House of Representatives

Explanatory Memorandum

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

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Extension of eligibility for Government co-contribution

Schedule 1 to this bill amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003, the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 to:

•

extend the Government co-contribution for low income earners to some employees who currently do not qualify; and

•

remove the taxation deduction available for personal superannuation contributions made by individuals who under this bill will now qualify for a Government co-contribution.

Date of effect: The co-contribution amendments will apply to determinations made for a person's 2003-2004 and subsequent income years. The deduction amendments will apply to assessments for the 2004-2005 and subsequent income years.

Proposal announced: This measure was announced in the Minister for Revenue and Assistant Treasurer's Press Release No. C013/04 of 14 March 2004.

Financial impact: This measure is expected to result in a budgetary cost of $45 million in 2004-2005, $50 million in 2005-2006, $50 million in 2006-2007 and $50 million in 2007-2008.

Compliance cost impact: Nil.

Administrative amendments to the Superannuation (Government Co-contribution for Low Income Earners) Act 2003

Schedule 2 to this bill amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Co-contribution Act) to:

•

specify an interest rate to be applied to late Government co-contribution payments;

•

require superannuation providers to repay Government co-contribution amounts which are not credited to the member's account within a specific time frame;

•

impose the general interest charge where a superannuation provider does not repay the Government co-contribution amount within a specific time frame;

•

further outline the requirements for reports by the Minister, to Parliament, under the Co-contribution Act; and

•

include a previously omitted definition.

Date of effect: All amendments will commence on the day this bill receives Royal Assent. The amendment to further outline the requirements for reports by the Minister, to Parliament, will only apply to reports for periods that begin on or after 1 July 2004.

Proposal announced: The Government co-contribution was foreshadowed in the Australian Government's policy statement A Better Superannuation System on 5 November 2001. The bill to give effect to this measure received Royal Assent on 12 November 2003. The amendments are administrative in nature and ensure that the Co-contribution Act operates effectively in accordance with the original intent.

Financial impact: Negligible.

Compliance cost impact: No estimates are available. These amendments are of minor or machinery of government nature and do not substantially alter existing arrangements.

Chapter 1 - Extension of eligibility for Government co-contribution

Outline of chapter

1.1 Schedule 1 to this bill outlines the amendments to the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Co-contribution Act), the Income Tax Assessment Act 1936 (ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997) to:

•

extend the Government co-contribution for low income earners to some employees who currently do not qualify; and

•

remove the taxation deduction available for personal superannuation contributions made by individuals who under this bill will now qualify for a Government co-contribution.

Context of amendments

1.2 On 14 March 2004 the Australian Government announced that the eligibility criteria for the Government co-contribution would be extended to more employees (the Minister for Revenue and Assistant Treasurer's Press Release No. C013/04).

1.3 Currently, to qualify for a Government co-contribution, an individual must, amongst other criteria, receive or be entitled to receive employer superannuation support and not be eligible to claim a deduction. These amendments replace this requirement with a requirement that is based on the receipt of at least 10% of total income as an employee.

1.4 This change will mean that a greater number of individuals, for example, who earn less than $450 per month or are part-time workers under 18, will be able to qualify for the Government co-contribution. These individuals are currently able to claim a taxation deduction for personal contributions to superannuation. These amendments will remove the ability of an individual to claim a deduction if they are entitled to a Government co-contribution.

Summary of new law

1.5 Schedule 1 to this bill amends the Co-contribution Act to extend the eligibility criteria which must be met to qualify for a Government co-contribution. The existing requirement, which requires an individual to receive or be entitled to receive employer superannuation support and not be eligible to claim a deduction, will be replaced with a requirement that is based on the receipt of 10% of total income as an employee.

1.6 Schedule 1 will also amend the ITAA 1997 to deny a taxation deduction in respect of personal superannuation contributions made by individuals who are entitled to a Government co-contribution. The amendment to the ITAA 1936 is consequential to this amendment.

