House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

General Outline and Financial Impact

The Taxation Laws Amendment (Superannuation) Bill 1993 will amend various Acts (unless otherwise indicated all amendment refer to the Income Tax Assessment Act 1936 ) by making the following changes:

Continuously Complying Fixed Interest Approved Deposit Funds

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Enables approved deposit funds (ADFs) to take into account profits from the disposal of securities to determine whether they qualify as continuously complying fixed interest ADFs.

Date of effect: 1 July 1988.

Proposal announced: Treasurer's Press Release No 138 of 4 September 1992.

Financial impact: The proposal has no revenue implications.

Notice requirements for personal superannuation contributions

•

Provides for a taxpayer to be eligible for a deduction for personal superannuation contributions to a complying superannuation fund only if:

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the taxpayer gives a notice to the fund stating the amount of their personal superannuation contributions that they are intending to claim as a tax deduction; and

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they receive an acknowledgment of the notice from the fund indicating that the fund will include the amount covered by the notice as taxable contributions.

•

Provides that personal superannuation contributions will not be treated as taxable contributions by a complying superannuation fund unless the fund has received a notice from the member stating that he or she is intending to claim a deduction for his or her contributions.

Date of effect: Contributions made to a fund on or after 1 July 1992, other than contributions made by a person who has ceased to be a member of the fund before the date of Royal Assent.

Proposal announced: Not previously announced.

Financial impact: The proposal will not have any financial impact.

Death Benefit ETPs

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Taxes death benefit eligible termination payments (ETPs) within the deceased's reasonable benefit limits (RBLs) as follows:

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benefits paid to dependants will be exempt from tax;

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benefits paid to non-dependants will be taxed as ordinary ETPs. However, the post-June 1983 component of such ETPs will be taxed at a maximum rate of 15 % (plus medicare levy) if paid from a taxed source or 30% (plus medicare levy) if paid from an untaxed source.

•

Taxes benefits in excess of the deceased's RBL entitlement will be taxed as an excessive component of an ETP.

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Enables lump sum benefits arising as a result of superannuation pensions or annuities that have commenced to be payable to receive the same taxation treatment as death benefit ETPs.

Date of effect: 1 July 1994

Proposal announced: The measures were announced by the Treasurer in his Security in Retirement - Planning for Tomorrow Today statement on 30 June 1992.

Financial impact: The proposals are not expected to have any revenue implications.

Reasonable Benefit Limits

•

Assesses lump sum superannuation benefits paid to a person, as the result of the death of another person, against the deceased's reasonable benefit limit (RBL).

Date of effect: 1 July 1994.

Proposal announced: Treasurer's 'Security in Retirement - Planning for Tomorrow Today' Statement of 30 June 1992.

Financial impact: The amendments are not expected to have any effect on revenue.

Taxation of excessive component

•

Ensures the excessive component of an eligible termination payment is taxed at the top marginal rate of tax (currently 47%) plus Medicare levy.

Date of effect: The 1994-95 year of income and subsequent years.

Proposal announced: Treasurer's 'Security in Retirement - Planning for Tomorrow Today' Statement of 30 June 1992.

Financial impact: This proposal, combined with the measures relating to limits on deductions for superannuation contributions and reasonable benefit limits, is expected to increase revenue by $20 million in 1995-96.

Allocated annuities

•

Ensures that income derived by an annuity provider in respect of allocated annuity policies is exempt from tax and that allocated annuities are not qualifying securities for Division 16E purposes.

Date of effect: Annuities purchased on or after 22 December 1992.

Proposal announced: Treasurer's 'Security in Retirement - Planning for Tomorrow Today' statement of 30 June 1992.

Financial impact: None.

Amendments to the Occupational Superannuation Standards Act

The Occupational Superannuation Standards Act 1987 (OSS Act) will be amended by making the following changes:

Amendments relating to transferred retiree members of superannuation funds

•

Allows 'transferred retiree members' to fund benefits from any ETP, rather than only direct fund to fund transfers.

Date of effect: Royal Assent

Proposal announced: Not previously announced.

Financial Impact: No significant impact on the revenue.

