House of Representatives

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)

Glossary

following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Superannuation concessional contributions cap

Schedule 1 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 amends the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997 to increase the concessional contributions cap temporarily to $35,000 for the 2013-14 financial year for individuals aged 60 years and over, and to $35,000 for the 2014-15 financial year and later financial years for individuals aged 50 years and over. The temporary cap will cease when the general cap indexes to $35,000.

Date of effect: This measure applies to the 2013-14 financial year and later financial years.

Proposal announced: This measure was announced in the Deputy Prime Minister and Treasurer's and the Minister for Financial Services and Superannuation's Joint Media Release No. 039 of 5 April 2013.

Financial impact: This measure has the following revenue implications:

Human rights implications: This Schedule is compatible with human rights. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.16 to 1.23.

Compliance cost impact: Nil.

Low income superannuation contribution: technical amendments

Schedule 2 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 in order to make technical changes to ensure the low income superannuation contribution operates effectively.

Date of effect: The amendments made by this Schedule apply to the 2012-13 income year and later income years.

Proposal announced: This measure was announced (in part) in the Minister for Financial Services and Superannuation's Media Release No. 160 of 29 November 2011.

Financial impact: These amendments will have the following expenditure outlay implications (in accrual terms):

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.65 to 2.68.

Compliance cost impact: Low.

Sustaining the superannuation contribution concession

Schedule 3 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 (this Bill) amends the income tax and superannuation law and the Taxation Administration Act 1953 to reduce the tax concession for concessionally taxed superannuation contributions of very high income earners by 15 per cent. The Superannuation (Sustaining the Contribution Concession) Imposition Bill 2013 contains the mechanism by which the tax concession is reduced.

Schedule 4 to this Bill also makes consequential amendments to legislation concerning some of the Commonwealth defined benefit superannuation plans where members of those plans are affected by the reduction in the tax concession for concessionally taxed superannuation contributions.

Date of effect: This measure applies to concessionally taxed superannuation contributions for the 2012-13 income year and later income years.

Proposal announced: This measure was announced in the Minister for Financial Services and Superannuation's Media Release No. 024 of 8 May 2012.

Financial impact: This measure is estimated to have a gain to revenue over the forward estimates period of $1,747 million comprising:

Human rights implications: Schedule 3 and 4 and the Superannuation (Sustaining the Contribution Concession) Imposition Bill 2013 does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 6, paragraphs 6.50 to 6.54.

Compliance cost impact: The reduction in the tax concession for concessionally taxed superannuation contributions of very high income earners will result in some transitional and some ongoing compliance costs for individuals and superannuation providers. It is estimated that these changes will impact approximately 1.2 per cent of individuals contributing to superannuation in 2012-13. The Office of Best Practice Regulation has advised that a Regulation Impact Statement is not required.

Chapter 1 - Superannuation concessional contributions cap

Outline of chapter

1.1 Schedule 1 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 amends the Income Tax Assessment Act 1997 (ITAA 1997) and the Income Tax (Transitional Provisions) Act 1997 (IT(TP) 1997) to increase the concessional contributions cap (the cap) temporarily to $35,000 for the 2013-14 financial year for individuals aged 60 years and over, and to $35,000 for the 2014-15 financial year and later financial years for individuals aged 50 years and over. The temporary cap will cease when the general cap indexes to $35,000.

Context of amendments

1.2 Since 1 July 2007, concessional and non-concessional superannuation contributions have been subject to annual limits.

1.3 Concessional contributions are generally those contributions which are included in the assessable income of a superannuation fund and include employer contributions (including superannuation guarantee and salary sacrifice contributions) and tax deductible personal contributions. These caps limit the amount of money an individual can contribute to superannuation which is taxed concessionally.

1.4 A higher concessional contributions cap applied to individuals aged 50 and over up to and including the 2011-12 financial year.

1.5 For the 2012-13 and 2013-14 financial years, the cap for all individuals is $25,000 (the general cap). For the 2014-15 financial year and later financial years, the cap will be indexed annually based on movements in full-time adult average weekly ordinary time earnings (AWOTE) published by the Australian Statistician for the December quarter, rounded down to the nearest multiple of $5,000.

1.6 On 5 April 2013, the Government announced that it would introduce a temporary higher cap of $35,000 for the 2013-14 financial year for individuals aged 60 years and over, and $35,000 for the 2014-15 financial year and later financial years for individuals aged 50 years and over. The higher cap will cease when the general concessional cap reaches $35,000 by way of indexation.

1.7 The higher cap will encourage individuals to improve the adequacy of their retirement savings at a time in their lives when they are often better placed to make additional contributions to their superannuation. In addition, it recognises that older Australians may not have received superannuation contributions throughout their working life and their superannuation balances may have reduced significantly as a result of the global financial crisis.

1.8 The temporary higher cap of $35,000 replaces the previously announced cap that was to apply from 1 July 2014 for individuals aged 50 years and over with superannuation balances below $500,000, which would provide these individuals with the ability to contribute an additional $25,000 above the general cap. The Government decided not to legislate this cap in light of feedback from the superannuation sector that the balance requirement would be difficult to administer.

1.9 It is estimated that around 171,000 people will benefit from these changes in 2013-14 when eligibility is extended to individuals aged 60 years and over and 363,000 will benefit in 2014-15 when eligibility is extended to individuals aged 50 years and over, when compared to the currently legislated caps policy.

Summary of new law

1.10 Schedule 1 amends the ITAA 1997 and the IT(TP) 1997 to increase the cap to $35,000 for the 2013-14 financial year for individuals aged 60 years and over, and to $35,000 for the 2014-15 financial year and later financial years for individuals aged 50 years and over.

Comparison of key features of new law and current law

Detailed explanation of new law

Concessional contributions cap

1.11 The cap for individuals aged 59 years or over on 30 June 2013 will increase from $25,000 to $35,000 for the 2013-14 financial year. [Schedule 1, items 1 and 2, note 2 in section 292-20 of the ITAA 1997 and paragraph 292-20(1)(a) of the IT(TP) 1997]

1.12 For the 2014-15 financial year and later financial years, the cap for individuals aged 49 years or over on 30 June of the relevant previous financial year is $35,000. [Schedule 1, item 2, paragraph 292-20(1)(b) of the ITTP 1997]

1.13 Under the previous higher concessional cap (up to and including the 2011-12 financial year), individuals became eligible for the higher cap in the year they turned 50 years old (that is, eligibility was based on an individual's age as at 30 June in the relevant financial year). However, if an individual died before their 50th birthday, they did not qualify for the higher cap and their estate could be issued with an excess contributions tax assessment which would not have been the case had they reached 50 years. Determining eligibility by reference to an individual's age as at 30 June in the financial year preceding the relevant financial year in which the higher cap applies ensures that these individuals also qualify for the higher cap.

1.14 The temporary higher cap does not apply if the general cap for all other individuals is $35,000 or more (as determined annually by indexation, see subsection 292-20(2) of the ITAA 1997), that is, when the general cap reaches $35,000, the temporary higher cap will cease to apply. [Schedule 1, item 2, subsection 292-20(2) of the ITTP 1997]

1.15 The amendments made by this Schedule do not affect the amount of the non-concessional contributions cap for individuals that meet the age requirements. Subsection 292-85(2) of the ITAA 1997 provides that an individual's 'non-concessional contributions cap' for the 2009-10 financial year and later financial years is the amount that is six times the general concessional contributions cap for the year. The non-concessional contributions cap will continue to be six times the general concessional contributions cap. [Schedule 1, item 2, subsection 292-20(3) of the ITTP 1997]

Example 1.1

Victoria's birthday is 12 May 1954. She is 59 years old on 30 June 2013. For the 2013-14 financial year, Victoria's concessional contributions cap is $35,000, and her non-concessional contributions cap is $150,000 (where the general concessional contributions cap is $25,000).

Example 1.2

Amir's birthday is 2 February 1965. He is 49 years old on 30 June 2014. For the 2014-15 financial year, Amir's concessional contributions cap is $35,000, and his non-concessional contributions cap is $150,000 (assuming the general concessional contributions cap is $25,000).

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Superannuation concessional contributions cap

1.16 Schedule 1 of the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 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

1.17 Schedule 1 amends the Income Tax Assessment Act 1997 and the Income Tax (Transitional Provisions) Act 1997 to increase the concessional contributions cap temporarily to $35,000 for the 2013-14 financial year for individuals aged 60 years and over, and to $35,000 for the 2014-15 financial year and later financial years for individuals aged 50 years and over. The temporary cap will cease when the general cap indexes to $35,000.

1.18 Savings invested in superannuation are not generally taxed at an individual's personal tax rate. Instead, contributions and earnings are generally taxed at a concessional flat rate of 15 per cent (below most individuals' personal tax rate) in the accumulation phase.

1.19 To ensure that the fiscal cost of the concessions is sustainable, annual caps are placed on the amount of concessional contributions that an individual can make without being subject to higher rates of tax under the excess contributions tax provisions. Currently, all individuals can make concessional contributions of up to $25,000 per annum without incurring a liability for excess contributions tax.

Human rights implications

Non-discrimination

1.20 Schedule 1 engages the right to non-discrimination contained in articles 26 of the International Covenant on Civil and Political Rights (ICCPR).

1.21 Article 26 of the ICCPR provides that all persons are equal before the law and are entitled without any discrimination to the equal protection of the law. In this respect, article 26 provides that the law shall prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. The UN Human Rights Committee has not attempted to define the term 'other status', however it is considered to include age.

1.22 The temporary higher cap will encourage older Australians to improve the adequacy of their retirement savings at a time in their lives when they are often better placed to make additional contributions to their superannuation. In addition, it recognises that these individuals may not have received superannuation contributions throughout their working life as the superannuation guarantee arrangements were progressively introduced from 1992.

Conclusion

1.23 Schedule 1 is compatible with human rights because to the extent it engages and limits the right to non-discrimination, that limitation is considered reasonable, necessary and proportionate to achieve the policy objective of improving retirement incomes for older Australians.

Minister for Financial Services and Superannuation, the Hon Bill Shorten

Chapter 2 - Low income superannuation contribution: technical amendments

Outline of chapter

2.1 Schedule 2 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Co-contribution Act) in order to make a number of technical changes to ensure the low income superannuation contribution (LISC) operates effectively.

2.2 All references to legislative provisions in this chapter are references to the Co-contribution Act unless otherwise stated.

Context of amendments

2.3 Currently, concessional contributions to superannuation are taxed at 15 per cent regardless of the individual's relevant marginal income tax rate (which may be lower than 15 per cent). As a result, individuals who have a marginal tax rate below 15 per cent pay more tax on these concessional contributions than if they had received the money as salary or wages and paid tax at their marginal income tax rate.

2.4 In order to address this inequity, the LISC was introduced in 2012 as part of the Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Act 2012 and applies from the 2012-13 income year.

2.5 The LISC is a payment that is designed to give a tax concession to low income earners and effectively refunds the tax paid on concessional contributions (such as superannuation guarantee payments, salary sacrificed amounts and an individual's personal contributions that are deducted) for low income earners with an adjusted taxable income (ATI) at or below $37,000. The maximum amount of this annual payment is $500.

2.6 The LISC will boost the superannuation savings of an estimated 3.6 million individuals for concessional contributions for the 2012-13 income year. This is equivalent to 30 per cent of workers who in 2009-10 only received around 1.2 per cent of superannuation concessions.

2.7 In order to ensure that the LISC operates equitably and according to its original policy intent some technical amendments are required to the existing LISC provisions.

2.8 The tax-free threshold for 2012-13 was raised from $6,000 to $18,200. With the increase in the tax-free threshold, an estimated one million additional low income earners are no longer required to lodge an income tax return. As a result, the Commissioner of Taxation (the Commissioner) will not receive income tax return information to assess eligibility for the LISC for these individuals.

2.9 The policy intent for the LISC when it was initially introduced was that individuals who are not required to submit an income tax return (for example, as they earn below the tax-free threshold) would receive the LISC based on information held by the Australian Taxation Office (ATO) about their eligibility.

2.10 The proposed amendments are required so that these individuals (where they are eligible) are entitled to the LISC without having to lodge an income tax return.

2.11 Technical amendments are also required to enhance the operation of the LISC, ensure all concessional contributions (including allocations from reserves and notional taxed contributions) are eligible for the payment and to ensure that this payment operates effectively and according to its policy intent.

Summary of new law

2.12 Schedule 2 to this Bill amends the Co-contribution Act in order to make a number of technical changes to ensure the LISC operates effectively and as intended.

2.13 Predominantly, this measure includes a technical change to introduce an estimations process that allows the Commissioner to determine a person's eligibility for the LISC.

2.14 This estimations process will be triggered when the Commissioner has insufficient information to make the determination under the existing eligibility provisions and has not already made a determination after 12 months following the relevant income year. This will allow the Commissioner to pay the LISC for low income earners (determined from third party data) who are eligible for the LISC but are not required to lodge an income tax return as intended when the LISC was first introduced.

2.15 The measure will also make technical changes to:

•

ensure that all concessional contributions for a year attract LISC, including allocations from reserves and notional taxed contributions;

•

replace the existing minimum payment rule so that any individual that is entitled to less than $10 of LISC will have their entitlement rounded up to $10;

•

enable the Commissioner to not rectify small overpayments and underpayments of the LISC that are less than $10; and

•

require tabling of quarterly and annual Parliamentary reports on the LISC with details to be specified in the regulations.

Comparison of key features of new law and current law

Detailed explanation of new law

2.16 There are five technical amendments to the LISC provisions in the Co-contribution Act which will enhance the operation of the LISC and ensure that this payment operates effectively according to its policy intent. These technical amendments include:

•

introducing an estimations process for ascertaining LISC eligibility for those taxpayers who do not need to lodge an income tax return;

•

ensuring all concessional contributions, including allocations from reserves and notional taxed contributions, attract LISC;

•

replacing the existing minimum payment rule;

•

preventing small overpayments and underpayments of LISC; and

•

introducing quarterly and annual Parliamentary reporting requirements.

Estimations process for LISC eligibility

2.17 When the LISC was introduced it was intended that when an individual does not lodge an income tax return, the Commissioner would determine eligibility for the LISC based on the information available to the ATO.

2.18 Consequently, it was intended that the Commissioner would be able to make a LISC payment on behalf of the individual if the Commissioner was reasonably satisfied that an individual was eligible for the payment based on the information the ATO held for the individual.

2.19 However, based on the current wording of the eligibility provisions in the Co-contribution Act, the Commissioner could breach his or her obligations under the Financial Management and Accountability Act 1997 unless there was a specific provision permitting the Commissioner to estimate entitlement to the LISC as a basis for making the payment.

2.20 To rectify this situation and ensure the Commissioner can pay LISC on behalf of those low income earners who are not required to lodge an income tax return, a technical amendment is required to be made to the LISC provisions to permit the Commissioner to estimate eligibility for the LISC.

Structure of the estimations process

2.21 Currently, the Commissioner determines eligibility for LISC under the existing provisions in section 12C (the 'standard process') which requires the Commissioner to establish that the individual:

•

has concessional contributions for the year;

•

has an ATI that does not exceed $37,000;

•

is not a holder of a temporary resident visa; and

•

satisfies an income test in which 10 per cent or more of their total income is derived from business or employment (known as the '10 per cent eligible income test').

2.22 The Commissioner will be required to determine eligibility for the LISC under the standard process until the estimations process is triggered.

Triggering the estimations process

2.23 The estimations process is triggered if, after 12 months following the relevant income year, the Commissioner reasonably believes that there is insufficient information to decide whether or not to make a determination that the LISC is payable (under the standard process) for that individual in respect to the relevant income year. [Schedule 2, item 7, paragraph 12C(2)(b)]

Example 2.3

In the 2012-13 income year Oskar was a low income earner with taxable income below the tax free threshold and met the eligibility requirements for the LISC. However, because he is not required to lodge an income tax return, the Commissioner does not have sufficient information to be satisfied that Oskar is entitled to the LISC under the standard process.

For that reason, 12 months after the end of the 2012-13 income year the estimations process is triggered in respect to Oskar. At that point in time, the Commissioner (who has insufficient information to determine eligibility for the LISC based on the standard process), is able to use the estimations process to determine Oskar's eligibility for the LISC using information he or she holds on Oskar from other sources.

2.24 What is considered insufficient information will be at the discretion of the Commissioner. However, it is intended to mean that the Commissioner does not, at that point in time, have within his or her possession all the information that is required for him or her to be satisfied that the individual is eligible for the LISC. The required information may include (but is not limited to) the income tax return, the member contribution statement, the payment summary for the individual, reports from other government agencies on government payments, child maintenance expenditure, or even outcomes from audits or compliance activity that is outstanding.

2.25 If a determination is not made within 12 months following the end of the income year because the Commissioner decides the individual is not entitled to the LISC, then the estimations process is not triggered. It can only be triggered when the 12 months has passed and the Commissioner has insufficient information to decide whether or not to make a determination that LISC is payable (because the Commissioner cannot be satisfied about eligibility).

Example 2.4

In the 2012-13 income year Ash had a taxable income of $140,000 and consequently lodged his income tax return for that year.

The Commissioner established that Ash was not entitled to the LISC under the standard process after receiving information from his employer and having regard to his income tax return, but did not make a determination as it cannot be made unless the individual is entitled to the LISC.

After 12 months following the end of the 2012-13 income year Ash has not received a LISC determination, however, the estimations process is not triggered because in Ash's case the Commissioner has sufficient information to know that a determination does not need to be made.

Determining eligibility for the LISC under the estimations process

2.26 Once the estimations process has been triggered, the Commissioner can then determine eligibility for the LISC which requires the Commissioner to estimate that the individual:

•

has an ATI that does not exceed $37,000; and

•

satisfies the 10 per cent eligible income test.

[Schedule 2, item 7, paragraph 12C(2)(c)]

2.27 Under this process, the Commissioner will also be required to ensure that the individual has concessional contributions for the year and is not a holder of a temporary resident visa in the same way as the standard process. [Schedule 2, item 7, paragraphs 12C(2)(a) and 12C(2)(d)]

Estimating ATI of the individual

2.28 ATI for the purposes of the LISC 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 pension or benefit, reportable superannuation contributions less any deductible child maintenance expenditure for that year. [Schedule 2, item 7, subparagraph 12C(2)(c)(i)]

2.29 When estimating the ATI of the individual, the Commissioner must do so on the basis of evidence or information or methods reasonably available to him or her.

2.30 The information that the Commissioner may consider when estimating the individual's ATI may include a broad range of information that is already held by the Commissioner and available to him or her about the individual.

2.31 For example, this may include information that has been collected for another purpose, information from other agencies with respect to the components of an individual's ATI and an individual's member contribution statement.

2.32 The Commissioner can also use information relating to an individual's tax file number (TFN) if this has been provided to the Commissioner for another purpose.