Comparison of key features of new law and current law

Detailed explanation of new law

1.7 Schedule 1 extends eligibility under the Co-contribution Act.

1.8 A person will be entitled to a Government co-contribution if 10% or more of their total income for an income year is attributable to eligible employment. [Schedule 1, item 4, paragraph 6(1)(b)]

1.9 A reference to the definition of 'eligible employment' is being included in the Co-contribution Act. Eligible employment, as defined in subsection 82AAS(1) of the ITAA 1936, refers to work or the performance of a function or duty, which results in the person being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992. [Schedule 1, item 5, subsection 6(2)]

1.10 Previously individuals who did not receive, or were not entitled to, employer superannuation support, would have been eligible to claim a taxation deduction for personal contributions made to superannuation.

1.11 Subsection 82AAT(1) of the ITAA 1936 outlines the conditions which must be met to claim a taxation deduction for contributions made to a superannuation fund. The section's note will be amended to refer to section 26-80 of the ITAA 1997 and the circumstances in which a person would be denied a taxation deduction. [Schedule 1, item 1, subsection 82AAT(1)(note)]

1.12 The ITAA 1997 will be amended to deny a taxation deduction to employees who would have otherwise qualified for a deduction but under the extended Government co-contribution will now qualify for a Government co-contribution. [Schedule 1, item 2, subsection 26-80(3)]

Application and transitional provisions

1.13 The extension to Government co-contribution eligibility will apply to all determinations in respect of a person's 2003-2004 and subsequent income years [Schedule 1, item 6]. This means that eligible personal superannuation contributions made on or after 1 July 2003 may qualify for a Government co-contribution if the individual:

•

has a total of assessable income and reportable fringe benefits of less than $40,000;

•

has at least 10% of their total income attributable to eligible employment;

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is under the age of 71 in the income year the personal superannuation contribution is made; and

•

is not a temporary resident.

1.14 Employees who previously did not qualify for a Government co-contribution will no longer be able to claim a taxation deduction for the 2004-2005 and subsequent income years if their personal contribution now attracts a Government co-contribution for the relevant income year. [Schedule 1, item 3]

Chapter 2 - Administrative amendments to the Superannuation (Government Co-contribution for Low Income Earners) Act 2003

Outline of chapter

2.1 Schedule 2 to this bill outlines administrative amendments to the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Co-contribution Act) to:

•

specify an interest rate to be applied to late Government co-contribution payments;

•

specify a time frame in which a superannuation provider must repay a Government co-contribution amount which has not been credited to a member's account;

•

impose the general interest charge (GIC) where a superannuation provider does not repay the Government co-contribution amount within a specified time frame;

•

further outline the requirements for reports by the Minister, to Parliament, under the Co-contribution Act; and

•

include a previously omitted definition.

Context of amendments

2.2 The Government co-contribution was foreshadowed in the Australian Government's policy statement A Better Superannuation System on 5 November 2001. The Act to give effect to this measure received Royal Assent on 12 November 2003.

2.3 These administrative amendments are necessary to enable the Co-contribution Act to operate effectively in accordance with the original intent.

Summary of new law

2.4 The administrative amendments will:

•

specify that the interest rate to be applied to late Government co-contribution payments will be referenced to the Taxation Administration Act 1953 (TAA 1953);

•

specify a time frame (28 days from the co-contribution payment being made) in which a superannuation provider must credit a Government co-contribution amount to a member's account;

•

impose the GIC where a superannuation provider does not repay the Government co-contribution amount within a particular time frame (7 days after the abovementioned 28 day period);

•

further outline the requirements for reports by the Minister, to Parliament, under the Co-contribution Act; and

•

include a previously omitted definition.

Comparison of key features of new law and current law

Detailed explanation of new law

2.5 The detailed explanation of the administrative amendments is divided into four parts:

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Part 1 outlines the interest rates which will be applied to late Government co-contribution payments.

•

Part 2 outlines a time frame in which a superannuation provider must repay a Government co-contribution if a Government co-contribution has not been credited to a member's account. This bill provides that the GIC will apply if a superannuation provider does not return this amount within a specified time frame.

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Part 3 outlines the revised requirements for information that will be contained in the Ministerial reports to Parliament.

•

Part 4 provides for a previously omitted definition.

Part 1: Interest on unpaid amounts

2.6 Currently, the Co-contribution Act provides that Government co-contribution payments that are paid late (i.e. after the payment date) are increased by an interest rate to be prescribed in regulations.