Amendments relating to the notifications of breaches of superannuation fund conditions

•

Allows the Regulations to specify circumstances in which employer-sponsors should be notified, and which employers to notify.

Date of effect: Proclamation

Proposal announced: Not previously announced.

Financial Impact: No impact on revenue.

•

Provides that subsection 12(3A) of the Principle Act applies and has always applied to breaches, or so much of the breach that occurred after 30 June 1992.

Date of effect: Royal Assent.

Proposal announced: Not previously announced.

Financial impact: No impact on revenue.

Amendments relating to prospectuses

•

Allows the Commissioner to exempt (conditionally or otherwise) individual funds from the prospectus provisions, or to modify their application. Any of the Commissioner's decisions are reviewable.

Date of effect: Royal Assent.

Proposal announced: Not previously announced.

Financial Impact: No effect on revenue.

Amendments relating to disclosure of information about particular superannuation funds

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Formalises the arrangements under which the ISC releases certain information and allows the release of information that is voluntarily passed on by funds.

Date of effect: Royal Assent

Proposal announced: Not previously announced.

Financial impact: No effect on revenue.

Amendment relating to reporting of eligible termination payments for reasonable benefit limits

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Clarifies that certain payers of ETPs, in addition to superannuation funds and ADFs, are eligible for the exemption from RBL reporting of payments up to the threshold amount prescribed in the regulations.

Date of effect: 24 December 1991

Proposal announced: Not previously announced.

Financial impact: No significant effect on the revenue.

Amendments relating to defined benefit superannuation schemes

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Modifies the current definition of defined benefit superannuation scheme in the Superannuation Guarantee (Administration) Act 1992 (the Act) to allow the trustee of a scheme which is not a defined benefit superannuation scheme to elect that the scheme be treated as a defined benefit superannuation scheme for the purposes of the Act.

Date of effect: Apply to assessment issued in the 1992-93 year and subsequent years.

Proposal announced: Not previously announced.

Financial impact: Nil.

Clauses involved in the proposed amendments

Preliminary

Clause 1: Stipulates the short title of the Act as being Taxation Laws Amendment (Superannuation) Act 1993.

Clause 2: Stipulates the commencement dates of the provisions of the Bill.

Income Tax Assessment Act 1936

Clause 3: Defines "Principal Act" as meaning the Income Tax Assessment Act 1936 for the amendments proposed in Part 2 of the Bill.

Continuously complying fixed interest Approved Deposit Funds

[See pages 17-18 for further detail]

Clause 4: Amends the definition of fixed interest complying ADF in subsection 290A(4) to ensure that profits on the disposal of securities are taken into account in the same way as interest in working out whether an ADF has satisfied the 90% test.

Clause 5: Proposes that the amendments apply with effect from 1 July 1988.

Notice requirements for personal superannuation contributions

[See pages 19-27 for further detail]

Clause 6: Removes existing subsections 82AAT(1) to (1D) (inclusive) and replaces them with new subsections 82AAT(1) to (1E) which outline the conditions that an eligible person must satisfy in order to be entitled to a deduction for their personal superannuation contributions.

Clause 7: Makes a minor consequential amendment to proposed paragraph 82AAT(2A)(a) (which is contained in Taxation Laws Amendment (Superannuation) Bill 1992).

Clause 8: Removes redundant definitions from subsection 267(1).

Clause 9: Amends section 274 to ensure that personal contributions paid to a superannuation fund are taxable contributions only if the member has notified the fund that he or she is intending to claim a deduction for the contributions.

Clause 10: Makes consequential amendments to section 276.

Clause 11: Provides that the amendments apply to contributions made to a fund on or after 1 July 1992, other than contributions made by a person who has ceased to be a member of the fund before the date of Royal Assent.

Death Benefit ETPs

[See pages 29-42 for further detail]

Clause 12: Amends section 27A to:

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extend paragraphs (aa), (ba) and (ca) of the definition of ETP in subsection 27A(1) to payments made to dependants;

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insert in subsection 27A(1) a definition of death benefit ETP;

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omit subsections 27A(4), (4A), (5BA) and (12D);

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extend subsection 27A(12B) so that death benefit ETPs cannot be rolled-over; and

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amend paragraph 27A(12C)(a) so that an ETP received as a result of the commutation of a reversionary superannuation pension can only be rolled-over by the spouse of the original pensioner.