2.33 Additionally, when estimating whether an individual's ATI exceeds $37,000, the Commissioner may treat the individual as having total deductions of $300 for the relevant income year, unless, the Commissioner has information to the contrary. Such information may indicate that the individual has a greater or smaller amount of deductions for that income year. [Schedule 2, item 7, subsection 12C(4)]

2.34 This deduction presumption is included to assist the Commissioner in making the estimation of the ATI. The taxable income component of the ATI requires the Commissioner to determine the assessable income minus the total deductions. However, as will often be the case when using the estimations process, the Commissioner will not have the individual's income tax return which is usually the primary source to determine deductions of an individual.

2.35 For that reason, this presumption allows the Commissioner to estimate the ATI on the basis of the total work related expense deductions for low income earners that are not subject to substantiation under the taxation law. If the Commissioner has any information that the individual has a higher or lower amount of total deductions, the presumption will be rebutted and the Commissioner will estimate the ATI using the deduction information at hand.

Example 2.5

In the 2012-13 income year, Celia worked as a part-time employee. Celia pays union fees and arranges to deduct $20 from each fortnightly pay for the fees.

Amongst other information, Celia's payment summary for 2012-13 recorded $520 for the year in union fees paid. As union fees are deductible, the Commissioner may take this into account in estimating Celia's adjusted taxable income instead of presuming a deduction of $300.

Estimating the 10 per cent eligible income test

2.36 The 10 per cent eligible income test for the purposes of the standard process requires the individual to have 10 per cent or more of their total income attributable to employment-related activities.

2.37 When estimating the 10 per cent eligible income test, the Commissioner would effectively first come to a view that the person has income from engaging in the activities covered under subsection 6(2) and then 'estimate' that 10 per cent of the person's total income is attributable to those activities.

2.38 However, unlike the standard process, when coming to the view that the person engaged in the employment-related activities, the Commissioner is not required to determine that the individual engaged in those employment-related activities during the relevant income year that contribution was made in. [Schedule 2, item 7, subsection 12C(5)]

2.39 This change assists the Commissioner in making the estimation. This is because in lieu of sufficient information it would be difficult to ascertain with any certainty that the employment-related activities were undertaken in the relevant income year that the contribution was made.

Making the determination that the LISC is payable based on the estimations process

2.40 If the estimations process has been triggered and the Commissioner has estimated the individual is eligible for LISC, then under the existing provisions (section 13 of the Co-contribution Act), the Commissioner must make a determination that LISC is payable in respect of that individual for the relevant income year.

2.41 To facilitate this process a minor amendment has been made to the determination provisions to ensure that in making the determination the Commissioner is not required to have regard to the income tax return of the individual lodged for that income year as is currently required when the Commissioner is considering eligibility for the LISC under the standard process. [Schedule 2, item 3, subsection 12B(3)] Consequences if the estimation is no longer accurate

2.42 A determination that the LISC is payable under the estimations process will be taken to never have been made if, after making the determination, the Commissioner obtains further information that leads the Commissioner to decide that had that information been obtained before making the determination, a determination would not have been made under the estimations process. [Schedule 2, item 13, section 12F]

2.43 This will allow the Commissioner to treat an estimations-based determination as never have being made if, subsequent to making the determination, the Commissioner receives further information that evidences that the individual was never entitled to receive a LISC payment.

2.44 There can only be one determination of eligibility for the LISC, either under the standard process or the estimations process. This provision allows the Commissioner to revisit the determination when eligibility was derived using the estimations process, if the further information received by the Commissioner leads him or her to decide that no determination should have been made.

2.45 Where that further information leads the Commissioner to decide that a smaller or larger amount of LISC is payable, then the overpayment and underpayment provisions in sections 19 and 24 will apply normally based on the Commissioner making a re-estimation under the estimations process.

Ensuring all concessional contributions, including allocations from reserves and notional taxed contributions, attract LISC

2.46 The LISC was intended to apply to all concessional contributions of a person, including allocations from reserves and notional tax contributions.

2.47 However, there is some ambiguity in the existing LISC provisions as to whether it applies to those kinds of contributions. The ambiguity is based on whether the terminology of the existing LISC provisions that refer to 'contributions made by, or for' a person include allocations from reserves or notional tax contributions which are not always able to be described as 'contribution' that is 'made'.

2.48 The key ambiguity with this terminology stems from allocations from reserves being made to the superannuation fund in one year but allocated in another year. Also, some allocations may not necessarily come from 'contributions'. Additionally, notional taxed contributions may not be based on actual 'contributions' 'made' to a fund.

2.49 To overcome this situation and provide clarity to those individuals who receive allocations from reserves and notional taxed contributions the wording in the LISC provisions are altered to refer to a person's 'concessional contribution'. [Schedule 2, items 6 and 7, paragraphs 12C(1)(a) and 12C(2)(a)]

2.50 The term 'concessional contribution' takes its meaning from the Income Tax Assessment Act 1997 and includes, amongst other amounts, allocations from reserves and notional taxed contributions. [Schedule 2, item 14, section 56]

2.51 This measure also makes some consequential amendments as a result of including allocations from reserves and notional tax contributions by removing the current section 12D and moving the content of that provision into the relevant eligibility provisions. [Schedule 2, items 8 and 10]

Preventing small overpayments and underpayments of LISC

2.52 Under the existing LISC provisions, the Commissioner may be liable to pay underpayments and recover overpayments directly from individuals or funds that the LISC payment was made into.

2.53 However, there are significant administrative costs when the Commissioner is required to pay or recover very small amounts as a consequence of underpayments or overpayments. These types of situations are not likely to be common.

2.54 To alleviate this administrative burden these amendments will ensure that overpayments and underpayments will not occur for amounts under $10. [Schedule 2, item 12, subsections 12E(3) and (4)]

Replacing the existing minimum payment rule

2.55 Under the current LISC provisions, there is a minimum payment rule that applies so that if the amount of LISC payable is less than $20, then no LISC is paid in respect of the individual.

2.56 However, these amendments will change the minimum payment rule so that any individual who is entitled to be paid less than $10 of LISC on their behalf will have their entitlement rounded up to $10. [Schedule 2, item 11, paragraph 12E(2)(c)]

2.57 Unlike the overpayments and underpayments (which do not apply to amounts under $10 because of the administrative costs of paying or recovering those small amounts), the minimum payment rule will require the Commissioner to pay out LISC payments of no less than $10 on an initial determination of eligibility which will be undertaken for every taxpayer.

Quarterly and annual parliamentary reporting requirements

2.58 The reporting requirements that apply to co-contributions under section 54 of the Co-contribution Act do not currently apply to LISC.

2.59 However, to ensure that Parliament is kept informed of how LISC is operating and details about how much LISC is being paid these amendments will introduce a requirement that the Commissioner must give the Minister a quarterly and annual report to be tabled in Parliament regarding the LISC. [Schedule 2, item 13, section 12G]

2.60 Both the quarterly and annual reports must include information about the beneficiaries of, and amounts of, LISC with the details of that information to be prescribed in the regulations.

Application date

2.61 These amendments apply to the 2012-13 income year and later income years. [Schedule 2, item 15]

2.62 These amendments apply retrospectively, however, payments of LISC are not made until after the end of the 2012-13 income year so the practical effect of these amendments is that they apply prospectively to ensure the law operates as intended.

Consequential amendments

2.63 In order to give effect to this measure a number of consequential amendments are required to various LISC provisions. [Schedule 2, items 1, 2, 4, 5 and 9]

2.64 These consequential amendments are very minor in nature and predominantly include wording changes to headings and other provisions to give effect to the amendments required by this measure.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Low income superannuation contribution: technical amendments

2.65 Schedule 2 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 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

2.66 Schedule 2 to this Bill amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 in order to make a number of technical changes to ensure the low income superannuation contribution (LISC) operates effectively.

Human rights implications

2.67 This Bill does not engage any of the applicable rights or freedoms.

Conclusion

2.68 This Bill is compatible with human rights as it does not raise any human rights issues.

Minister for Financial Services and Superannuation, the Hon Bill Shorten

Chapter 3 - Sustaining the superannuation contribution concession: context and overview

Outline of chapter

3.1 Schedule 3 to the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 reduces the tax concession that individuals with income above $300,000 receive on their concessional superannuation contributions from 30 per cent to 15 per cent by imposing tax under Division 293 of the Income Tax Assessment Act 1997. It also amends the Income Tax (Transitional Provisions) Act 1997, the Taxation Administration Act 1953, the Superannuation (Resolution of Complaints) Act 1993 and a number of Acts which govern the operation of some of the Commonwealth defined benefit superannuation schemes.

3.2 Superannuation contributions that are potentially affected are concessional contributions (low tax contributions) to interests other than defined benefit interests (accumulation interests) and defined benefit contributions, other than contributions that are subject to excess contributions tax. Certain contributions to interests in constitutionally protected funds, including employer contributions and defined benefit contributions, are also potentially impacted by the change. Special rules apply to certain Commonwealth judges and justices, and certain State higher level office holders.

3.3 The amendments apply in relation to contributions in respect of very high income earners made on or after 1 July 2012.

Context of amendments

3.4 High income earners receive a significantly larger tax concession on superannuation contributions than average income earners. Concessional contributions that are included in the assessable income of superannuation funds are subject to a flat rate of tax of 15 per cent regardless of the income of the individual members of the fund. If the superannuation contributions made for the individual had instead been included in their salary and wages or business income, the high income earning individual would have been taxed on this income at a marginal income tax rate of 45 per cent (excluding the Medicare levy). As a result, currently these individuals effectively receive a 30 per cent tax concession (excluding the Medicare levy) on their superannuation contributions. In contrast, average income earners are subject to a marginal tax rate of 32.5 per cent (excluding the Medicare levy) and effectively receive a 17.5 per cent tax concession (excluding the Medicare levy) on their superannuation contributions.

3.5 These amendments give effect to the 2012-13 Budget measure, 'Superannuation - reduction of higher tax concession for contributions of very high income earners' announced by the Minister for Financial Services and Superannuation on 8 May 2012 in Media Release No. 024 of 8 May 2012.

3.6 The sustaining the superannuation contribution concession measure improves the fairness of the taxation system by ensuring the tax concession received by those individuals earning more than $300,000 is more closely aligned with the concession received by average income earners.

3.7 Only around 1.2 per cent - 129,000- people contributing to super in 2012-13 will be affected by the reduced superannuation concession.

3.8 In general, the tax concession for very high income earners with contributions made to an interest other than a defined benefit interest or notional contributions in respect of a defined benefit interest is reduced from 30 per cent to 15 per cent (excluding the Medicare levy) by these changes. It is estimated that these changes will only impact around 1.2 per cent of individuals with contributions to superannuation in 2012-13.

3.9 Individuals whose total income for surcharge purposes (other than reportable superannuation contributions) and concessionally taxed superannuation contributions for an income year are above $300,000 are affected by the change. Income for surcharge purposes is a measure of income similar to that used to assess if individuals are liable for the Medicare levy surcharge. Reportable superannuation contributions are deducted from income for surcharge purposes to avoid double counting.

3.10 Individuals affected by the change are liable to pay an amount of 15 per cent of the total of concessionally taxed contributions, including defined benefit contributions, which exceed $300,000. There are some exceptions to this rule in respect of certain Commonwealth judges and justices, and certain State higher level office holders.

3.11 Broadly, superannuation contributions which attract tax concessions to which the changes apply include:

•

employer contributions to accumulation interests;

•

personal contributions which are claimed as an income tax deduction, generally claimed by the self-employed; and

•

notional employer contributions for defined benefit interests (valued by an actuary).

3.12 Contributions that are subject to excess contributions tax in the form of either excess concessional contributions tax and/or excess non-concessional contributions tax do not attract a tax concession. Accordingly, they are not included in amounts of low tax contributions to which these changes apply.

3.13 This measure complements the low income superannuation contribution measure, which, from 1 July 2012 effectively refunds the income tax paid by superannuation providers (capped at $500 each year) on concessional contributions for individuals with adjusted taxable income up to $37,000. These individuals previously received limited or no tax concessions on their superannuation contributions.

3.14 On 5 April 2013, the Government announced further reforms to make the superannuation system fairer, including reforming the tax exemption for earnings on superannuation assets supporting income streams. In addition, individuals will be taxed at their marginal personal tax rate (rather than the top marginal tax rate) on any excess concessional contributions made from 1 July 2013 plus an interest charge. These changes are not reflected in Schedules 3 or 4 of the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 or Chapters 3 to 6 of this explanatory memorandum.

Constitutional issues

State higher level office holders

3.15 The High Court ruled that the Commonwealth could not impose the superannuation contributions tax (surcharge) under legislation that was enacted in 1997 on contributions to constitutionally protected funds for State higher level office holders.

3.16 Constitutionally protected funds are operated by some state governments for their employees. These funds do not pay income tax on contributions or earnings they receive.

3.17 However, the Commonwealth has legislative power to impose tax on contributions made to a superannuation interest in a constitutionally protected fund, where those contributions are salary packaged contributions made in respect of constitutionally protected State higher level office holders. Accordingly, contributions (including defined benefit contributions) that are not salary packaged contributions made to a constitutionally protected fund by a State on behalf of individuals identified in the regulations (constitutionally protected State higher level office holders) are not subject to Division 293 tax.

3.18 Therefore, these amendments impose Division 293 tax on such salary packaged contributions to an interest in a constitutionally protected fund made in respect of constitutionally protected State higher level office holders.

Commonwealth justices and judges

3.19 The Constitution requires justices and judges of the High Court, and of other courts created by the Parliament, to receive such remuneration as determined by the Parliament and prevents the remuneration being reduced during their period in office. The imposition of Division 293 tax may in effect constitute a diminution of judicial remuneration in cases where certain defined benefit pension entitlements form part of their remuneration.

3.20 Accordingly, these amendments do not impose Division 293 tax on the contributions in respect of a defined benefit interest in a superannuation fund established under the Judges' Pensions Act 1968.

Summary of new law

3.21 Division 293 tax is imposed at a rate of 15 per cent on very high income earners whose income and relevant concessionally taxed superannuation contributions (referred to as low tax contributions) exceed $300,000 for an income year.

3.22 Special rules for working out Division 293 tax apply to:

•

individuals with defined benefit interests;

•

State higher level office holders with superannuation contributions to constitutionally protected funds; and

•

Commonwealth justices and judges in respect of contributions for a defined benefit interest in a superannuation fund established under the Judges' Pensions Act 1968.

3.23 The amount of Division 293 tax is assessed by the Commissioner of Taxation (Commissioner) and is generally due and payable within 21 days of the Commissioner giving the notice of assessment. For defined benefit interests, Division 293 tax is generally deferred for payment until 21 days after the first benefit is paid from the interest. Individuals are authorised to have amounts released from certain superannuation interests to facilitate payment of Division 293 tax.

Comparison of key features of new law and current law

Chapter 4 - Sustaining the superannuation contribution concession: calculation and imposition

Outline of chapter

4.1 This Chapter explains how Division 293 tax is worked out and imposed under the tax law.

Summary of new law

4.2 Division 293 tax is payable by individuals whose combined income for surcharge purposes (other than reportable superannuation contributions) and concessionally taxed contributions - low tax contributions-for an income year exceed $300,000. The amount of tax payable is 15 per cent of the amount of low tax contributions that exceed the $300,000 threshold.

4.3 Division 293 tax does not apply to:

•

non-concessional contributions as they do not receive concessional tax treatment;

•

concessional contributions that are subject to excess concessional contributions tax or refunded excess contributions that are disregarded by the Commissioner of Taxation (Commissioner) for the purposes of excess contributions tax;

•

State higher level office holders in respect of contributions to constitutionally protected funds (unless the contributions are salary packaged contributions); and

•

Commonwealth justices and judges in respect of contributions for a defined benefit interest in a superannuation fund established under the Judges' Pensions Act 1968.

4.4 The Commissioner makes assessments of Division 293 tax. Where Division 293 tax relates to defined benefit interests, payment of the tax is deferred until a superannuation benefit is paid from the interest.

4.5 Former temporary residents who receive a departing Australia superannuation payment to which withholding tax applies are eligible for a refund of the amount of any Division 293 tax paid and release from liability for Division 293 tax, as they effectively do not receive any concessional tax treatment on their contributions to superannuation.

Detailed explanation of new law

4.6 The object of the Division 293 tax is to reduce the concessional tax treatment of superannuation contributions for very high income earners. [Schedule 3, Part 1, item 1, Subdivision 293-A of the Income Tax Assessment Act 1997 (ITAA 1997)]

Overview

Imposition of the Division 293 tax and severability

4.7 For constitutional reasons, a separate Bill imposes liability for Division 293 tax on individuals who have taxable contributions in an income year. [Item 4 of the Superannuation (Sustaining the Superannuation Contribution Concession) Imposition Bill 2013 (SSSCCI Bill)]

4.8 Division 293 tax does not apply if the imposition of the tax on an individual exceeds the legislative power of the Commonwealth. This ensures that the amendments cannot be invalid because they seek to impose Division 293 tax in circumstances which are not within the Commonwealth's legislative power under the Constitution. [Item 6 of the SSSCCI Bill, and Schedule 3, Part 1, item 1, subsection 293-145(3) and 293-190(3) of the ITAA 1997]

What is the rate of tax?

4.9 Division 293 tax applies at a rate of 15 per cent of an individual's taxable contributions (see paragraph 4.21) for an income year. [Item 5 of the SSSCCI Bill]

Who is liable for the tax?

4.10 Individuals are liable to pay the tax if they have taxable contributions for an income year. [Schedule 3, Part 1, item 1, section 293-15 of the ITAA 1997]

4.11 The meaning of income year and taxable contributions in the SSSCCI Bill take their meaning from the ITAA 1997. [Item 3 of the SSSCCI Bill]

Working out Division 293 tax

4.12 Broadly, an individual has a liability for Division 293 tax for an income year if their income for surcharge purposes (less reportable superannuation contributions) and low tax contributions for a corresponding financial year exceed $300,000 (see Diagram 4.1).

4.13 Income for surcharge purposes is similar to the income test used for determining whether an individual is liable for the Medicare levy surcharge. For an individual whose only superannuation interests are interests that are not defined benefit interests (accumulation interests) and not interests in constitutionally protected funds, low tax contributions are low tax contributed amounts (effectively concessional contributions) less any excess concessional contributions. As accumulation interests are much more common than defined benefit interests (and constitutionally protected funds are uncommon), this method applies in the majority of cases.

4.14 This general method for calculating an amount of low tax contributions is modified by special rules in respect of:

•

individuals with defined benefit interests, where the individual's low tax contributions are low tax contributed amounts to any accumulation interests, plus any defined benefit contributions, less any excess concessional contributions (the method of calculating defined benefit contributions is to be set out in regulations);

•

certain State higher level office holders, whose low tax contributions are low tax contributed amounts plus defined benefit contributions (except for contributions in respect of constitutionally protected funds that are not made as part of a salary package arrangement), less any excess concessional contributions; and

•

certain Commonwealth justices and judges whose low tax contributions are low tax contributed amounts plus defined benefit contributions (except defined benefit contributions for a defined benefit interest in a superannuation fund established under the Judges' Pensions Act 1968), less any excess concessional contributions.

4.15 Taxable contributions are the lower of:

•

the amount of low tax contributions; and

•

the sum of income for surcharge purposes (less reportable superannuation contributions) and low tax contributions above the $300,000 threshold.