2.7 The amendments remove the reference to the regulations and instead specify the interest rate to be applied to late Government co-contribution amounts within the Co-contribution Act. [Schedule 2, items 1 to 3, paragraphs 12(2)(d), 21(3)(d) and 22(4)(d)]

2.8 The interest to be applied is the base interest rate for the day on which the interest is calculated. This interest rate will be referenced to the rate defined in section 8AAD of the TAA 1953. [Schedule 2, item 4, section 56]

2.9 This is in keeping with past tax law design which specifies the rate in the legislation rather than the regulations.

Application and transitional provisions

2.10 This amendment will commence on the day this bill receives Royal Assent. Whilst the provisions appear to apply retrospectively it is not expected that anyone will be affected by these changes.

Part 2: repayment dates and general interest charge

2.11 Sections 16 and 20 of the Co-contribution Act require that where a superannuation provider cannot credit the Government co-contribution to an account of a member, the Government co-contribution amount must be repaid to the Commonwealth. The repaid amount must also be accompanied by prescribed information.

2.12 These amendments will specify that the Government co-contribution must be credited within 28 days of the Commissioner of Taxation (Commissioner) paying the Government co-contribution amount to the superannuation provider. [Schedule 2, items 7 and 9, paragraphs 16(1)(b) and 20(1)(b)]

2.13 Where the provider fails to credit the Government co-contribution amount to a member's account within 28 days of receiving the payment, the provider becomes liable to repay the amount. These amendments provide that the superannuation provider will be liable to pay the GIC if the amount remains unpaid after the time that it is 'due to be paid'. [Schedule 2, items 8, 10, and 13, subsections 16(1), 20(1) and 25(1)]

2.14 This 28 day time frame will ensure that Government co-contribution amounts are returned promptly to the Commonwealth, so that the amounts can be credited to an alternative account for the benefit of the qualifying individual.

2.15 These amendments will specify that an amount which is to be repaid under subsection 16(1) or 20(1) is 'due to be paid' 7 days after the amount first becomes liable to be repaid. The GIC is to be paid by providers for each day that the amount remains unpaid after this 7 day period. [Schedule 2, item 15, subsection 25(3)]

2.16 The 7 days will allow superannuation providers a further period, after attempting to credit an amount, to repay that amount to the Commissioner before they are liable to pay the GIC on the amount to be repaid.

2.17 A new Part has been created in the Co-contribution Act (Part 5A) that now includes all provisions that deal with any GIC payable in the Co-contribution Act. These amendments give effect to this change. [Schedule 2, items 5, 6, and 11 to 14, subsections 5(2) and 25(1), section 24]

Application and transitional provisions

2.18 This amendment will commence on the day this bill receives Royal Assent. Whilst the provisions appear to apply retrospectively it is not expected that any superannuation provider will be affected as no Government co-contribution determinations are expected to be made prior to these amendments taking effect.

Part 3: ministerial reporting

2.19 The Co-contribution Act provides that the Minister present reports to Parliament on a quarterly and annual basis on prescribed details about the recipients of the Government co-contribution, the extent of the benefit received, and workings of the Co-contribution Act.

2.20 The Ministerial reporting requirements will be extended to report, where information is available, and on an annual and aggregated basis, the numbers of Government co-contribution beneficiaries and spouses by prescribed income ranges. [Schedule 2, items 16 and 17, section 54]

Application and transitional provisions

2.21 This amendment applies to reports for periods that commence on or after 1 July 2004. [Schedule 2, item 17]

Part 4: definition - payments of co-contribution into accounts

2.22 The Co-contribution Act currently does not define the term 'Superannuation Holding Accounts Reserve'. In addition, subsection 5(3) of the Financial Management Legislation Amendment Act 1999 established the Superannuation Holding Accounts Account and renamed the Superannuation Holding Accounts Reserve.

2.23 As a result, these amendments will replace references in the Co-contribution Act to the Superannuation Holding Accounts Reserve with the term 'Superannuation Holding Accounts Account'. [Schedule 2, items 18 to 21, paragraphs 15(1)(e) and 19(4)(e), subsections 18(1) and 24(3)]

2.24 The Co-contribution Act will also be amended to define the 'Superannuation Holding Accounts Account'. [Schedule 2, item 22, section 56]

Application and transitional provisions

2.25 This amendment commences on the day this bill receives Royal Assent.

Index

Schedule 1: Extension of eligibility

Schedule 2: Administrative amendments