Clause 13: Inserts new section 27AAA to identify the types of payments that are treated as death benefit ETPs and to provide concessional treatment for death benefits that are paid to dependants.

Clause 14: Inserts new subsection 27B(1A) so that the post-June 1983 component of death benefit ETPs are included in the recipient's assessable income.

Clause 15: Amends section 159S by removing a number of redundant definitions and inserting definitions of s.27B(1A)(a) amount and s.27B(1A)(b) amount . Amends the definition of eligible assessable income.

Clause 16: Removes the existing section 159SA and inserts a new section 159SA to identify the maximum rates of tax payable on eligible assessable income.

Clause 17: Removes sections 159SB, 159SC, 159SD and 159SE.

Clause 18: Amends section 159SG by removing paragraphs (1)(a) and (1)(b).

Clause 19: Removes section 159SH.

Clause 20: Proposes that the amendments apply to payments made on or after 1 July 1994.

Reasonable Benefit Limits

[See pages 43-46 for further detail]

Clause 21: Inserts new section 140CA to assess a death benefit eligible termination payment (ETP) against the deceased's reasonable benefit limit (RBL).

Clause 22: Removes subsection 140S(2) so that the Commissioner is no longer required to revise a determination in relation to an ETP paid to the trustee of a deceased estate where dependants of the deceased will benefit from the ETP. Such an ETP is to be assessed against the deceased's RBL irrespective of who will benefit from the ETP.

Clause 23: Removes paragraphs 140ZC(2)(f) and (i) to ensure certain death benefits are counted for RBL purposes.

Clause 24: Inserts new subsection 140ZF(5) to ensure a death benefit ETP is assessed against the deceased's pension RBL rather than the lump sum RBL.

Clause 25: Provides that the proposed amendments apply to ETPs made on or after 1 July 1994.

Taxation of excessive component

[See pages 47-66 for further detail]

Clause 26: Amends section 59AB of the Act to link the determination of notional income under the section to the calculation in Schedule 9 of the Rates Act of the rate of tax on ordinary taxable income (as defined by clause 44 ).

Clause 27: Amends section 86 of the Act corresponding to the amendment of section 59AB by clause 38.

Clause 28: Amends subsection 149A(1) to ensure that an excessive component of an ETP is not included in taxable income or assessable income of a primary producer for the purpose of calculating a primary production rebate, complementary tax or average income. The exclusion also extends to death benefits included in assessable income under proposed subsection 27B(1A) (see Chapter 3 ).

Clause 29: Provides the date of application of the proposed amendments made by clauses 38, 39 and 40 , i.e. the 1994-95 and all later years of income.

Clause 34: Amendment of assessments.

Income Tax Rates Act 1986

Clause 35: Defines Principal Act as meaning the Income Tax Rates Act 1986 for the amendments proposed in Part 3 of the Bill.

Clause 36:

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Amends the 'special income component' definition in subsection 3(1) of the Rates Act to ensure allowable deductions from assessable income reduce the special income component (as currently defined) before reducing the excessive component.

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Provides a definition of the EC part of taxable income as the part of taxable income which comprises an excessive component of an ETP.

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Provides a definition of ordinary taxable income as the amount of taxable income (if any) which is not an excessive component.

Clause 37: Amends Schedule 7 of the Rates Act to provide tax rates for taxable income which includes an excessive component.

Clause 38: Amends Schedule 8 of the Rates Act as a consequence of the amendment to clause 1 of Schedule 7.

Clause 39: Amends Schedule 9 of the Rates Act to provide tax rates for taxable income which includes notional income and an excessive component.

Clause 40: Amends Schedule 10 of the Rates Act as a consequence of the amendment to clause 1 of Schedule 7.

Clause 41: Amends Schedule 11 of the Rates Act to provide tax rates for taxable income of minors which includes an excessive component.