4.16 However, if an individual does not have low tax contributions (that is, if the amount of low tax contributions is zero) then there are no taxable contributions and no liability arises for Division 293 tax.

4.17 The Commissioner makes an assessment of Division 293 tax payable for each income year for an individual equal to 15 per cent of taxable contributions.

4.18 Former temporary residents who receive a departing Australia superannuation payment are entitled to a refund of any Division 293 tax that they have paid and the Commissioner may release these individuals, in whole or part, from any existing or future liability for Division 293 tax.

When does an individual have taxable contributions?

4.19 Individuals have taxable contributions if their combined income and low tax contributions for an income year exceed $300,000.

4.20 In particular, an individual has taxable contributions if they have low tax contributions and the sum of:

•

the amount of their income, measured as income for surcharge purposes less reportable superannuation contributions for an income year; and

•

the amount of low tax contributions for the corresponding financial year;

exceeds $300,000.

[Schedule 3, Part 1, item 1, subsection 293-20(1) of the ITAA 1997]

4.21 The amount of taxable contributions is the lesser of:

•

the amount of low tax contributions; and

•

the amount of the excess of the sum over the $300,000 threshold.

[Schedule 3, Part 1, item 1, subsection 293-20(1) of the ITAA 1997]

4.22 The calculation ensures that the tax applies to low tax contributions only to the extent that they exceed the $300,000 threshold when added to income for surcharge purpose (other than reportable superannuation contributions). Accordingly, even if an individual has income exceeding the $300,000 threshold but does not have low tax contributions, the individual is not liable for Division 293 tax. This reflects that the measure applies to low tax contributions to the extent the $300,000 threshold is exceeded. [Schedule 3, Part 1, item 1, subsection 293-20(2) of the ITAA 1997]

Example 4.6 : Determining the amount of taxable contributions

Low tax contributions equal to taxable contributions (Case 1)

David's income (income for surcharge purposes other than reportable superannuation contributions) is $315,000 for an income year and his low tax contributions are $25,000 for the corresponding financial year.

David's combined income and low tax contributions are $340,000, being $315,000 (income for surcharge purposes other than reportable superannuation contributions) plus $25,000 (low tax contributions).

As the amount of low tax contributions ($25,000) is lower than the amount of combined income and low tax contributions ($340,000) that exceed the $300,000 threshold (that is, the excess is $40,000), the amount of taxable contributions for the income year is the amount of low tax contributions, that is $25,000.

For an illustration of David's case see Diagram 4.2 (Case 1).

Taxable contributions are lower than low tax contributions (Case 2)

Sabina's income (income for surcharge purposes other than reportable superannuation contributions) is $285,000 for an income year and her low tax contributions are $25,000 for the corresponding financial year.

Sabina's combined income and low tax contributions are $310,000, being $285,000 (income for surcharge purposes other than reportable superannuation contributions) plus $25,000 (low tax contributions).

The amount of low tax contributions ($25,000) is greater than the excess of the amount of combined income and low tax contributions over the $300,000 threshold. The excess equals $10,000 ($310,000 less $300,000).

Hence, Sabina's taxable contributions are $10,000.

For an illustration of Sabina's case see Diagram 4.2 (Case 2).

Working out income

4.23 The purpose of the $300,000 threshold is to ensure that Division 293 tax only applies to very high income earners with low tax contributions in an income year. The amendments use a broad based concept of income to ensure that various forms of income are included and to ensure that Division 293 tax cannot be reduced or avoided by manipulating taxable income by, for example, entering into salary packaging arrangements.

4.24 Income for surcharge purposes is the concept of income that is similar to the test used for determining whether an individual is liable to pay the Medicare levy surcharge. Income for surcharge purposes is defined in section 995-1 of the ITAA 1997. Broadly:

•

it includes:

-

an individual's taxable income (including the net amount on which family trust distribution tax has been paid);

-

reportable superannuation contributions;

-

reportable fringe benefits; and

-

total net investment loss (includes both net financial investment loss and net rental property loss); but

•

it excludes the taxed element of the taxable component of a superannuation lump sum benefit, other than a death benefit, up to the low rate cap amount ($175,000 in the 2012 -13 income year) for individuals aged 55 to 59.

4.25 Reportable superannuation contributions are defined in section 995-1 of the ITAA 1997. Broadly, reportable superannuation contributions consist of:

•

reportable employer superannuation contributions (essentially, contributions that could have been received by an employee as income if they had chosen; for example, salary sacrificed superannuation contributions, annual bonuses paid as superannuation contributions or higher superannuation contributions as a result of individual contracts); and

•

personal superannuation contributions made by self-employed and other eligible individuals for which an income tax deduction is claimed.

4.26 For the purposes of the $300,000 threshold, the amount of income for surcharge purposes is reduced by reportable superannuation contributions because reportable superannuation contributions are already included in low tax contributions. This avoids double counting of those contributions.

Working out low tax contributions

4.27 To determine whether an individual has taxable contributions for an income year, the amount of low tax contributions for the corresponding financial year needs to be determined.

4.28 Low tax contributions are effectively concessionally taxed contributions generally made for an individual to an interest held by a superannuation provider.

4.29 The amount of an individual's low tax contributions for a financial year is worked out under:

•

the general rules that apply to individuals with contributions made or amounts allocated to accumulation interests, which are the majority of cases; and

•

the special rules that apply to:

-

individuals with defined benefit interests;

-

certain State higher level office holders; and

-

certain Commonwealth justices and judges.

4.30 The calculation of low tax contributions by the Commissioner for individuals under the general and the special rules is outlined below. This commentary includes examples of situations in which individuals hold only an accumulation interest or interests, hold only a defined benefit interest or interests, and where individuals hold both types of interests. The examples also take into account whether or not the individuals have excess concessional contributions.

General rules - individuals with accumulation interests

4.31 When individuals have only concessionally taxed contributions in respect of accumulation interests, the amount of low tax contributions for a financial year is worked out as follows:

•

low tax contributed amounts for the financial year;

less

•

excess concessional contributions for the financial year (if any).

[Schedule 3, Part 1, item 1, section 293-25 of the ITAA 1997]

Low tax contributed amounts

4.32 Low tax contributed amounts are broadly concessional contributions as defined in section 292-25 of the ITAA 1997, however they:

•

also include contributions to tax exempt constitutionally protected funds that would otherwise be concessional contributions; and

•

exclude notional taxed contributions for defined benefit interests.

[Schedule 3, Part 1, item 1, section 293-30 of the ITAA 1997]

4.33 In effect, in the majority of cases, where individuals only have contributions to accumulation interests (none of which are in constitutionally protected funds), low tax contributed amounts for a financial year equal the amount of concessional contributions for the financial year. They include contributions such as:

•

all employer contributions made on behalf of that individual (including compulsory superannuation guarantee contributions and salary sacrificed amounts); and

•

personal contributions made by that individual that are tax deductible (generally restricted to eligible self-employed persons).

Example 4.7 : Calculation of low tax contributions - superannuation interest that is an accumulation interest

Maria's only superannuation interest is an accumulation interest. Concessional contributions made on Maria's behalf to her superannuation interest in the fund are $21,000 in the 2012-13 financial year.

Maria's low tax contributions are $21,000 in 2012-13, being her concessional contributions.

No further calculations are required to work out Maria's low tax contributions because:

•

Maria has only concessional contributions in respect of a superannuation interest other than a defined benefit interest, which means that her low tax contributed amounts equal her amount of concessional contributions;

•

Maria does not have excess concessional contributions as her concessional contributions of $21,000 are lower than the concessional contributions cap for 2012-13 (which is $25,000). Therefore no amount of excess concessional contributions needs to be subtracted from her low tax contributed amounts; and

•

no special rules for working out low tax contributions apply to Maria.

Excess concessional contributions

4.34 Excess concessional contributions are determined under section 292-20 of the ITAA 1997. Broadly, excess concessional contributions are concessional contributions that exceed the individual's concessional contribution cap for the financial year (which is $25,000 for the 2012-13 financial year).

4.35 In general, excess concessional contributions are subject to excess concessional contributions tax. However, in certain circumstances excess concessional contributions can be refunded, and concessional contributions can be disregarded or allocated to another financial year by the Commissioner exercising a discretion for the purposes of excess contributions tax. Whether or not contributions are subject to excess contributions tax, refunded, disregarded or allocated to another year has implications for whether they are included or excluded from low tax contributions and income for surcharge purposes. That is, it will affect whether they are potentially subject to Division 293 tax and whether they are included in the $300,000 threshold. The effect of excess concessional contributions on low tax contributions for the purposes of Division 293 tax is summarised in Table 4.1.

4.36 Non-concessional contributions are not concessionally taxed and therefore are generally not included in low tax contributed amounts. However, there are some concessional contributions that are also non-concessional contributions, for example, excess concessional contributions. Any non-concessional contributions that are disregarded or allocated to another financial year by the Commissioner exercising a discretion are neither included in amounts of low tax contributions nor in income for surcharge purposes. Table 4.1 : Summary of the treatment of excess concessional contributions for the purposes of Division 293 tax^[1]

4.37 Generally, excess concessional contributions are subtracted from low tax contributed amounts in working out low tax contributions to prevent excess concessional contributions from being subject to Division 293 tax. This is because, in general, these contributions are subject to excess concessional contributions tax which effectively removes the concessional tax treatment of the excess concessional contributions by imposing excess concessional contributions tax on them at a rate of 31.5 per cent.

4.38 Similarly, excess concessional contributions are not included in the $300,000 threshold test. This reflects that excess concessional contributions are not included in low tax contributions or in income for surcharge purposes (after excluding reportable superannuation contributions).

Example 4.8 : Calculation of low tax contributions - accumulation interest and excess concessional contributions

Mark only has one superannuation interest. It is not a defined benefit interest. Concessional contributions made on Mark's behalf are $40,000 in the 2012-13 financial year.

Mark has excess concessional contributions of $15,000 (being $40,000 less $25,000) as his concessional contributions cap for the 2012-13 financial year is $25,000.

His low tax contributions are $25,000, being effectively his concessional contributions ($40,000) reduced by his excess concessional contributions ($15,000).

No further calculations are required to work out Mark's low tax contributions because special rules for calculating his low tax contributions do not apply to Mark.

The $15,000 of excess concessional contributions is also not included in the $300,000 threshold to determine whether Mark has taxable contributions. This is because excess concessional contributions are not only excluded from amounts of low tax contributions but also from the income test (income for surcharge purposes less reportable superannuation contributions).

Refunded excess concessional contributions

4.39 When the Commissioner makes a determination under section 292-467 of the ITAA 1997 for the purposes of excess concessional contributions tax, an amount of the excess contributions (reduced by 15 per cent in recognition of the tax paid by the superannuation provider on the contributions) may be released by a superannuation provider. The amount is paid to the Commissioner and the gross amount of the excess contributions is included in the assessable income of the individual. A net amount (if any) is refunded to the individual by the Commissioner after an amended income tax assessment is issued.

4.40 The amount of the excess concessional contributions is disregarded for working out excess concessional contributions subject to excess contributions tax. However, for the purposes of calculating low tax contributions the excess concessional contributions disregarded for the purposes of excess contributions tax continue to be treated as excess concessional contributions and accordingly are deducted from low tax contributed amounts. [Schedule 3, Part 1, item 1, section 293-35 of the ITAA 1997]

4.41 This prevents these disregarded excess concessional contributions from being subject to Division 293 tax. This is because the disregarded contributions are included in an individual's assessable income and are therefore subject to income tax at the individual's marginal tax rate. This removes any concessional tax treatment of those contributions.

4.42 However, the disregarded contributions are included in the $300,000 threshold. This is because, while the disregarded excess concessional contributions are not included in low tax contributions, they are included in income for surcharge purposes (as they are part of assessable income). This reflects that by disregarding them for excess contributions tax, they are included in the assessable income of the individual.

Example 4.9 : Calculation of low tax contributions - accumulation interests and refunded excess concessional contributions

Assume the same facts as Example 4.3, except that Mark's concessional contributions (and therefore his low tax contributed amounts) are $30,000.

Mark has excess concessional contributions of $5,000.

Mark accepts an offer by the Commissioner to have the excess concessional contributions disregarded for excess contributions tax and instead included in his assessable income. His fund releases 85 per cent of the amount of his excess contributions to the Commissioner and the Commissioner later refunds part of that amount to him.

His low tax contributions are still $25,000, because his contributed amounts ($30,000) are reduced by the amount of disregarded excess concessional contributions ($5,000) as they are treated the same as other excess concessional contributions for the purpose of determining low tax contributions. The fact that the $5,000 was disregarded as being excess concessional contributions as the Commissioner made a determination and Mark is not liable for excess contributions tax on those contributions is ignored.

However, the $5,000 is included in Mark's assessable income and thus in income for surcharge purposes, so it is part of the $300,000 threshold to determine whether Mark has taxable contributions. There is no double counting as the amount is not included in low tax contributions.

Disregarded and reallocated excess concessional contributions

4.43 When the Commissioner makes a determination under section 292-465 of the ITAA 1997 for the purposes of excess contributions tax, an amount of concessional contributions for a financial year can be disregarded for the purposes of excess contributions tax or allocated instead to another year.

4.44 However, the disregarded amounts are not included in excess concessional contributions (or subject to excess concessional contributions tax) and consequently are not subtracted from low tax contributed amounts. This ensures that amounts of concessional contributions that are disregarded for excess contributions tax are included in low tax contributions and makes them potentially subject to Division 293 tax.

4.45 Those disregarded amounts are included in the $300,000 threshold test.

Example 4.10 : Calculation of low tax contributions - accumulation interests and disregarded concessional contributions

Assume the same facts as Example 4.3, except that Mark's concessional contributions are $27,000 in the 2012-13 financial year.

Mark has excess concessional contributions of $2,000. However, the Commissioner makes a determination to disregard an amount of $2,000 of concessional contributions for the purposes of excess contributions tax. Mark therefore has no excess concessional contributions as a result of the Commissioner's determination.

Mark's low tax contributions are $27,000. This is because the $2,000 disregarded concessional contributions for the purposes of excess contributions tax are still part of low tax contributed amounts (for Mark, effectively concessional contributions) as they still receive concessional tax treatment. As Mark has no excess concessional contributions his low tax contributions are equal to his low tax contributed amounts.

As the $2,000 disregarded concessional contributions are included in low tax contributions, they are also included in the $300,000 threshold to determine whether Mark has taxable contributions.

4.46 Where the Commissioner makes a determination to reallocate concessional contributions from one financial year to another financial year for the purposes of excess contributions tax, those contributions are:

•

included in low tax contributed amounts in the year that they are made in determining low tax contributions;

•

not included in excess concessional contributions in the year that they are made and consequently are not subtracted from low tax contributed amounts for determining low tax contributions for that year; and

•

not included in low tax contributed amounts for determining low tax contributions for the year they are reallocated to.

4.47 However, the reallocated contributions are included in concessional contributions in the year they are reallocated to for the purposes of excess contributions tax.

4.48 This ensures that contributions reallocated for the purposes of excess contributions tax are potentially subject to Division 293 tax in the year that they are made and that they are not subject to Division 293 tax in the year to which they were reallocated (thus avoiding any double taxation).

4.49 This also ensures that the contributions reallocated for the purposes of excess contributions tax are included in the $300,000 threshold in the year they were made and not included in the $300,000 threshold in the year to which they were reallocated (thus avoiding double counting).

Example 4.11 : Calculation of low tax contributions: accumulation interests and reallocated concessional contributions

Richard has concessional contributions of $30,000 in the 2012-13 financial year.

Richard has excess concessional contributions of $5,000. However, the Commissioner makes a determination to reallocate $5,000 concessional contributions from the 2012-13 financial year to the 2013-14 financial year for the purposes of excess contributions tax.

2012-13 financial year

Richard's low tax contributions for the 2012-13 financial year equal the amount of concessional contributions; that is $30,000.

This is because concessional contributions reallocated to the 2013-14 financial year due to the Commissioner's determination made for the purposes of excess contributions tax are not included in excess concessional contributions in 2012-13 (that is, in the year that they were made) and consequently are not subtracted from low tax contributed amounts for determining low tax contributions in that year.

The Commissioner's determination made for the purposes of excess contributions tax does not have the effect of reallocating the contributions for the purposes of low tax contributions.

As the $5,000 in reallocated concessional contributions are included in low tax contributions for the 2012-13 financial year, they are also included in the $300,000 threshold test to determine whether Richard has taxable contributions for Division 293 tax in 2012-13.

2013-14 financial year

Richard's concessional contributions of $5,000 that were reallocated from the 2012-13 financial year and instead allocated to the 2013-14 financial year due to the Commissioner's determination made for the purposes of excess contributions tax count towards his concessional contributions cap of $25,000 for the 2013-14 financial year for the purposes of excess contributions tax.

Concessional contributions actually made on Richard's behalf amount to $23,000 in the 2013-14 financial year.

However, for excess contributions tax purposes concessional contributions for the 2013-14 financial year also include the $5,000 reallocated by the Commissioner from the 2012-13 financial year. His total concessional contributions for the purposes of excess contributions tax are therefore $28,000.

Richard therefore has excess concessional contributions of $3,000 in the 2013-14 financial year. This amount is subject to excess concessional contributions tax, thus it is subtracted as excess contributions from low tax contributed amounts for the purposes of calculation of the low tax contributions.

Accordingly, Richard's low tax contributions amount to $20,000 in the 2013-14 financial year which is $23,000 in low tax contributed amounts (effectively Richard's concessional contributions made in the 2013-14 financial year) less $3,000 in excess concessional contributions.

As the $5,000 reallocated concessional contributions are not included in low tax contributions for the 2013-14 financial year, they are also not included in the $300,000 threshold test to determine whether Richard has taxable contributions for Division 293 tax in 2013-14.

Special rules - defined benefit interests

4.50 Where individuals have a defined benefit interest or interests, the amount of low tax contributions is calculated under special rules for defined benefit interests. These special rules modify the general calculation of low tax contributions discussed at paragraph 4.31.

4.51 A note is inserted to alert taxpayers to the special rules for calculating low tax contributions for defined benefit interests. [Schedule 3, Part 1, item 1, paragraph 293-25(b) of the ITAA 1997]

4.52 The special rules for defined benefit interests provide that low tax contributions for a financial year are worked out as follows:

•

include low tax contributed amounts as calculated under the general rules but only to the extent that they relate to accumulation interests (Step 1);

•

subtract excess concessional contributions (Step 2); and

•

add defined benefit contributions (Step 3).

If a negative amount results from the calculation under this method, then low tax contributions are nil and therefore there is no Division 293 tax. [Schedule 3, Part 1, item 1, section 293-105 of the ITAA 1997]

4.53 A negative amount only arises where excess concessional contributions exceed the total of low tax contributed amounts plus defined benefit contributions.

