relate to a period of employment carried out on or after 1 July 1997 [item4] . This means that:

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where an individual commences employment for the first time on or after 1 July 1997, deposits made by the employer in respect of that employee will be subject to the amendment.

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where the employment is continuing (ie employment commences from a point in time before 1 July 1997 and continues after that date), only deposits made on or after 1 July 1997 which relate to a period of employment that started on or after 1 July 1997 will be subject to the amendment.

Example

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John North commenced employment with TBC Services, a group employer, on 20 May 1995 at the age of 66. TBC Services makes a deposit into SHAR on behalf of John North on 20 July 1997. This deposit related to the period of employment from 1 June 1997 to 30 June 1997. The amendment will not apply to the deposit as it relates to a period of employment that started before 1 July 1997.