4.54 Broadly:

•

Step 1 and Step 2 (see paragraph 4.52) are effectively the same as calculations made under the general rules for individuals with accumulation interests as outlined previously;

•

the result of Step 2 is negative if excess concessional contributions are greater than the amount of the low tax contributed amounts for accumulation interests with the result that any remaining amount of excess concessional contributions reduces the defined benefit contributions; and

•

Step 3 then includes notional employer contributions for defined benefit interests (referred to as defined benefit contributions) to calculate the amount of low tax contributions.

4.55 If low tax contributions are nil then no taxable contributions arise and there is no Division 293 tax.

4.56 Set out below is further information on the steps for calculating low tax contributions for individuals with defined benefit interests. This is followed by examples involving the calculation of low tax contributions for individuals with defined benefit interests in different circumstances.

Include low tax contributed amounts that do not relate to a defined benefit interest (Step 1)

4.57 This ensures that low tax contributed amounts for accumulation interests are included in the amount of low tax contributions for individuals who have both types of interests in the same financial year.

Subtract excess concessional contributions (Step 2)

4.58 As discussed under the general rules, excess concessional contributions are subtracted from the amount of low tax contributed amounts as they are subject to excess concessional contributions tax which removes any concessional tax treatment on those contributions.

4.59 The treatment of excess concessional contributions for the purposes of low tax contributions is the same as outlined under the general rules. This includes the treatment of disregarded (and potentially refunded) excess concessional contributions under the Commissioner's determination for the purposes of excess contributions tax (as provided by section 292-467 of the ITAA 1997). Accordingly, such contributions are included in excess concessional contributions that are subtracted from the low tax contributed amounts in respect of accumulation interests; however, they continue to be included in calculating the $300,000 threshold. [Schedule 3, Part 1, item 1, section 293-110 of the ITAA 1997]

Add defined benefit contributions (Step 3)

4.60 Amounts of defined benefit contributions are added to ensure that (along with low tax contributed amounts for accumulation interests) concessionally taxed contributions for defined benefit interests are also included in low tax contributions and thus are potentially subject to Division 293 tax.

4.61 Both the scope of defined benefit contributions and the method of determining the amounts of defined benefit contributions are to be prescribed by regulations (defined benefit contributions regulations). [Schedule 3, Part 1, item 1, section 293-115 of the ITAA 1997]

4.62 The regulations may take the following into account in determining the scope of defined benefit contributions:

•

the individual who has the superannuation interest that includes the defined benefit interest;

•

the superannuation plan in which superannuation interest exists;

•

the superannuation provider in relation to the superannuation plan; and

•

any other matters.

[Schedule 3, Part 1, item 1, subsection 293-115(3) of the ITAA 1997]

4.63 The regulations may also specify circumstances in which the amount of defined benefit contributions for a financial year is nil. [Schedule 3, Part 1, item 1, subsection 293-115(4) of the ITAA 1997]

4.64 The list of matters that may be taken into account by the regulations in setting out what constitutes defined benefit contributions do not restrict the scope of the regulation making power to only take account of these matters. [Schedule 3, item 1, Part 1, subsection 293-115(5) of the ITAA 1997]

4.65 As the measure applies from 1 July 2012, the amendments expressly allow the defined benefit contribution regulations to apply from 1 July 2012, despite subsection 12(2) of the Legislative Instruments Act 2003 which provides that legislative instruments will only apply on a prospective basis unless the principal legislation specifically provides to the contrary. [Schedule 3, item 1, Part 1, subsection 293-115(6) of the ITAA 1997]

4.66 Without retrospective regulations, there would be no definition or method for calculating defined benefit contributions for the 2012-13 financial year and these amendments could not operate. Allowing for the regulations to apply retrospectively from the day from which these amendments apply ensures that individuals with defined benefit interests are treated consistently with individuals with accumulation interests.

4.67 It is intended that the inclusion of defined benefit contributions in low tax contributions will ensure that individuals with defined benefit interests are treated in a similar way to those individuals with accumulation interests for the purposes of Division 293 tax. This will be achieved in the regulations by estimating for defined benefit interests (including interests held in funded, unfunded and partially unfunded superannuation schemes) the amount of employer contributions that would be made if contributions were made annually in respect of the interest. Defined benefit contributions will also include employer contributions made under a salary sacrifice arrangement made in respect of the individual to defined benefit interests. Unlike the amount of notional taxed contributions (used for determining an individual's concessional contributions for the purposes of excess contributions tax) there will be no limit on the amount of defined benefit contributions because no grandfathering of the amount of defined benefit contributions applies.

Examples of calculation of low tax contributions

4.68 The following examples include calculations of low tax contributions under the special rules for individuals with a defined benefit interest or interests. They provide examples of calculations of low tax contributions for individuals with only a defined benefit interest and for individuals with both an accumulation interest and a defined benefit interest. There are also examples for individuals that have notional taxed contributions determined for the purposes of excess contributions tax under the special rules for grandfathering and also where those grandfathering rules do not apply.

4.69 There are other special rules that apply to certain individuals that are discussed at paragraphs 4.70 to 4.87. Examples 4.7 to 4.10 do not apply to those individuals subject to the other special rules.

Example 4.12 : Calculation of low tax contributions - defined benefit interest only

Victor has one superannuation interest which is a defined benefit interest. Victor's defined benefit contributions for the purposes of Division 293 tax are $24,000 for the 2012-13 financial year. Victor's notional taxed contributions for the purposes of excess contributions tax are also $24,000.

Victor's low tax contributions are therefore $24,000 in the 2012-13 financial year. This is the amount of his defined benefit contributions under Step 3 in the special rules for defined benefit interests.

No further calculations are required because Victor does not have:

•

any accumulation interests (Step 1); and

•

excess concessional contributions (Step 2).

Example 4.13 : Calculation of low tax contributions - defined benefit interest and excess concessional contributions

Assume the same facts as in Examples 4.7, except that Victor's defined benefit contributions for the purposes of Division 293 tax are $40,000 for the 2012-13 financial year.

Case 1: Excess contributions tax grandfathering does not apply

Victor's notional taxed contributions for the purposes of excess contributions tax also equal $40,000 for the 2012-13 financial year.

Victor commenced to hold the defined benefit interest after 12 May 2009 so the special rules for grandfathering for excess contributions tax for defined benefit interests do not apply and therefore his notional taxed contributions are not equal to his concessional contributions cap of $25,000. Accordingly, Victor's excess concessional contributions are $15,000 ($40,000 - $25,000 (his concessional contributions cap)).

Accordingly, Victor's low tax contributions are $25,000, calculated as follows:

•

start with low tax contributed amounts that do not relate to the defined benefit interest (nil);

•

deduct the amount of his excess concessional contributions ($15,000) under Step 2 as those excess concessional contributions are subject to excess concessional contributions tax (0 - $15,000 - $15,000); and

•

add the amount of his defined benefit contributions ($40,000) under Step 3 (-$15,000 + $40,000 = $25,000).

Case 2: Excess contributions tax grandfathering applies

If Victor held the defined benefit interest before 12 May 2009 and meets all of the other conditions for eligibility for the grandfathering rules for excess concessional contributions tax, his notional taxed contributions for the purposes of excess concessional contributions tax will be equal to his concessional contributions cap of $25,000. This results in no excess concessional contributions tax liability for Victor.

Accordingly, Victor's low tax contributions are $40,000, being the full amount of his defined benefit contributions in Step 3.

Example 4.14 : Calculation of low tax contributions - both a defined benefit interest and an accumulation interest

Steve holds an accumulation interest in a superannuation fund. Low tax contributed amounts made on his behalf to that interest amounted to $15,000 in the 2013-14 financial year. Steve's concessional contributions for excess contributions tax are the same as the low tax contributed amounts. Steve also holds a defined benefit interest in a superannuation fund and his defined benefit contributions for that interest are $10,000 for the 2013-14 financial year. Steve's notional taxed contributions for the purposes of excess contributions tax are the same as his defined benefit contributions.

Steve's low tax contributions are $25,000 in the 2013-14 financial year. This is calculated as follows:

•

$15,000 low tax contributed amounts in respect of his accumulation interest (Step 1);

•

plus $10,000 in defined benefit contributions in respect of his defined benefit interest (Step 3).

No further calculation is required because Steve does not have excess concessional contributions (Step 2).

Example 4.15 : Calculation of low tax contributions - both a defined benefit interest and an accumulation interest - excess concessional contributions

Sonia holds both a defined benefit interest and an accumulation interest.

Her contributions for the 2013-14 financial year are:

•

for her accumulation interest;

-

concessional contributions of $40,000 (her low tax contributed amounts are the same amount); and

•

for her defined benefit interest (ignoring the special grandfathering rules for excess contributions tax);

-

notional taxed contributions of $30,000 for the purposes of excess contributions tax; and

-

defined benefit contributions of $30,000 for the purposes of Division 293 tax.

Case 1: Excess contributions tax grandfathering does not apply

Sonia's notional taxed contributions in respect of her defined benefit interest are not eligible for the special arrangements which apply for excess contributions tax to limit the notional taxed contributions to her concessional contributions cap.

Sonia has $45,000 in excess concessional contributions for excess contributions tax purposes. That is, $40,000 of concessional contributions for her accumulation interest plus $30,000 (being notional taxed contributions) for her defined benefit interest less her concessional contributions cap of $25,000.

Accordingly, Sonia's low tax contributions are $25,000 for the 2013-14 financial year. This is calculated as follows:

•

$40,000 in low tax contributed amounts to her accumulation interest (Step 1);

•

less $45,000 in excess contributions for the purposes of excess concessional contributions tax (Step 2); and

•

plus $30,000 in defined benefit contributions in respect of her defined benefit interest (Step 3).

Case 2: Excess concessional contributions tax grandfathering applies

In this case Sonia held the defined benefit interest before 12 May 2009 and meets all of the other conditions for eligibility for the grandfathering rules for excess concessional contributions tax. Therefore her notional taxed contributions in respect of the defined benefit interest for the purposes of excess concessional contributions tax will be equal to her concessional contributions cap of $25,000.

Sonia has $40,000 of excess concessional contributions that are subject to excess concessional contributions tax. That is $40,000 of concessional contributions for her accumulation interest plus $25,000 for her defined benefit interest less her concessional contributions cap of $25,000.

Sonia's low tax contributions are $30,000 for the 2013-14 financial year. This is calculated as follows:

•

$40,000 in low tax contributed amounts to her accumulation interest (Step 1);

•

less $40,000 of excess concessional contributions for the purposes of excess concessional contributions tax (Step 2); and

•

plus $30,000 in defined benefit contributions in respect of her defined benefit interest (Step 3).

Special rules - certain individuals

4.70 The Constitution prevents the Commonwealth from imposing tax on certain superannuation contributions in respect of certain individuals.

4.71 Accordingly, these amendments contain special rules for calculating low tax contributions for certain Commonwealth justices and judges and certain State higher level office holders. These special rules ensure that Division 293 tax applies to all high income earners regardless of their positions and roles but generally only to the extent that the legislative power of the Commonwealth permits.

4.72 Notes are inserted to alert taxpayers to the special rules for calculating low tax contributions and defined benefit contributions for certain Commonwealth justices and judges and certain State higher level office holders. [Schedule 3, Part 1, item 1, paragraph 293-25(b) and subsection 293-115(1) of the ITAA 1997]

Commonwealth justices and judges

4.73 Section 72(iii) of the Constitution provides that the remuneration of justices of the High Court, and justices and judges of other courts created by the Parliament shall be fixed by the Parliament and this remuneration shall not be diminished whilst they are in office.

4.74 The imposition of Division 293 tax may in effect in some cases constitute a diminution of judicial remuneration where certain defined benefit pension entitlements form part of their remuneration.

4.75 As part of the changes to address these limitations, defined benefit contributions for a defined benefit interest in a superannuation fund established under the Judges' Pensions Act 1968 are not included in low tax contributions and therefore are not subject to Division 293 tax. This is achieved by treating the amount of such contributions as nil. These special rules only apply to justices and judges that have a defined benefit interest in a superannuation fund established under the Judges' Pensions Act 1968. [Schedule 3, Part 1, item 1, subsection 293-190(1) and section 293-195 of the ITAA 1997]

4.76 However, while there may in some cases be constitutional restrictions on taxing defined benefit contributions for a defined benefit interest in a superannuation fund established under the Judges' Pensions Act 1968, no such limitations apply to other contributions made to benefit Commonwealth justices and judges. Accordingly, contributions made by other employers after a justice or a judge leaves office are potentially included in low tax contributions.

4.77 To reflect the actual position of Commonwealth justices and judges in determining the Division 293 tax on these contributions, all low tax contributions, including these protected amounts, are included when determining if low tax contributions exceed the $300,000 threshold at which Division 293 tax applies. Thus, while no Division 293 tax will be assessed on defined benefit contributions for a superannuation interest in a superannuation fund established under the Judges' Pensions Act 1968, these contributions affect whether Division 293 tax may be payable on other low tax contributions. [Schedule 3, Part 1, item 1, section 293-200 of the ITAA 1997]

State higher level office holders

4.78 In Austin v Commonwealth (2003) 215 CLR 185 and Clarke v Federal Commissioner of Taxation (2009) 240 CLR 272, the High Court found that the Commonwealth could not impose the superannuation contributions tax (surcharge), under legislation enacted in 1997, on contributions or notional contributions made by State Government bodies to constitutionally protected funds on behalf of State office holders at the higher levels of government. In accordance with the High Court finding, Division 293 tax is not imposed on low tax contributions in respect of constitutionally protected funds for these higher level office holders.

4.79 This constitutional protection, however, does not extend to contributions to constitutionally protected funds on behalf of such individuals made by an employer (or associate) as part of a salary package arrangement. Accordingly, these amendments ensure that constitutionally protected State higher level office holders do not pay Division 293 tax in respect of low tax contributions for constitutionally protected funds, unless the contributions are made as part of a salary package arrangement. [Schedule 3, Part 1, item 1, Subdivision 293-E of the ITAA 1997]

4.80 These amendments achieve this result by providing special rules for calculating low tax contributions for constitutionally protected State higher level office holders with contributions to constitutionally protected funds. [Schedule 3, item 1, section 293-150 of the ITAA 1997]

4.81 The exclusion of some low tax contributions for constitutionally protected funds applies to the class of individuals declared by regulations. As the High Court decisions have not provided a comprehensive list of which individuals are State higher level office holders and it is subject to future court decisions, this approach provides flexibility and ensures any changes that may arise in the future can be readily addressed in the regulations. [Schedule 3, Part 1, item 1, subsection 293-145(1) of the ITAA 1997]

4.82 Consistent with the regulation making power for defined benefit contributions in these amendments, the regulation making power to prescribe individuals who are constitutionally protected State higher level office holders allows regulations to apply from 1 July 2012. Without retrospective application of the regulation for constitutionally protected State higher level office holders, Division 293 tax would apply to these office holders in the 2012-13 income year. This would be inconsistent with the legislative power of the Commonwealth to impose tax under the Constitution. The retrospective regulation making power benefits constitutionally protected State higher level office holders by ensuring that explicit special rules in these amendments apply from the date of its application. [Schedule 3, Part 1, item 1, subsection 293-145(2) of the ITAA 1997]

4.83 For these individuals, contributions to constitutionally protected funds are only included in low tax contributed amounts (under the general rules) and defined benefit contributions (under the special rules) if they are made as part of a salary package arrangement for the purpose of calculating low tax contributions. This ensures that amounts of low tax contributions in respect of constitutionally protected funds for such individuals only include contributions made as part of a salary package arrangement (and not other contributions to constitutionally protected funds) thus making only such salary packaged contributions potentially subject to Division 293 tax. [Schedule 3, Part 1, item 1, section 293-150 of the ITAA 1997]

4.84 Notes are inserted to alert taxpayers to the special rules for calculating low tax contributed amounts and defined benefit contributions for constitutionally protected State higher level office holders. [Schedule 3, Part 1, item 1, subsections 293-30(1) and 293-115(1) of the ITAA 1997]

4.85 However, for the purposes of determining whether such constitutionally protected individuals have taxable contributions for an income year, that is, whether the $300,000 threshold is met, all low tax contributed amounts and all defined benefit contributions are included in the calculation of low tax contributions. [Schedule 3, Part 1, item 1, section 293-155 of the ITAA 1997]

4.86 For the purpose of these rules, a salary packaged contribution is a contribution in respect of an individual to whom these provisions apply that is made because they agreed with an entity (or its associate) for the contribution to be made in return for a reduction in their remuneration. [Schedule 3, Part 1, item 1, subsection 293-160(1) of the ITAA 1997]

4.87 The reduction in the remuneration needs to be made by the employer reducing one of a number of types of payments covered by the Pay-As-You-Go Withholding regime in Part 2-5 in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). The relevant types of payments include:

•

payments to employees (see section 12-35 in Schedule 1 to the TAA 1953);

•

payments to company directors (see section 12-40 in Schedule 1 to the TAA 1953);

•

payments to office holders (see section 12-45 in Schedule 1 to the TAA 1953);

•

voluntary agreements to withhold (see section 12-55 in Schedule 1 to the TAA 1953); and

•

payments under labour hire agreement, or specified by regulation (see section 12-60 in the Schedule 1 to the TAA 1953).

[Schedule 3, Part 1, item 1, subsection 293-160(2) of the ITAA 1997]

Temporary residents departing Australia: refunds and release from liability for Division 293 tax

4.88 Departing temporary residents who receive a departing Australia superannuation payment are entitled to a refund of Division 293 tax that they have paid. This treatment reflects that any concessional tax treatment of their superannuation contributions is removed by a final withholding tax on departing Australia superannuation payments (effectively on a payment of a superannuation benefit) imposed under the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007.

4.89 Individuals are entitled to a refund of Division 293 tax if they:

•

made a payment of any of the following:

-

assessed Division 293 tax;

-

a voluntary payment to reduce the amount by which a debt account is in debit; or

-

the debt account discharge liability; and

•

received a departing Australia superannuation payment; and

•

applied to the Commissioner in the approved form for the refund.

[Schedule 3, Part 1, item 1, section 293-230 of the ITAA 1997]

4.90 Broadly, under section 301-170 of the ITAA 1997 and section 12-305 in Schedule 1 to the TAA 1953, a departing Australia superannuation payment is payable to an individual who held a temporary visa, has a superannuation interest with a superannuation provider, and at least six months have passed since the individual ceased to hold the visa and left Australia. A refund is not available for assessed Division 293 tax for a period when an individual is an Australian resident (but not a temporary resident) of Australia. [Schedule 3, Part 1, item 1, subsection 293-235(3) of the ITAA 1997]

4.91 The amount of the refund is the sum of the following payments that an individual has made:

•

assessed Division 293 tax;

•

a voluntary payment to reduce the amount by which a debt account is in debit; and

•

the debt account discharge liability.

[Schedule 3, Part 1, item 1, subsection 293-235(1) of the ITAA 1997]

4.92 An individual is not entitled to a refund of the amounts of the above payments to the extent the individual has already received the refund in respect of those payments for an income year. Accordingly, the amount of refund is reduced by the amount that has already been paid by the Commissioner. [Schedule 3, Part 1, item 1, subsection 293-235(2) of the ITAA 1997]

4.93 Entitlement to a refund allows the Commissioner to release an individual from all current and future Division 293 tax liabilities (other than a liability in respect of a period when the individual is not a temporary resident). In particular, the Commissioner may extinguish any unpaid Division 293 tax that is due and payable, and also the amount by which a debt account is in debit. [Schedule 3, Part 1, item 1, paragraph 293-240(1)(a) of the ITAA 1997]

4.94 A departing temporary resident who receives a departing Australia superannuation payment who has not paid any Division 293 tax but has a liability for Division 293 tax (including defined benefit tax deferred to a debt account) may also be released from all current and future Division 293 tax liabilities where they would have been entitled to a refund had they made a payment. There is no requirement for taxpayers in this situation to apply to the Commissioner using an approved form in order to be released from liability for Division 293 tax. [Schedule 3, Part 1, item 1, paragraph 293-240(1)(b) of the ITAA 1997]

4.95 However, the liability will not be released to the extent that the Division 293 tax liability is attributable to a period when an individual is an Australian resident (but not a temporary resident) of Australia. [Schedule 3, Part 1, item 1, paragraph 293-240(1)(b) and subsection 293-235(3) of the ITAA 1997]

4.96 The Commissioner may take such action as is necessary to give effect to the decision to release an individual from Division 293 tax liabilities, including notifying the individual of the decision. [Schedule 3, Part 1, item 1, subsection 293-240(2) of the ITAA 1997]

Chapter 5 - Sustaining the superannuation contribution concession: assessment and payment

Outline of chapter

5.1 This Chapter explains the assessment of Division 293 tax and the payment arrangements that apply under the Income Tax Assessment Act 1997 (ITAA 1997) and the Taxation Administration Act 1953 (TAA 1953).

Summary of new law

5.2 The amount of Division 293 tax is, generally, either:

•

due and payable within 21 days after the notice of assessment is issued, to the extent the tax relates to a superannuation interest that is an accumulation interest;

•

deferred for later payment and included in a debt account maintained by the Commissioner of Taxation (Commissioner) to the extent the tax relates to a superannuation interest that is a defined benefit interest; or

•

due and payable within 21 days after a superannuation benefit is paid from the defined benefit interest for which a debt account is maintained by the Commissioner.

5.3 The Commissioner must issue release authorities to allow amounts to be released. Generally, an amount may only be released from a superannuation interest other than a defined benefit interest (that is, an accumulation interest) to facilitate payment of liabilities for Division 293 tax. However, where the liability for an amount that has been deferred to a debt account (the debt account discharge liability) becomes payable, the Commissioner must issue a release authority to allow an amount to be released from the defined benefit interest to which the deferred liability relates.

Detailed explanation of the new law

Overview of assessment and payment

Assessment and payment - accumulation interests

5.4 The Commissioner must issue a notice of assessment to an individual that states the amount of their assessed Division 293 tax for an income year. The amount of assessed tax is generally due and payable 21 days after the Commissioner gives the notice of assessment (or amended assessment). Amounts that remain unpaid after that period are subject to the general interest charge.

5.5 The Commissioner must also issue a release authority to an individual to enable an amount to be paid from any accumulation interest of the individual to facilitate payment of all or part of the assessed Division 293 tax that is due and payable.

Assessment and payment - defined benefit interests

5.6 The Commissioner must make a determination of tax that is deferred to a debt account to the extent that an individual's Division 293 tax is defined benefit tax where the interest to which the tax is attributable is eligible for deferral. The determination must specify the amount of assessed tax that is deferred to a debt account. This specified amount of tax is debited to a debt account for the superannuation interest maintained by the Commissioner. Only defined benefit tax may be deferred to a debt account.

5.7 An amount of defined benefit tax may not be specified in a determination of tax deferred to a debt account if the end benefit has become payable for the relevant superannuation interest, or if the Commissioner has issued a notice requiring payment of the debt account discharge liability in relation to the relevant superannuation interest.

5.8 An individual's defined benefit tax is worked out according to the following formula.

Division 293 tax for the income year * [Defined benefit contribution component / taxable contributions for the income year]


5.9 Generally, the same proportion of an individual's total Division 293 tax is defined benefit tax as the individual's defined benefit contributions make up of their taxable contributions. Special rules are included to address cases where not all of an individual's low tax contributions are subject to Division 293 tax and where an individual has excess concessional contributions.

5.10 The Commissioner keeps a debt account, to which interest is debited annually, for each superannuation interest where an amount of Division 293 tax has been deferred to a debt account for that interest. The Commissioner must notify the superannuation provider when a debt account is established for assessed Division 293 tax that is deferred to a debt account.

5.11 The Commissioner will credit the debt account for voluntary payments by the individual and if an amended assessment results in a reduced amount of deferred tax (deferral reversal).

5.12 A release authority is issued to the individual at the time of issuing the determination of tax that is deferred to a debt account to enable an amount to be paid from a superannuation interest (other than a defined benefit interest) of the individual to make voluntary payments to reduce the debt account balance.

5.13 In most cases, an individual will not be liable to pay their Division 293 tax that is deferred to a debt account until a superannuation benefit (the end benefit) becomes payable from the interest. However, if the relevant benefit is a death benefit, liability is treated as arising just before the individual dies.

5.14 Certain superannuation benefits are not end benefits, including a roll-over or transfer to a successor fund that is a complying superannuation fund, amounts released for severe financial hardship or on compassionate grounds and other superannuation benefits that may be specified by legislative instrument.

5.15 As soon as the individual requests that the first benefit be paid from a defined benefit interest that has an associated debt account, the individual and the superannuation provider must notify the Commissioner. The superannuation provider must also notify the Commissioner if a superannuation benefit becomes payable without a request by an individual (for example, if a death benefit becomes payable).

5.16 The Commissioner then calculates the debt account discharge liability and issues a notice for the amount of the liability to the individual, which is due and payable 21 days after the benefit is paid. The debt account discharge liability is generally the amount the deferred tax debt account is in debit. However, the amount of the liability does not exceed the end benefit cap.

5.17 This ensures that individuals are protected and do not pay Division 293 tax on defined benefit contributions for benefits they do not end up receiving. A release authority is issued to the individual, to allow the individual to release an amount from their superannuation interest to which the debt account relates to assist with payment of the debt account discharge liability. Unlike other release authorities that apply under these amendments, this release authority may only be provided to the superannuation fund that holds the relevant superannuation interest. This reflects that sufficient funds will generally be held in the superannuation interest from which the benefit is payable to meet the liability.

Purpose of release authorities

5.18 A release authority is issued to individuals by the Commissioner because generally, individuals are prevented from withdrawing money from superannuation interests until they have reached preservation age or retired. Where the individual gives a superannuation provider a release authority, the individual can withdraw an amount from certain superannuation interests for the purpose of paying their Division 293 tax liability, making voluntary payments of Division 293 tax that has been deferred to a debt account or paying their debt account discharge liability. Individuals may also pay their Division 293 tax liabilities from other sources, such as with after tax income.

Overview diagram

5.19 A diagram summarising the assessment and payment mechanisms for the Division 293 tax is set out in Diagram 5.1.

Assessments for Division 293 tax

5.20 Assessments are made by the Commissioner for Division 293 tax for an income year. The Commissioner may also make a determination in relation to assessed Division 293 tax that specifies how much of the tax is attributable to a defined benefit interest and is deferred to a debt account.

The Commissioner

5.21 The Commissioner makes an assessment of an individual's Division 293 tax for an income year and issues the assessment to the individual as soon as practicable after the assessment is made. The tax is payable annually by individuals with income, including certain superannuation contributions, for an income year above $300,000. The assessed Division 293 tax is 15 per cent of low tax contributions that exceed the $300,000 threshold. The notice of assessment is issued to individuals stating the amount of their assessed Division 293 tax.

5.22 The making of the assessment is governed by the generic assessment provisions in Division 155 in Schedule 1 to the TAA 1953. Subsection 155-5(1) gives the Commissioner a general power to make an assessment of an assessable amount. Subsection 155-35(1) gives the Commissioner the power to amend an assessment of an assessable amount within the period of review for the assessment. The Commissioner's power to make and amend assessments is restricted by the operation of other sections within Division 155.

5.23 The amendments include Division 293 tax payable in the generic assessment provisions in Schedule 1 to the TAA 1953. This is achieved by including an amount of Division 293 tax payable for an income year as an assessable amount for which the Commissioner can make an assessment in section 155-5 in Schedule 1 to the TAA 1953. [Schedule 3, Part 1, item 3, paragraph 155-5(2)(f) of Schedule 1 to the TAA 1953]

5.24 Division 293 tax is not subject to the self-assessment regime that applies to a range of taxes, including income tax. A note is added by the amendments to clarify that self-assessment does not apply to Division 293 tax. This reflects that, in addition to income tax returns, the Commissioner also requires information statements from superannuation providers before making an assessment. [Schedule 3, Part 1, item 4, note to subsection 155-15(1) of Schedule 1 to the TAA 1953]

5.25 Section 155-30 in Schedule 1 to the TAA 1953 provides that if a taxpayer has lodged a return and has not been given a notice of assessment in relation to the assessable amount within six months of lodging the relevant return, the taxpayer may give the Commissioner a notice requiring the Commissioner to issue a notice of assessment. The amendments provide that section 155-30 does not apply to Division 293 tax payable and individuals cannot require the Commissioner to make an assessment of Division 293 tax six months after they have lodged their income tax return. This reflects that assessments of Division 293 tax are also based on information from statements lodged by superannuation providers. [Schedule 3, Part 1, item 5, subsection 155-30(3) of Schedule 1 to the TAA 1953]

5.26 As mentioned above, the Commissioner requires both an individual's income tax return to be lodged and the information to have been given by superannuation providers to the Commissioner in member contributions statements and/or self-managed superannuation fund (SMSF) annual returns to make an assessment of Division 293 tax. In many instances the information statements will not be lodged with the Commissioner by the superannuation provider within six months of the date the individual lodges their income tax return.

5.27 Where an individual with a Division 293 tax liability dies, the Commissioner issues the assessment in the same way as if the individual had not died. However, because of the deceased's death, the deceased's legal personal representative is liable to pay the liability from the deceased's estate. The liability is worked out in the same way as if the deceased was liable to pay the Division 293 tax. [Schedule 3, Part 2, section 133-120 and note 2 to subsection 133-105(2) of Schedule 1 to the TAA 1953)]

5.28 The framework in the tax law that provides for the review of the Commissioner's decision to make an assessment or to amend an assessment applies to assessments of Division 293 tax. Individuals who are dissatisfied with an assessment of Division 293 tax may lodge an objection to the assessment or amended assessment consistent with Part IVC of the TAA 1953.

The superannuation provider

5.29 Division 390 in Schedule 1 to the TAA 1953 sets out reporting obligations for superannuation providers. Superannuation providers are required to provide member contribution statements to the Commissioner in the approved form in respect of individuals who were members at any time in the reporting period (generally, a financial year). This information is used by the Commissioner in making an assessment of Division 293 tax.

5.30 Under section 390-5 in Schedule 1 to the TAA 1953, a superannuation provider must give the Commissioner a statement including contributions made to the superannuation plan for an individual during the financial year. The statement may contain other information required by the Commissioner. Under the amendments superannuation providers are also required to report to the Commissioner the amount of defined benefit contributions in relation to a defined benefit interest in the superannuation plan. [Schedule 3, Part 2, item 35, paragraph 390-5(9A)(d) of Schedule 1 to the TAA 1953]

5.31 An individual can make a complaint to the Superannuation Complaints Tribunal under the Superannuation (Resolution of Complaints) Act 1993 if they are dissatisfied with a statement given to the Commissioner by a superannuation provider under section 390-5 in Schedule 1 to the TAA 1953. [Schedule 3, Part 2, item 15, note to subsection 155-90(1) of Schedule 1 to the TAA 1953]

5.32 The amendments also provide that complaints regarding the reporting of the amount of defined benefit contributions and the amount of the end benefit cap by superannuation providers to the Commissioner may be taken by individuals to the Superannuation Complaints Tribunal. [Schedule 3, Part 2, items 11 and 12, paragraphs 15CA(1)(ba ), ( bb) and (c) and 15CA(2)(ba ), ( bb) and (c) of the Superannuation (Resolution of Complaints) Act 1993]

When assessed Division 293 tax is due and payable

Overview

5.33 The time at which the assessed Division 293 tax becomes due and payable to the Commissioner differs depending on whether the amount assessed is attributable in whole or part to a defined benefit interest.

5.34 As a general rule, assessed Division 293 tax is due and payable 21 days after the Commissioner gives an individual notice of the assessment of the amount of tax payable for an income year. This will be the outcome for the majority of superannuation interests.

5.35 Special rules apply for Division 293 tax attributable to certain defined benefit interests. To the extent that assessed tax is attributable to certain defined benefit interests, it is automatically subject to deferred payment. The amount subject to deferred payment is so much of the assessed tax stated in a determination made by the Commissioner to be deferred to a debt account.

Assessed Division 293 tax is due and payable - accumulation interests

5.36 Assessed Division 293 tax is due and payable 21 days after the Commissioner gives a notice of assessment (or amended assessment). Amounts that remain unpaid after that period are subject to the general interest charge. The Commissioner may remit the general interest charge where appropriate, having regard to the existing remission guidelines. [Schedule 3, Part 1, item 1, subsections 293-65(1) and 293-70(1) and section 293-75 of the ITAA 1997]

5.37 A release authority is issued to the individual by the Commissioner which the individual can use to authorise a superannuation provider to release an amount from a superannuation interest (other than a defined benefit interest) of an individual to pay some or all of the assessed Division 293 tax that is due and payable. The individual does not have to use the release authority and can choose to pay the liability from other sources. [Schedule 3, Part 1, item 2, Division 135 of Schedule 1 to the TAA 1953]

5.38 The assessed Division 293 tax is a tax-related liability for the purposes of general tax administration by the Commissioner. This enables an unpaid amount of assessed Division 293 tax to be treated like any other tax debt. Accordingly, the Commissioner may take legal action to recover an outstanding debt for Division 293 tax that remains unpaid after it is due and payable. An amendment is made to include references to a liability to Division 293 tax in the index of tax-related liabilities in Schedule 1 to the TAA 1953. [Schedule 3, Part 2, item 17, table item 38BB in subsection 250-10(2) of Schedule 1 to the TAA 1953]

Assessed Division 293 tax that is deferred - defined benefit interests

5.39 Whilst an assessed Division 293 tax liability relating to contributions to a superannuation interest (other than a defined benefit interest) is due and payable 21 days after the assessment is given, payment of Division 293 tax liability for contributions attributable to defined benefit interests is generally deferred until 21 days after the end benefit is paid from the superannuation interest. [Schedule 3, Part 1, items 1 and 2, subsections 293-65(2) and 293-70(2) of the ITAA 1997 and section 133-105 of Schedule 1 to the TAA 1953]

5.40 Payment of assessed Division 293 tax is deferred for defined benefit superannuation interests because generally funding for member benefits in defined benefit funds is pooled and it would be difficult to adjust a member's benefit if a payment was made out of the fund to enable Division 293 tax to be paid for a member. [Schedule 3, Part 1, item 2, Division 133 of Schedule 1 to the TAA 1953]

5.41 In contrast, member benefits in accumulation interests are attributed to each member and a member's benefits can be reduced if a payment is made from the fund under a release authority used by the individual to release an amount from their superannuation to pay the liability for Division 293 tax.

5.42 A determination of tax deferred to a debt account sets out how much of the assessed tax is defined benefit tax that is deferred for later payment and debited to a debt account.

5.43 If the amount of deferred tax is later increased because of an amended assessment, a further determination will be made in respect of the increased amount included in the amended assessment. If the amount of assessed tax that has been deferred to the debt account is reduced as a result of an amended assessment, the Commissioner must make a determination in respect of this amount. The amount so determined - the reduction of the amount of tax deferred for later payment (deferral reversal) - must be credited to the relevant debt account. [Schedule 3, Part 1, item 2, sections 133-10, 133-25, 133-30, 133-60 and 133-70 of Schedule 1 to the TAA 1953]

5.44 The amount of the tax is deferred for payment with interest at the long term bond rate applied annually to the outstanding balance. The Commissioner may remit all or part of any interest payable under this provision if satisfied the special circumstances exist which make it fair and reasonable to do so. [Schedule 3, Part 1, item 2, sections 133-60 and 133-65 of Schedule 1 to the TAA 1953]

5.45 The amount of an individual's tax determined to be deferred to a debt account for an income year is so much of their assessed Division 293 tax for the income year that is attributable to their defined benefit superannuation interest (or interests) that is eligible for payment deferral (see below for the calculation method). [Schedule 3, Part 1, item 2, section 133-10 of Schedule 1 to the TAA 1953]

5.46 Defined benefit tax will not be eligible to be deferred to a debt account if at the time the determination is made:

•

a superannuation benefit (referred to as the end benefit) has become payable from the superannuation interest to which the defined benefit tax is attributable; or

•

a notice of debt account discharge liability has been made in relation to the superannuation interest to which the defined benefit tax is attributable.

[Schedule 3, Part 1, item 2, subsection 133-10(3) of Schedule 1 to the TAA 1953]

Determination of tax deferred to a debt account

5.47 The Commissioner must make a determination of tax deferred to a debt account as soon as practicable after making an assessment or amended assessment for Division 293 tax for an income year for which the individual has defined benefit tax. [Schedule 3, Part 1, item 2, subsection 133-10(1) of Schedule 1 to the TAA 1953]

5.48 However, the Commissioner will not issue a determination where no part of the Division 293 tax is defined benefit tax. [Schedule 3, Part 1, item 2, subsection 133-10(4) of Schedule 1 to the TAA 1953]

5.49 The Commissioner must keep a debt account for each superannuation interest where there is an amount of Division 293 tax that has been deferred to a debt account. [Schedule 3, Part 1, item 2, section 133-60 of Schedule 1 to the TAA 1953]

5.50 The determination includes information on the amount of Division 293 tax that has been deferred to a debt account for each superannuation interest. [Schedule 3, Part 1, item 2, subsections 133-10(1) and (2) of Schedule 1 to the TAA 1953]

5.51 The Commissioner must issue a notice of the determination as soon as practicable after the determination is made. Where the individual has defined benefit tax that is deferred to a debt account for two or more defined benefit interests in an income year, the Commissioner may include two or more determinations in the same notice. The Commissioner will generally issue the notice with the notice of assessment of the Division 293 tax amount. [Schedule 3, Part 1, item 2, section 133-30 of Schedule 1 to the TAA 1953]

5.52 Non-compliance by the Commissioner with the legislation does not prevent the determination from having valid effect. This ensures that there is administrative certainty for individuals if there are minor technical breaches in the issue of the determination or notice. [Schedule 3, Part 1, item 2, subsection 133-30(3) of Schedule 1 to the TAA 1953]

5.53 Individuals may object to the determination under Part IVC of the TAA 1953 if they are dissatisfied with a determination that has been made. Individuals may also object if the Commissioner makes an assessment of Division 293 tax and does not make a determination of defined benefit tax deferred to a debt account. This ensures that individuals who consider that the Commissioner should have treated some or all of their Division 293 tax as being deferred to a debt account have a right of review. [Schedule 3, Part 1, item 2, sections 133-25 and 133-30 of Schedule 1 to the TAA 1953]

5.54 The Commissioner has the power to vary or revoke the determination of tax deferred to a debt account. [Schedule 3, Part 1, item 2, note to subsections 133-10(1) and 133-25(2) of Schedule 1 to the TAA 1953]

Example 5.16 : A determination of tax deferred to a debt account

Paul only has a defined benefit superannuation interest. Paul has not been paid a benefit from his superannuation interest. For the 2019-20 income year the Commissioner makes an assessment of Division 293 tax. The Commissioner also makes a determination of tax deferred to a debt account. The determination specifies that all the Division 293 tax is defined benefit tax attributable to the defined benefit interest and all of the tax is deferred to a debt account.

How defined benefit tax is worked out

5.55 The amount of defined benefit tax is worked out according to the following formula.

Division 293 tax for the income year *[(Defined benefit contribution component)/(taxable contributions for the income year)]


5.56 Broadly, defined benefit tax is the proportion of an individual's total Division 293 tax as the individual's defined benefit contributions makes up of their total taxable contributions. [Schedule 3, Part 1, item 2, section 133-15 of Schedule 1 to the TAA 1953]

5.57 If the individual only has low tax contributions that are defined benefit contributions for a financial year, then all of the Division 293 tax for the corresponding income year will be defined benefit tax. If an individual has no defined benefit contributions for a financial year, then the individual will have no defined benefit tax for the corresponding income year.

5.58 However, in some cases not all of an individual's low tax contributions will be subject to Division 293 tax. This will occur where an individual only exceeds the $300,000 threshold due to their low tax contributions being added to their income.

5.59 In this situation, if the individual's low tax contributions include contributions to both defined benefit and accumulation interests, special rules are required to attribute tax between their superannuation interests. The amendments include special rules to ensure that the appropriate amount of tax is attributable to the accumulation interest and only the remaining amount of tax (if any) is determined to be deferred to a debt account.

5.60 This is achieved by the definition of the defined benefit contribution component in the formula set out above. The defined benefit contribution component in the formula is worked out as follows:

•

Step 1 - take the lesser of the individual's low tax contributions and their total defined benefit contributions; then

•

Step 2 - subtract from the result of step 1, the difference between the individual's taxable contributions and their low tax contributions.

[Schedule 3, Part 1, item 2, paragraph 133-15(1)(b) of Schedule 1 to the TAA 1953]

5.61 Additionally, in some cases where an individual has excess concessional contributions, an individual's low tax contributions will be less than zero if their defined benefit contributions are excluded. For example, this will occur if the individual has excess concessional contributions and only has defined benefit interests. A special rule is also required in this case as otherwise the normal formula would result in an individual's defined benefit tax exceeding their total Division 293 tax. In these cases, these amendments provide that all of the individual's Division 293 tax in that financial year will be defined benefit tax. This is also achieved by the application of the definition of defined benefit contribution component in the formula set out above. [Schedule 3, Part 1, item 2, subsections 133-15(1) and 133-15(2) of Schedule 1 to the TAA 1953]

Example 5.17 : Working out the amount of defined benefit tax - where no attribution is required between defined benefit interests and accumulation interests

John holds both a defined benefit interest and an accumulation interest. His concessional contributions made to his accumulation interest are $15,000 for the 2013 14 financial year.

John's defined benefit contributions for the purposes of Division 293 tax for the defined benefit interest are $25,000 for the 2013-14 financial year. His notional taxed contributions for the purposes of excess concessional contributions tax are also $25,000 for this interest.

His income for surcharge purposes (less reportable superannuation contributions) is $295,000.

John's excess concessional contributions are $15,000 (concessional contributions in excess of his cap, or $40,000 - $25,000) for the 2013-14 financial year.

John's low tax contributions are $25,000 for the 2013-14 financial year. His taxable contributions for the 2013-14 income year are $20,000 (the amount by which his low tax contributions for the financial year corresponding to the income year exceed the $300,000 threshold). John's assessed Division 293 tax is $3,000 - that is, 15 per cent of $20,000.

John's low tax contributions are equal to the amount of his defined benefit contributions, therefore all of his Division 293 tax is defined benefit tax. This is because his low tax contributed amounts for accumulation interests ($15,000) are equal to his excess concessional contributions (that is $15,000). Therefore only defined benefit contributions remain.

John's defined benefit tax is $3,000.

John has yet to receive any end benefit in relation to his defined benefit superannuation interest. As a result all of his defined benefit tax is eligible to be deferred to a debt account.

John will receive an assessment for Division 293 tax for $3,000. Of this amount, the Commissioner will make a determination of $3,000 defined benefit tax deferred to a debt account.

Example 5.18 : Working out the amount of defined benefit tax - where attribution is required between defined benefit interests and accumulation interests

Mary holds both a defined benefit interest and an accumulation interest. Her low tax contributed amounts for her accumulation interest are $15,000, and her defined benefit contributions for her defined benefit interest are $10,000 for the 2013-14 financial year. Her income for surcharge purposes (less reportable superannuation contributions) is $295,000 for the 2013-14 income year. Mary has no excess concessional contributions for the 2013-14 financial year.

Mary's low tax contributions are $25,000 for the 2013-14 financial year. Her taxable contributions for the 2013-14 income year are $20,000 (the amount by which her low tax contributions exceed the $300,000 threshold). Mary's assessed Division 293 tax is $3,000 - that is, 15 per cent of $20,000.

As Mary's low tax contributions includes both defined benefit contributions and low tax contributed amounts for the accumulation interest, Division 293 tax must be attributed between these interests.

Mary's defined benefit tax is 15 per cent of $5,000 ($750). The proportion of the Division 293 tax that is attributed to the defined benefit interest is calculated using the following formula:

Division 293 tax for the income year * [(Defined benefit contribution component) / (taxable contributions for the income year)]


Mary's total Division 293 tax liability for the financial year is $3,000 and her taxable contributions for the financial year are $20,000.

Her defined benefit contribution component is worked out using the following steps:

Step 1 - take the lesser of Mary's low tax contributions ($25,000) and total defined benefit contributions ($10,000) - $10,000

Step 2 - subtract the difference between Mary's low tax contributions ($25,000) and taxable contributions ($20,000) which is $5,000 ($10,000 - $5,000) = $5,000.

As a result, Mary's defined benefit contribution component is $5,000.

Mary's defined benefit tax for the financial year is therefore $750 $3,000 × ($5,000 / $20,000) = $750.

The effect of the calculation is that Mary's taxable contributions are attributed first to her accumulation interests, with the remaining part of the taxable contributions attributed to her defined benefit interest.

Mary has yet to receive any end benefit in relation to her defined benefit superannuation interest. As a result all of her defined benefit tax is eligible to be deferred to a debt account.

Mary will receive an assessment for Division 293 tax for $3,000. The Commissioner will make a determination that $750 of this amount is defined benefit tax deferred to a debt account for the defined benefit interest. The remainder of the assessed Division 293 tax of $2,250 is due and payable 21 days after the Commissioner gives the notice of assessment.

5.62 If an individual has multiple defined benefit interests to which the defined benefit tax is attributable, the defined benefit tax is attributed to each interest in the proportion that amount of defined benefit contributions for each interest bears to the total defined benefit contributions for all of those interests. Defined benefit tax needs to be attributed individually to each defined benefit interest because a separate debt account is maintained for each defined benefit interest and may be due and payable at different times. [Schedule 3, Part 1, item 2, sections 133-20 and 133-60 of Schedule 1 to the TAA 1953]

Example 5.19 : Attributing defined benefit tax to multiple defined benefit interests

Nick has two defined benefit interests, one in Fund A and one in Fund B. For the 2013-14 financial year the defined benefit contributions are $10,000 for the interest in Fund A and $15,000 for the interest in Fund B. Deferred payment of Division 293 tax applies to both interests. The Commissioner calculates Nick's taxable contributions to be $20,000, for the 2013-14 income year and his Division 293 tax is $3,000 ($20,000 × 15 per cent). The defined benefit tax attributed to the interest in Fund A is $1,200 ($10,000 / $25,000 × $3,000) and $1,800 for the interest in Fund B.

The Commissioner makes two determinations of defined benefit tax deferred to a debt account as deferred payment of the tax applies to both interests. The amount of assessed Division 293 tax that is deferred to a debt account for the interest in Fund A is $1,200, and for the interest in Fund B the amount is $1,800.

Nick will receive a notice of assessment for assessed Division 293 tax of $3,000. He will receive a determination of defined benefit tax deferred to a debt account of $1,200 for his interest in Fund A and a second determination of defined benefit tax deferred to a debt account of $1,800 for his interest in Fund B. No amount of Nick's assessed Division 293 tax is due and payable 21 days after the Commissioner gives the notice of assessment.

The Commissioner will keep debt accounts for defined benefit tax deferred to a debt account

5.63 The Commissioner must maintain a debt account for an individual for each superannuation interest they hold for which the Commissioner makes a determination of defined benefit tax deferred to a debt account. The Commissioner has power to vary or revoke the determination and make appropriate adjustments to a debt account kept by the Commissioner in relation to the superannuation interest. [Schedule 3, Part 1, item 2, section 133-60 of Schedule 1 to the TAA 1953]

5.64 The Commissioner will debit the debt account by the amount of:

•

defined benefit tax that is deferred to a debt account following a determination; and

•

interest.

5.65 The Commissioner will credit the account (if required) as a result of:

•

a determination by the Commissioner that an amount is a deferral reversal;

•

a remission of interest; or

•

a voluntary payment made by the individual to reduce the amount of the debt.

[Schedule 3, Part 1, item 2, sections 133-10, 133-25, 133-65 and 133-70 of Schedule 1 to the TAA 1953]

5.66 When the Commissioner starts to keep a debt account for deferred tax for a superannuation interest, the Commissioner must give the superannuation provider for that interest a notice that a debt account is kept for the individual. The superannuation provider then has to notify the Commissioner within 14 days of the earlier of:

•

an individual requesting payment of a benefit from the interest; or

•

a payment of a benefit being made.

5.67 The approved form requirements apply to allow the Commissioner to specify additional information that must be given by superannuation providers to the Commissioner when they notify the Commissioner of an individual's end benefit cap. These requirements also allow the Commissioner to extend the time period in which the information must be given to the Commissioner. This extension of time can be allowed to a superannuation provider upon request to the Commissioner, depending on their individual circumstances. [Schedule 3, Part 1, item 2, sections 133-75 and 133-140 of Schedule 1 to the TAA 1953]

5.68 Each debt account includes defined benefit tax for which the Commissioner makes a determination of tax deferred to a debt account until the end benefit is payable from the defined benefit interest. The debt account is debited with an amount of interest on the outstanding balance at the end of each financial year using the long term bond rate for that financial year. This ensures that the value of the balance of the debt account is maintained until eventual payment. [Schedule 3, Part 1, item 2, section 133-65 of the TAA 1953]

5.69 The Commissioner may remit part or all of the interest debited to the debt account concerning an amount of defined benefit tax if the amount of tax deferred to the debt account tax is later credited to the debt account as a result of a determination being varied or revoked, or a determination for a deferral reversal being made, where the Commissioner is satisfied it would be fair and reasonable to do so. [Schedule 3, Part 1, item 2, subsection 133-65(2) of Schedule 1 to the TAA 1953]

5.70 The Commissioner may also remit part or all of the interest debited to the debt account where he is satisfied that, because special circumstances exist, it would be fair and reasonable to do so. [Schedule 3, Part 1, item 3, subsection 133-65(3) of Schedule 1 to the TAA 1953]

Example 5.20 : Remission of interest

Paul receives a determination for defined benefit tax deferred to a debt account on 29 June. The Commissioner debits a debt account for Paul for the amount of the assessed Division 293 tax that has been deferred. Generally interest would be debited to the debt account on 30 June. However, it may not be fair and reasonable for the Commissioner to do so as Paul did not have adequate time to make a voluntary payment should he have desired before the interest is debited on 30 June. Hence the Commissioner might choose to remit the interest on the deferred amount debited on 29 June.

5.71 Individuals may make voluntary payments to reduce the outstanding balance of the debt account at any time. The Commissioner will credit the payment to the debt account and notify the individual of the new balance of the account. [Schedule 3, Part 1, item 2, section 133-70 of Schedule 1 to the TAA 1953]

When debt account discharge liabilities become due and payable

5.72 When an individual pays their debt account discharge liability, they discharge their liability for all of the amounts of assessed Division 293 tax that have been deferred to the debt account for that superannuation interest. [Schedule 3, Part 1, item 2, section 133-105 of Schedule 1 to the TAA 1953]

5.73 An individual is liable to pay their debt account discharge liability when an end benefit for that interest has become payable. [Schedule 3, Part 1, item 2, section 133-70 of Schedule 1 to the TAA 1953]

5.74 However, a special rule applies if the end benefit that becomes payable is a death benefit. In this case the individual becomes liable to pay their debt account discharge liability just before they die (with the liability then passing to the individual's estate under the general rules in sections 260-140 and 260-145 of Schedule 1 to the TAA 1953). [Schedule 3, Part 1, item 2, paragraph 133-105(2)(a) of Schedule 1 to the TAA 1953]

5.75 Payment of the end benefit for an interest also means that the defined benefit tax attributable to that interest is no longer eligible to be deferred to a debt account. Defined benefit tax attributable to an interest will also cease to be eligible for deferral where the individual is issued with a notice from the Commissioner stating the debt account discharge liability. This may occur before an end benefit becomes payable if the individual has notified the Commissioner of their request for the payment of an end benefit. [Schedule 3, Part 1, item 2, subsections 133-10(3) and 133-125(1) of Schedule 1 to the TAA 1953]

5.76 Generally, the debt account discharge liability is payable 21 days after the end benefit is paid in relation to a defined benefit superannuation interest for which the Commissioner keeps a debt account. [Schedule 3, Part 1, item 2, section 133-110 of Schedule 1 to the TAA 1953]

5.77 The liability for payment of the debt account discharge liability is not affected if another benefit is paid from the interest that is not the end benefit, after the end benefit becomes payable. For example, if a lump sum is paid in accordance with a release authority after the end benefit becomes payable but before the end benefit is paid, the due date for the debt account discharge liability will still be 21 days after the end benefit is paid.

5.78 When an individual requests a payment of a superannuation benefit (which is the end benefit) from their defined benefit interest for which the Commissioner keeps a debt account, they must notify the Commissioner in the approved form. This request for payment of the benefit will typically occur at retirement. [Schedule 3, Part 1, item 2, section 133-125 of Schedule 1 to the TAA 1953]

5.79 The notice must be given by the individual to the Commissioner within 21 days of making the request for payment of a superannuation benefit. [Schedule 3, Part 1, item 2, section 133-135 of Schedule 1 to the TAA 1953]

5.80 The superannuation provider is also required to notify the Commissioner using the approved form if they have received such a request from the individual to pay the benefit to the individual, or if the benefit becomes payable without receiving such a request. The superannuation provider is required to notify the Commissioner within 14 days of the earlier of these two events. [Schedule 3, Part 1, item 2, section 133-140 of Schedule 1 to the TAA 1953]

5.81 If the individual or superannuation provider becomes aware of any material change of information given in or omissions from the notice, they must advise the Commissioner of the change in the approved form, or give the omitted information to the Commissioner, and do so within seven days of the individual becoming aware of the change or omission. [Schedule 3, Part 1, item 2, section 133-145 of Schedule 1 to the TAA 1953]

5.82 Division 286 in Schedule 1 to the TAA 1953 imposes an administrative penalty for failing to give returns, statements, notices or other documents to the Commissioner on time and in the approved form. The penalty is equal to one penalty unit for each period of 28 days (or part) for which the document is overdue (up to a maximum of five penalty units). The administrative penalty for failing to lodge relevant taxation documents is imposed where:

•

the taxpayer is required under a taxation law to give a taxation document to the Commissioner by a particular day; and

•

the taxation document is not given to the Commissioner by that day or in the approved form.

5.83 The Commissioner must provide a notice to the individual specifying the amount of their debt account discharge liability. The Commissioner will issue the notice of the debt account discharge liability after either the individual or the superannuation provider has lodged the approved form notifying the Commissioner of the request to be paid a superannuation benefit or of an end benefit becoming payable. [Schedule 3, Part 1, item 2, section 133-125 of Schedule 1 to the TAA 1953]

5.84 After giving the notice to the individual, the Commissioner must also, as soon as practicable, give a release authority to the individual, to enable the individual to release an amount from their superannuation interest equal to the debt account discharge liability. The release authority is only given for the purpose of paying the amount of the debt account discharge liability specified in the notice. The release authority may only be given to the superannuation provider that holds the defined benefit interest for which the liability relates. [Schedule 3, Part 1, item 2, subsections 135-10(1) and 135-40(3) and table item 3 of subsection 135-10(2) of Schedule 1 to the TAA 1953]

5.85 However, in the situation where the individual that has the debt account dies and their liability passes to their estate, no release authority will be issued to the legal personal representative and the legal personal representative is not able to make use of a release authority issued to the deceased (as this must be exercised by the individual). Special rules apply to superannuation upon death and not all superannuation will necessarily go to the estate, so it would not be appropriate to provide a release authority in this situation. [Schedule 3, Part 1, item 2, subsections 135-10(5) and 135-75(1) of Schedule 1 to the TAA 1953]

5.86 There are limited circumstances in which a superannuation benefit can be paid from a defined benefit interest for which the Commissioner keeps a debt account without triggering liability to pay the debt account discharge liability for that interest. These include circumstances where the benefit payable is:

•

rolled over or transferred to a successor fund that is a complying superannuation fund;

•

paid due to satisfaction of a condition of release concerning severe financial hardship under the Superannuation Industry (Supervision) Regulations 1994;

•

paid due to satisfaction of a condition of release concerning compassionate grounds under the Superannuation Industry (Supervision) Regulations 1994; or

•

included in a legislative instrument made by a Treasury Minister as not triggering liability to pay the debt account discharge liability.

5.87 The first of these exceptions ensures that where an individual's benefits are rolled over or transferred under an arrangement where a different fund assumes the obligation to provide the same superannuation benefits as the original fund that liability to pay the debt account discharge liability is not triggered. However, this exception does not apply to a roll-over or transfer made in any other circumstances, such as where the individual requests the provider to roll-over their benefit to a different superannuation fund. [Schedule 3, Part 1, item 2, paragraph 133-130(1)(a) of Schedule 1 to the TAA 1953]

5.88 The second and third exceptions, for superannuation benefits paid due to severe financial hardship or on compassionate grounds, ensure that an individual is not required to pay a debt account discharge liability when they face serious financial hardship or other events that are recognised under the superannuation law as qualifying for compassionate consideration. [Schedule 3, Part 1, item 2, paragraphs 133-130(1)(b) and (c) of Schedule 1 to the TAA 1953]

5.89 The power for a Treasury Minister to specify, by legislative instrument, which benefits should not trigger liability to pay the debt account discharge liability provides flexibility to ensure that other payments of superannuation benefits not already excluded do not inappropriately trigger the liability to pay the debt. A legislative instrument made under this power may apply retrospectively from 1 July 2012, to align with the application date for the measure. This start date is generally to the benefit of taxpayers as it ensures that payments of superannuation benefits that would have triggered liability to pay the debt account discharge liability and remove eligibility to defer assessed Division 293 tax in future years do not do so. However, this provision is included for the avoidance of doubt to ensure that there is no uncertainty that these provision can apply from 1 July 2012. [Schedule 3, Part 1, item 2, paragraph 133-130(1)(d) and subsections 133-130(2) and (3) of Schedule 1 to the TAA 1953]

5.90 The amendments achieve the above outcome by defining end benefit as the first superannuation benefit payable from a superannuation interest other than roll-overs or transfers to successor funds, and benefits payable due to severe financial hardship or compassionate grounds, or benefits specified by a Treasury Minister in the legislative instrument. [Schedule 3, Part 1, item 2, subsection 133-130(1) of Schedule 1 to the TAA 1953]

5.91 The first superannuation benefit payable can be a superannuation lump sum or a superannuation income stream or a combination of both.

5.92 The end benefit generally becomes payable when the superannuation provider receives a request for payment of a benefit and the benefit is legally permitted to be paid by the superannuation provider. For a benefit to be payable by the superannuation provider it must meet a condition of release as set out in Schedule 1 to the Superannuation Industry (Supervision) Regulations 1994.

5.93 In some circumstances, a superannuation benefit may become payable without a request for payment. In those circumstances the benefit becomes payable when the superannuation provider is legally permitted to pay the benefit.

5.94 For example, the benefit could become payable by the superannuation provider without a request from the individual where the individual has died and a superannuation death benefit becomes payable.

5.95 The Commissioner must give a notice of the amount of debt account discharge liability for a defined benefit interest if the end benefit becomes payable or has been paid.

5.96 An individual has a debt account discharge liability and is liable to pay it if the Commissioner keeps a deferred tax debt account for the individual for a defined benefit interest and an end benefit has become payable. A release authority is also provided to the individual at this time to help pay the amount of their debt account discharge liability. [Schedule 3, Part 1, item 2, section 133-105 of Schedule 1 to the TAA 1953]

5.97 If an individual that has a debt account for deferred tax dies, the liability for debt account discharge liability does not arise at the time the end benefit becomes payable, but instead is taken to arise just before the deceased's death. The effect of this rule is to clarify that the individual is liable for the debt account discharge liability just before death, to ensure that the deceased's legal personal representative will be liable to pay the Division 293 tax from the deceased's estate. [Schedule 3, Part 1, item 2, paragraph 133-105(2)(b) and note 2 to paragraph 133-105(2)(b) of Schedule 1 to the TAA 1953]

5.98 After the end benefit becomes payable or a notice of the debt account discharge liability is issued in relation to a defined benefit interest, any assessments or amended assessments for Division 293 tax made by the Commissioner attributable to the defined benefit interest are payable within 21 days of the notice of assessment or amended assessment being given by the Commissioner as they are no longer eligible for a determination to be made for the tax to be deferred to a debt account. [Schedule 3, Part 1, items 1 and 2, sections 293-65 and 293-70 of the ITAA 1997 and subsection 133-10(3) of Schedule 1 to the TAA 1953]

5.99 Where the end benefit becomes payable or is paid for a superannuation interest to which deferred payment has applied (that is, a debt account is kept by the Commissioner for the interest) the Commissioner must:

•

give a notice of the debt account discharge liability; and

•

advise of the amount payable (see below).

[Schedule 3, Part 1, item 2, section 133-125 of Schedule 1 to the TAA 1953]

5.100 If the debt account discharge liability is not paid in full by the due and payable date it is subject to the general interest charge. [Schedule 3, Part 1, item 2, section 133-115 of Schedule 1 to the TAA 1953]

Amount of debt account discharge liability

5.101 An individual's debt account discharge liability for a superannuation interest is the lesser of:

•

the amount the debt account is in debit when the debt account discharge liability arises; and

•

the individual's end benefit cap for that superannuation interest.

[Schedule 3, Part 1, item 2, section 133-120 of Schedule 1 to the TAA 1953]

5.102 The end benefit cap is 15 per cent of the employer financed component of the value of the superannuation interest that accrued after 1 July 2012. [Schedule 3, Part 1, item 2, sections 133-120 and 133-140 of Schedule 1 to the TAA 1953]

5.103 The debt account discharge liability is, like assessed Division 293 tax, a tax-related liability for the purposes of the general tax administration by the Commissioner. Debt account discharge liabilities are included in the index of tax related liabilities in Schedule 1 to the TAA 1953. [Schedule 3, Part 2, item 20, table items 73 and 136A in subsection 250-10(2) of Schedule 1 to the TAA 1953]

5.104 An objection can be made concerning the notice of the debt account discharge liability under Part IVC of the TAA 1953. However, this objection may not relate to the amount of the liability except in relation to the application of the end benefit cap. Individuals are already entitled to object to assessments and determinations made by the Commissioner that result in assessed Division 293 tax and tax being deferred, and ultimately forming part of the debt account discharge liability. They are also entitled to have the amount of the defined benefit contributions and the end benefit cap reviewed by the Superannuation Complaints Tribunal. Providing a further right of objection in respect of these matters would, in effect, allow a further review of assessments and determinations made by the Commissioner many years after the period to object to such assessments and determinations has elapsed. In contrast, the administrative decision to apply the end benefit cap is not already subject to review. [Schedule 3, Part 1, item 2, subsection 133-125(4) of Schedule 1 to the TAA 1953]

End benefit cap

5.105 As the actual value of benefits received from a defined benefit interest can only be known with certainty when the benefit is paid, the annual assessment for Division 293 tax will be based on the defined benefit contributions which are determined with regard to the level of estimated final benefits. The actual benefit received from a defined benefit interest may be less than the level of estimated benefits on which the assessed Division 293 tax was based, sometimes significantly less. This means an individual may, in some cases, be liable for Division 293 tax despite receiving limited benefits.

5.106 To protect individuals with defined benefit interests from paying amounts of Division 293 tax on estimated employer contributions for benefits that are ultimately not payable, the debt account discharge liability is limited to 15 per cent of the employer financed component of the value of the benefit payable to the member that accrues after 1 July 2012. An individual's debt account discharge liability is the lesser of the amount by which their debt account is in debit or 15 per cent of the employer-financed component of that part of the value of the superannuation interest that accrued since 1 July 2012. [Schedule 3, Part 1, item 2, section 133-120 of Schedule 1 to the TAA 1953]

5.107 The value of the superannuation interest used to calculate the end benefit cap is worked out at the end of the financial year before the financial year in which the superannuation benefit becomes payable. [Schedule 3, Part 1, item 2, subsection 133-120(3) of Schedule 1 to the TAA 1953]

5.108 A separate end benefit cap applies to each defined benefit interest held by an individual for which there is a debit balance for a debt account maintained by the Commissioner. The Commissioner will determine if the end benefit cap as advised by the individual or the superannuation provider is lower than the debt account balance before the Commissioner issues the notice of the debt account discharge liability for an individual.

5.109 The Commissioner may request that a superannuation provider give a notice of the amount of the end benefit cap for a superannuation interest. The provider must give the notice in the approved form and within 14 days of the Commissioner making the request. This information gathering power enables the Commissioner to issue a notice of debt account discharge liability to an individual in a timely manner. The superannuation provider may also provide this information to the individual. [Schedule 3, Part 1, item 2, subsection 133-120(2) of Schedule 1 to the TAA 1953]

5.110 The approved form requirements allow the Commissioner to extend the time period in which the notice of the amount of the end benefit cap must be given to the Commissioner. This extension of time can be allowed to a superannuation provider upon request to the Commissioner, depending on their individual circumstances.

Example 5.21 : End benefit cap

John has a defined benefit interest for which the Commissioner keeps a debt account. John resigns in the 2015-16 income year and requests his entire superannuation benefit from the fund. This benefit is the end benefit as it is the first payment of a benefit from his interest. He notifies the Commissioner that he has requested payment of his benefit from his defined benefit interest. The payment of the benefit triggers the debt account discharge liability becoming due and payable. His debt account for the defined benefit interest maintained by the Commissioner has a debit balance of $10,000 at the date his end benefit is paid.

However, John receives a significantly lower resignation benefit from his defined benefit interest compared to the normal retirement benefit. The Commissioner requests the trustee of John's defined benefit interest to report the amount of his end benefit cap, based on the resignation benefit he actually received. The trustee works out the end benefit cap as 15 per cent of the amount of the employer financed component of the resignation benefit that accrued since 1 July 2012. The trustee advises the Commissioner that John's end benefit cap is $6,000.

The Commissioner issues a notice to John for his debt account discharge liability of $6,000 which is due and payable within 21 days.

Report by superannuation provider

5.111 A superannuation provider must notify the Commissioner if:

•

the Commissioner has notified the superannuation provider that a debt account is kept concerning the interest; and

•

either:

-

an individual requests that a superannuation benefit be paid from a superannuation interest that would be an end benefit; or

-

an end benefit becomes payable (whether or not a request has been made by the individual).

[Schedule 3, Part 1, item 2, section 133-140 of Schedule 1 to the TAA 1953]

5.112 The notice must be given in the approved form within 14 days of either the individual's request for the superannuation benefit, or the end benefit becoming payable, whichever is earlier. The notice must also set out the individual's end benefit cap and expected payment date. If there is a material change or omission in the information given in the notice, the correct or omitted information must be given within seven days of the provider becoming aware of the change or omission. [Schedule 3, Part 1, item 2, section 133-140 of Schedule 1 to the TAA 1953]

Paying the Division 293 tax

5.113 Division 293 tax may be paid from an individual's own money or from superannuation using a release authority. Special provisions allow individuals to give release authorities to their superannuation providers and set out certain conditions for the payment of the money.

5.114 However, where the deceased's legal personal representative is liable, the Division 293 tax must be paid from the deceased's estate. A release authority will not be issued to the legal personal representative. [Schedule 3, Part 1, item 2, subsection 135-10(5) of Schedule 1 to the TAA 1953]

5.115 An overview of the operation of release authorities and the circumstances in which they can be issued by the Commissioner and given by individuals is set out in the table below. Table 5.2 : Summary of types of release authority and their features

Overview of operation of release authorities

5.116 The amendments provide for release authorities to be issued by the Commissioner to individuals who have a liability under the measure. Release authorities are issued for liability for:

•

assessed Division 293 tax that is:

-

due and payable (liability concerning an accumulation superannuation interest);

-

deferred to a debt account (liability concerning a defined benefit superannuation interest for which the debt account discharge liability has not arisen); or

-

debt account discharge liability (liability concerning a defined benefit superannuation interest broadly for which a debt account is kept and the end benefit has become payable).

[Schedule 3, Part 1, item 2, section 135-10 of Schedule 1 to the TAA 1953]

5.117 Generally release authorities only authorise the release of an amount from an accumulation interest. This is because the structure of defined benefit schemes makes it difficult for these schemes to release amounts prior to the superannuation benefit becoming payable.

5.118 However, an exception applies where a debt account discharge liability arises. In these circumstances, defined benefit schemes will potentially be able to pay an amount under the release authority. This reflects that such a scheme must pay the superannuation benefit to the individual. [Schedule 3, Part 1, item 2, sections 135-40 and 135-90 of Schedule 1 to the TAA 1953]

Release authority for the payment of Division 293 tax - general provisions

5.119 Generally, individuals are prevented from withdrawing money from superannuation interests until they have reached preservation age and/or retired. However, where a superannuation provider is given a release authority by an individual that was issued by the Commissioner following the assessment of Division 293 tax, the individual can withdraw an amount from their superannuation for the purpose of paying Division 293 tax.

5.120 The amendments provide a framework that applies to the Commissioner, individuals and superannuation providers concerning the issue and giving of release authorities issued for the payment of Division 293 tax. [Schedule 3, Part 1, item 2, Division 135 of Schedule 1 to the TAA 1953]

5.121 The Commissioner must issue individuals with a release authority to allow payment of Division 293 tax liabilities (but not a debt account discharge liability) using money from any of their superannuation interests other than a defined benefit interest. Individuals do not have to use the release authority. [Schedule 3, Part 1, item 2, Subdivision 135-A of Schedule 1 to the TAA 1953]

The Commissioner

5.122 As soon as practicable after making an assessment of Division 293 tax or an amended assessment resulting in additional Division 293 tax being payable, the Commissioner must issue a release authority to the individual. This release authority enables the individual to have an amount released from a superannuation interest (other than a defined benefit interest) to pay all or some of the amount of their Division 293 tax liabilities. A more detailed explanation is provided below for each type of release authority. [Schedule 3, Part 1, item 2, table items 1 and 2 of subsection 135-10(1) of Schedule 1 to the TAA 1953]

5.123 However, the Commissioner is not required to issue a release authority for a nil amount. This recognises that a document with a nil amount would not serve any useful purpose. [Schedule 3, Part 1, item 2, subsection 135-10(2)]

5.124 The release authority issued by the Commissioner must:

•

state the amount of the release entitlement (the maximum amount of money that the release authority authorises to be released by a superannuation provider);

•

be dated; and

•

contain any other information the Commissioner considers relevant.

[Schedule 3, Part 1, item 2, subsection 135-10(3) of Schedule 1 to the TAA 1953]

5.125 Consistent with subsection 33(3) of the Acts Interpretation Act 1901, the Commissioner may re-issue or vary this release authority. [Schedule 3, Part 1, item 2, note to subsection 135-10(4) of Schedule 1 to the TAA 1953]

5.126 The Commissioner also has the power to issue a further release authority. The Commissioner may issue a further release authority to the individual at any other time if satisfied it is reasonable to do so. This may include when the individual requests a further release authority from the Commissioner because the required 120 day period to provide the release authority has expired and there are circumstances that prevented the individual giving the release authority to a superannuation provider. Examples of such circumstances include where the individual was overseas or if the release authority has been lost. [Schedule 3, Part 1, item 2, subsection 135-10(4) of Schedule 1 to the TAA 1953]

5.127 The further release authority will be issued in the same way as the original release authority. The individual can give the further release authority to the superannuation provider within 120 days of it being issued. The further release authority may not exceed the amount of the release entitlement. [Schedule 3, Part 1, item 2, subsection 135-10(4) of Schedule 1 to the TAA 1953]

5.128 To ensure individuals are not advantaged or disadvantaged where amounts are paid under the multiple release authorities, only the release entitlement (listed on the original release authority) is taken into account in working out the amount of non-assessable non-exempt income. [Schedule 3, Part 2, item 10, sections 303-20 and 304-20 of the ITAA 1997]

5.129 The Commissioner may give a copy of a release authority issued to an individual concerning an assessment or amended assessment (other than for a debt account discharge liability) directly to one or more superannuation providers that hold an accumulation interest for the individual. The copy of the release authority can be given by the Commissioner, if at the end of 120 days after the date of the release authority:

•

the individual has not paid the full amount of their assessed Division 293 tax that is due and payable; and

•

the Commissioner reasonably believes:

-

the individual has not given the release authority to a superannuation provider;

-

the amount(s) paid by a superannuation provider(s) falls short of the amount of assessed Division 293 tax that is due and payable; or

-

the superannuation providers that were given the release authority by the individual are unable to release the full amount of the unpaid liability as insufficient money is available for release in the superannuation interests.

[Schedule 3, Part 1, item 2, section 135-45 and note to subsection 135-54(1) of Schedule 1 to the TAA 1953]

5.130 Allowing the Commissioner to directly obtain money from a superannuation provider gives the Commissioner an additional mechanism to enforce payment of outstanding liability for assessed Division 293 tax that is due and payable.

5.131 The Commissioner may specify, in writing, that a lower amount be released under the release authority than the issued amount. This ensures that where part of the liability has been paid, the Commissioner does not collect more funds from the superannuation provider than are needed to meet the outstanding liability. [Schedule 3, Part 1, item 2, subsection 135-45(2) of Schedule 1 to the TAA 1953]

5.132 If a release authority was given by the Commissioner directly to the superannuation provider, the payment must be made by the provider to the Commissioner. The Commissioner must, as soon as possible, give the individual written notice that the payment has been made. This ensures that individuals are informed about amounts being released from their superannuation interests. [Schedule 3, Part 1, item 2, subsection 135-90(4) of Schedule 1 to the TAA 1953]

The individual

5.133 Individuals can choose to withdraw an amount equal to all, or part, of their assessed Division 293 tax from superannuation interests (other than a defined benefit interest). If an individual decides to have funds released they must provide the release authority or a copy of the release authority to the superannuation provider. They must request in writing the amount for which the release authority was issued or a lower amount to be released. Alternatively individuals may choose to pay all or part of the assessed amount from non-superannuation monies, including from their after tax income. [Schedule 3, Part 1, item 2, section 135-40 of Schedule 1 to the TAA 1953]

5.134 An individual has 120 days from the date of the release authority to decide whether to seek a release of an amount from their superannuation interests. This time period ensures that there is sufficient time to consider the decision to provide the release authority, whilst ensuring that the time period provided is not unlimited. Individuals may give the release authority to more than one superannuation provider by providing copies of the release authority. Individuals may choose to do this if, for example, one superannuation interest does not contain sufficient money. [Schedule 3, Part 1, item 2, section 135-40 of Schedule 1 to the TAA 1953]

5.135 Payments under a release authority cannot be made from defined benefit interests, with the exception of a release authority issued for debt account discharge liability. An individual can only give a release authority issued for debt account discharge liability to the provider that holds the defined benefit interest to which the debt relates. This reflects that there will generally be sufficient funds held in such a defined benefit interest at the time the end benefit is paid, given that the end benefit cap (see above) limits liability to 15 per cent of the employer financed component of the value of the superannuation interest that accrued from 1 July 2012. [Schedule 3, Part 1, item 2, subsections 135-40(3), 135-75(4) and 136-185(1) and section 135-90 of Schedule 1 to the TAA 1953]

5.136 Individuals are subject to both an administrative penalty and taxation consequences if they have amounts released from superannuation interests which exceed the amount of the release entitlement. If the superannuation provider does not comply with a release authority by releasing an amount in excess of the amount required to be released, an administrative penalty of 20 penalty units applies.

5.137 Payments made to the Commissioner in relation to release authorities are taken to be made in satisfaction of the current or anticipated tax debt of the individual for the purposes of the running balance account rules of the TAA 1953. This ensures that amounts are allocated appropriately by the Commissioner. [Schedule 3, Part 1, item 2, section 135-90 of Schedule 1 to the TAA 1953]

5.138 The Commissioner treats voluntary payments under a release authority for assessed Division 293 tax that has been deferred to a debt account as made for the purpose of reducing the debt account that interest. This ensures that the Commissioner credits the relevant debt account with the payment received. [Schedule 3, Part 1, item 2, subsection 135-90(2) of Schedule 1 to the TAA 1953]

5.139 Where the superannuation provider makes a payment authorised by a release authority the payment is a superannuation benefit. The proportioning rule does not apply to the payment made. Therefore, the superannuation provider is not required to calculate either the tax-free component or the taxable component of the superannuation benefit when they release an amount of money in accordance with the release authority. [Schedule 3, Part 1, item 2, section 135-100 of Schedule 1 to the TAA 1953]

The superannuation provider

5.140 Superannuation providers that are given a release authority for payment from an interest (other than a defined benefit interest) must pay the amount within 30 days of receiving the release authority. This ensures that amounts are paid within a reasonable period, whilst ensuring that superannuation providers have sufficient time to facilitate payments. Release authorities that must be actioned by superannuation providers are those which are issued to allow a payment in respect of:

•

an original or amended assessment of Division 293 tax;

•

the amount of a determination or amended determination of defined benefit tax deferred to a debt account; or

•

the amount of debt account discharge liability.

[Schedule 3, Part 1, item 2, section 135-75 of Schedule 1 to the TAA 1953]

5.141 For integrity purposes, payments under a release authority generally must be made to the Commissioner. However, individuals may direct their superannuation provider to release money to themselves where the release authority is issued in relation to an assessment or an amended assessment to the extent it is payable within 21 days.

5.142 This recognises that such assessments are due and payable within 21 days, whilst superannuation providers have 30 days to action a release authority they receive. Accordingly, individuals may choose in these circumstances to pay the Division 293 tax liability from other sources by the due and payable date and separately obtain the amount from the superannuation fund to compensate for this payment. [Schedule 3, Part 1, item 2, subsections 135-75(2) and (3) of Schedule 1 to the TAA 1953]

5.143 It is expected that most taxpayers will choose to pay the Division 293 tax liability from other sources rather than using a release authority to access a payment from their superannuation interest, based on the Commissioner's experience about the way that most taxpayers with liabilities for excess contributions tax have chosen to pay those liabilities.

5.144 However, where a taxpayer gives a release authority to their superannuation provider to release money to pay their Division 293 tax liability, but the payment is not received by the Commissioner by the due date because the fund released the payment after the due date, it is expected that the Commissioner will take the timing of this payment into account in determining whether any general interest charge should be remitted.

5.145 If the release authority is given for an amount of assessed Division 293 tax that is deferred to a debt account or a debt account discharge liability, the payment may only be made to the Commissioner. If the release authority is given by the Commissioner to the provider, the payment must be made to the Commissioner. [Schedule 3, Part 1, item 2, section 135-75 of Schedule 1 to the TAA 1953]

5.146 Where an individual or the Commissioner has sought that a superannuation provider pay a liability (by providing a release authority) using the individual's superannuation monies and the superannuation provider has acted on that authority, the superannuation provider must supply information to the Commissioner. The Commissioner must be given a statement in the approved form within 30 days of the amount being paid from the individual's interest. The approved form must include details of the release authority provided by the individual or the Commissioner to the superannuation provider. This reporting requirement exists also where the superannuation provider has paid the amount to the Commissioner rather than to the individual. This reporting requirement ensures that the Commissioner is advised by the superannuation provider that the release authority has been complied with. [Schedule 3, Part 1, item 2, note 3 in subsection 135-75(3) of Schedule 1 to the TAA 1953 and Part 2, item 36, paragraph 390-65(1)(a) of Schedule 1 to the TAA 1953]

5.147 The approved form may require the statement to contain, among other things:

•

details of the amount paid on behalf of or to the individual;

•

information about the superannuation provider; and

•

information about the individual who provided the release authority to the superannuation provider.

5.148 If the superannuation provider does not comply with a release authority to the extent funds are available, an administrative penalty of 20 penalty units applies for failure to pay the amount on time. [Schedule 3, Part 1, item 2, note 1 in subsection 135-75(3) of Schedule 1 to the TAA 1953 and Part 2, item 27, subsection 288-95(4) of Schedule 1 to the TAA 1953]

5.149 A superannuation provider that makes a payment under a release authority must pay 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 3, Part 1, item 2, section 135-85 of Schedule 1 to the TAA 1953]

5.150 The payment for a release authority can be made out of one or more superannuation interests held by the superannuation provider for the individual. In most cases such a payment can only be made out of an accumulation interest. This is because a superannuation provider may only make a payment from a defined benefit interest under a release authority issued for a debt account discharge liability for the defined benefit interest to which the debt account relates. Therefore, if a Division 293 tax liability arises in relation to a defined benefit interest, until the debt account discharge liability arises, an individual will need to hold a separate accumulation interest to be able to use the release authority. [Schedule 3, Part 1, item 2, subsection 135 75(4) and section 135-95 of Schedule 1 to the TAA 1953]

5.151 The Government intends to amend that the Superannuation Industry (Supervision) Regulations 1994 and the Retirement Savings Account Regulations 1997 so that where a release authority is given to a superannuation provider after it has commenced paying a superannuation income stream, the superannuation provider may to commute some or all of the income stream to a lump sum in order to comply with the release authority, subject to the rules of the superannuation plan.

Paying assessed Division 293 tax that is due and payable

5.152 A release authority is issued in relation to assessed Division 293 tax or additional assessed Division 293 tax that is due and payable 21 days after the notice of assessment or amended assessment is given. [Schedule 3, Part 1, item 2, subsection 135-10(1) of Schedule 1 to the TAA 1953]

5.153 Individuals receive an assessment for each year they have Division 293 tax. Amounts that remain unpaid after that time attract the general interest charge for each day an unpaid amount remains outstanding. [Schedule 3, Part 1, item 2, sections 293-65, 293-70 and 293-75 of the ITAA 1997]

5.154 Individuals may choose how they pay the amount of their assessed Division 293 tax that is due and payable. Payments can be made from their superannuation monies using the release authority provided (other than from defined benefit interests) or from other sources, such as after-tax income, or from a combination of both.

Example 5.22 : Paying your assessed Division 293 tax due and payable

The Commissioner makes an assessment for Mark for 2012-13 for an assessed Division 293 tax amount of $2,000. As there is no deferred payment determination the entire amount is due and payable within 21 days of the date of the notice of assessment. Mark is also issued with a release authority for $2,000.

Mark pays the assessed amount of $2,000 from his after tax income before the due and payable date. Mark has 120 days before the release authority expires to decide whether to give the release authority to his superannuation provider for the amount to be paid to him.

Example 5.23 : Paying your assessed Division 293 tax due and payable - use of release authority

Mark is a member and a trustee of his self-managed superannuation fund. The Commissioner makes an assessment for Mark for 2012-13 for an assessed Division 293 tax amount of $2,000. As there is no deferred payment determination the entire amount is due and payable within 21 days of the date of the notice of assessment. Mark is also issued with a release authority for $2,000.

Mark indicates in writing on the release authority that $1,000 is to be released from his interest in the SMSF directly to the Commissioner. As trustee of the SMSF, he arranges for the amount to be paid from his interest to the Commissioner before the due and payable date and provides a release authority statement to the Commissioner. Mark pays the balance of the assessment of $1,000 to the Commissioner from his after tax income.

Making voluntary payments to reduce a debt account - defined benefit interests

5.155 Individuals do not have to pay the amount of their assessed Division 293 tax that is deferred to a debt account within 21 days from the notice of assessment. The deferred tax is debited to the debt account the Commissioner keeps for an individual's defined benefit superannuation interest. However, individuals may make voluntary payments to reduce the balance of their debt account at any time. Payments can be made from superannuation monies (other than from a defined benefit interest) using a release authority issued for the amount of the deferred tax or from other sources. If a debt account is extinguished before the end of the financial year because an individual pays the outstanding balance, no interest applies for that financial year. [Schedule 3, Part 1, item 2, sections 133-10, 133-65 and 133-70 of Schedule 1 to the TAA 1953]

5.156 After making a determination of defined benefit tax deferred to a debt account (in relation to an assessment or amended assessment), the Commissioner must, as soon as practicable, give a release authority to the individual. The release authority issued for a determination of defined benefit tax deferred to a debt account may be used by an individual to assist with payment of so much of the assessed (or additional assessed) tax that is stated in the determination to be deferred to a debt account. [Schedule 3, Part 1, item 2, item 2 in the table in subsection 135-10(2) of Schedule 1 to the TAA 1953]

5.157 If an individual makes a payment to the Commissioner to reduce the amount of their debt account, the Commissioner must:

•

acknowledge receipt of the payment to the individual;

•

credit the payment to the debt account at the time of receipt; and

•

notify the individual of the revised balance of the debt account.

[Schedule 3, Part 1, item 2, section 133-70 of Schedule 1 to the TAA 1953]

Paying debt account discharge liabilities - defined benefit interests

5.158 The debt account discharge liability for an interest is payable 21 days after the day when the end benefit for that interest is paid. [Schedule 3, Part 1, item 2, sections 133-110 and 133-130 of Schedule 1 to the TAA 1953]

5.159 When an individual pays their debt account discharge liability for a superannuation interest, the individual discharges their liability for their assessed Division 293 tax that has been deferred to the debt account for that superannuation interest for all income years. [Schedule 3, Part 1, item 2, subsection 133-105(3) of Schedule 1 to the TAA 1953]

5.160 Individuals have the option to choose how they pay their debt account discharge liability:

•

with monies from their defined benefit superannuation interest to which the debt account relates, using a release authority issued by the Commissioner;

•

from other sources, such as after-tax income; or

•

a combination of both.

5.161 The individual may only give the release authority for a debt account discharge liability to the superannuation provider that holds the defined benefit interest to which the liability relates. [Schedule 3, Part 1, item 2, subsection 135-40(3) of Schedule 1 to the TAA 1953]

5.162 Where the individual has a debt account discharge liability, they may wish to give the release authority to the superannuation provider to have the amount of the liability paid directly to the Commissioner. The amount paid under the release authority is non-assessable non-exempt income of the individual and the proportioning rule does not apply to the amount paid. [Schedule 3, Part 1, item 2, section 135-100 of Schedule 1 to the TAA 1953 and Part 2, items 9 and 10, sections 10-5, 11-55, 303-20 and 304-20 of the ITAA 1997]

Example 5.24 : Paying debt account discharge liability

The Commissioner issues a notice to Mark for a $20,000 debt account discharge liability for his defined benefit interest. The amount is due and payable 21 days from the date of the payment of the end benefit. The Commissioner also gives a release authority to Mark. Mark can only give the release authority to the provider holding the defined benefit interest to which the debt relates.

Mark gives the release authority to the superannuation provider requesting that the amount of $20,000 be paid from his interest. This amount is paid directly to the Commissioner before the due and payable date.

Income tax treatment of payments under release authorities

Non-assessable non-exempt payments

5.163 Where funds are released in accordance with a release authority, including from a defined benefit interest to which a debt account discharge liability relates, the funds released to an individual (in the case of assessed Division 293 tax payable within 21 days) or paid to the Commissioner for the individual are non-assessable non-exempt income to the extent that the amounts released do not exceed the amount of the release entitlement as stated on the release authority issued by the Commissioner. [Schedule 3, Part 2, item 9, section 303-20 of the ITAA 1997]

5.164 If the fund rules that apply in relation to the defined benefit interest do not allow a lump sum superannuation benefit to be paid (for example where the only benefit payable from the interest is a non-commutable superannuation income stream benefit), then no amount can be paid by the superannuation provider. Individuals should notify the Commissioner as early as possible after requesting a superannuation benefit to enable a release authority to be provided by the Commissioner and funds to be released prior to or at the same time as the payment of the requested superannuation benefit. Funds released under a release authority and paid to the Commissioner are non-assessable, non-exempt income and the proportioning rule does not apply. [Schedule 3, Part 2, item 9, section 303-20 of the ITAA 1997]

5.165 In contrast if the superannuation benefit is first paid to the individual as a lump sum and they organise to pay the Commissioner from these funds, they may be liable to income tax on the amount released to them under the taxation rules that apply to superannuation benefit payments. This can be avoided by the individual by ensuring the amount of the debt account discharge liability is paid to the Commissioner from the fund by using a release authority before the any of the benefit is paid to the individual.

Treatment of excess payments from release authorities

5.166 If payments made in relation to a release authority are in excess of the amount of the release entitlement stated on the release authority, the excess amount is assessable income of the individual. This ensures that individuals who, for example, provide multiples copies of a release authority to different superannuation providers and the total amount released from superannuation is in excess of the amount of the release entitlement stated on the release authority then they are liable to income tax at their marginal tax rate on the excess amount. If the Commissioner issues a further release authority then the excess amount included in the individual's assessable income is the amount released from superannuation that is in excess of the issued amount of the original release authority only. [Schedule 3, Part 1, item 2, section 135-10 of Schedule 1 to the TAA 1953 and Part 2, item 9, section 304-20 of the ITAA 1997]

5.167 In addition, individuals are liable to an administrative penalty of 20 penalty units if the total amount released from superannuation exceeds the amount of the release entitlement stated on the release authority by the Commissioner. This is also intended to discourage individuals seeking to withdraw amounts from superannuation in excess of the amount which is authorised and therefore preserves the integrity of the superannuation system. [Schedule 3, Part 2, item 29, section 288-100 of Schedule 1 to the TAA 1953]

Interest charge

Shortfall interest charge

5.168 Shortfall interest charge applies where an amount of Division 293 tax becomes due and payable as a result of an amended assessment for an income year. [Schedule 3, Part 2, item 23, section 280-102B of Schedule 1 to the TAA 1953]

5.169 Shortfall interest charge applies to the amount of an assessment for each day from the date that the first assessment of Division 293 tax was payable and ending on the day the amended notice of assessment was given by the Commissioner. [Schedule 3, Part 2, item 23, subsection 280-102B(3) and section 280-105 of Schedule 1 to the TAA 1953]

5.170 Where an amended assessment reduces a liability and a later amended assessment reinstates all or part of that liability, shortfall interest charge applies to the amount that is reinstated, from the due and payable date of the earlier amended assessment. [Schedule 3, Part 2, item 23, subsection 280-102B(4) of Schedule 1 to the TAA 1953]

5.171 Shortfall interest charge does not apply to an amount of Division 293 tax arising as a result of an amended assessment that is deferred to a debt account. This is because the amount has not become due and payable. [Schedule 3, Part 2, item 23, subsection 280-102B(2) of Schedule 1 to the TAA 1953]

5.172 The Commissioner must give an individual a notice stating the amount of the shortfall interest charge liability. This amount can be included in another notice that the Commissioner gives to the individual such as the notice of the amended assessment. The notice serves as prima facie evidence of the shortfall interest charge liability.

Remission of shortfall interest charge

5.173 An individual can seek to have shortfall interest charge that has been imposed remitted in whole or part. The Commissioner has established guidelines setting out factors to be taken into account in deciding if shortfall interest charge should be remitted. [Schedule 3, Part 2, item 25, subsection 280-110(1) of Schedule 1 to the TAA 1953]

5.174 An individual may object to a remission decision by the Commissioner. Where an unremitted amount of shortfall interest charge exceeds 20 per cent of the tax shortfall, the objection, review and appeal rights in Part IVC of the TAA 1953 are available to the individual. The rights include a right to object to the merits of a decision made by the Commissioner, a right to have the Administrative Appeals Tribunal review the objection decision and a right to appeal the decision to the Federal Court. [Schedule 3, Part 2, item 26, section 280-170 of Schedule 1 to the TAA 1953]

General interest charge

Assessed Division 293 tax unpaid by the due and payable date

5.175 Assessed Division 293 tax that is not deferred to a debt account is due and payable 21 days after the notice of assessment or amended assessment is given to an individual by the Commissioner. General interest charge applies to an amount of assessed Division 293 tax, shortfall interest charge or general interest charge for each day they remain unpaid. The Commissioner may remit the general interest charge under the existing remission guidelines. General interest charge is calculated in accordance with Part IIA of the TAA 1953. [Schedule 3, Part 1, item 1, section 293-75 of the ITAA 1997]

5.176 Shortfall interest charge is due and payable 21 days after the day on which the Commissioner gives the individual notice of the charge. Shortfall interest charge is calculated in accordance with the general rules in Division 280 in Schedule 1 to the TAA 1953. [Schedule 3, Part 1, item 1, note 2 and note 3 in section 293-75 of the ITAA 1997]

Debt account discharge liabilities unpaid by the due and payable date

5.177 Debt account discharge liabilities are payable 21 days after the day when the end benefit for the relevant interest is paid. Amounts that remain unpaid after that time attract general interest charge for each day they are unpaid. The Commissioner may remit the general interest charge under existing remission guidelines. The general interest charge is calculated in accordance with Part IIA of the TAA 1953. [Schedule 3, Part 1, item 2, section 133-115 of Schedule 1 to the TAA 1953]

Other amendments

Tax deductibility of payments

5.178 The amendments ensure that payments of Division 293 tax are not deductible for income tax purposes. [Schedule 3, Part 2, item 8, section 26-100 of the ITAA 1997]

Compensation for acquisition of property

5.179 The amendments address the situation where the release of money under a release authority to allow payment of Division 293 tax, tax deferred to a debt account or a debt account discharge liability would interfere with a person's property rights in a way that contravenes section 51(xxxi) of the Constitution. If such a breach occurs so that the Commonwealth has acquired property from an entity otherwise than on just terms, then reasonable compensation must be paid by the Commonwealth to the entity. [Schedule 3, Part 1, item 2, subsection 135-90(1) of Schedule 1 to the TAA 1953]

5.180 The provision confers jurisdiction on a court of competent jurisdiction to determine the compensation that might be necessary to ensure that the acquisition of property by the Commonwealth has occurred on just terms. [Schedule 3, Part 1, item 2, subsection 135-80 of Schedule 1 to the TAA 1953]

Evidence and power to obtain information

5.181 The framework for the evidentiary effect of official tax documents in Division 350 in Schedule 1 to the TAA 1953 is extended to Division 293 tax. [Schedule 3, Part 2, item 30, paragraph 350(5)(c) of Schedule 1 to the TAA 1953]

5.182 The rules that protect the confidentiality of taxpayer information and allow the Commissioner to access premises and gather information for other indirect tax laws is also extended to the Division 293 tax. [Schedule 3, Part 2, item 31, subparagraph 353-10(1)(a)(iia), item 32, subparagraphs 353-10(1)(b)(iia) and (c)(iia), item 33, section 353-15, and item 34, subsection 353-15(1) of Schedule 1 to the TAA 1953]

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:

•

in respect of the GGA 1974 and the PCSA 1948, the Secretary of the Department of Finance and Deregulation (Finance Secretary); and

•

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:

•

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 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:

•

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

•

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:

•

the person's surcharge debt account is not in debit; or

•

one of the following conditions is satisfied:

-

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;

-

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

-

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:

•

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 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:

•

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

•

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:

•

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

•

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

•

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.

Minister for Financial Services and Superannuation, the Hon Bill Shorten

Index

Schedule 1: Superannuation concessional contributions cap

Schedule 2: Low income superannuation contribution: technical amendments

Schedule 3: Sustaining the superannuation contribution concession

Schedule 4: Sustaining the superannuation contribution concession: consequential amendments