Clause 42: Amends Schedule 12 of the Rates Act to provide tax rates applicable to a trustee in respect of a minor's share of net income of a trust estate which includes an excessive component.

Clause 43: Provides the date of application of the proposed amendments, i.e. the 1994-95 and all later years of income.

Allocated annuities

[See pages 67-68 for further detail]

Clause 30: Inserts a definition of annuity in subsection 110(1) by reference to section 3 of the Occupational Superannuation Standards Act 1987 (OSSA) so that the income derived by life assurance companies in respect of allocated annuity policies will be exempt from tax.

Clause 31: Inserts a definition of annuity in subsection 116E(1) by reference to section 3 of OSSA so that the income derived by registered organisations in respect of allocated annuity policies will be exempt from tax.

Clause 32: Inserts a definition of annuity in subsection 159GP(1) by reference to section 3 of OSSA so that allocated annuities are not qualifying securities.

Clause 33: Proposes that the amendments apply to annuities purchased on or after 22 December 1992.

Taxation Laws Amendment (Superannuation) Act 1992

Clause 62: Defines Principal Act as meaning the Taxation Laws Amendment (Superannuation) Act 1992 for the amendments proposed in Part 6 of the Bill.

Clause 63: Repeals section 35 of Taxation Laws Amendment (Superannuation) Act 1992.

Clause 64: Proposes that the amendments apply to annuities purchased on or after 22 December 1992.

Clause 65: Amends section 51 of Taxation Laws Amendment (Superannuation) Act 1992.

Amendments to the Occupational Superannuation Standards Act

Transferred retiree members of superannuation funds

[See pages 69-70 for further detail]

Clause 44: Defines "Principal Act" as meaning the Occupational Superannuation Standards Act 1987 (OSS Act) for the amendments proposed in Part 4 of the Bill.

Clause 45: Amends section 3 of the OSS Act by omitting subparagraph (b) of the definition of "transferred retiree member" in subsection (1) and substituting a paragraph which explains that the payment which funds the benefit of such a member must represent the roll-over of an eligible termination payment within the meaning of that phrase in the Tax Act.

Clause 46: Provides that the date of application of the proposed amendments, in relation to amounts paid to the trustee of a fund, is after the commencement of this section.

Notification of breaches of superannuation funds conditions

[See pages 71-74 for further detail]

Clause 47: Provides for the Regulations to specify circumstances in which employer sponsors should be notified or not notified, and which employers to notify, in the event of a breach of a superannuation fund condition which the trustees of the fund wish to ensure will be disregarded by the Commissioner.

Clause 48: Provides that the amendments made by Clause 47 apply to a breach, or so much of a breach, that occurred after the commencement of this section.

Clause 49: Provides that subsection 12(3A) applies, and has always applied, to a breach, or so much of a breach, that occurred after 30 June 1992.

Prospectuses

[See pages 75-78 for further detail]

Clause 50: Provides for the amendment of the definition in section 3 of the OSS Act of "reviewable decision" to include reference to the provisions outlined in Clause 51.

Clause 51: Allows the Commissioner to exempt, conditionally or otherwise, individual funds from the prospectus provisions, or to modify their application.

Clause 52: Makes decisions made in respect of Clause 51 reviewable.

Disclosure of information about superannuation funds

[See pages 78-81 for further detail]

Clause 53: Formalises the arrangements under which the Commissioner releases information and extends the ability of the Commissioner to disclose certain information that is voluntarily provided by superannuation funds.

Amendments relating to reporting of eligible termination payments for reasonable benefit limits

[See pages 83-84 for further detail]

Clause 54: Inserts new subsection 15G(4) to clarify that certain payers of ETPs are eligible for the exemption from RBL reporting of payments up to the threshold amount prescribed in the regulations.

Clause 55: Proposes that the amendments apply from 24 December 1991.

Amendments to the Superannuation Guarantee (Administration) Act 1992 - definition of defined benefit superannuation schemes

[See pages 85-89 for further detail]

Clause 56: Provides that the amendments apply to the Superannuation Guarantee (Administration) Act 1992 (the Act).

Clause 57: Omits the definition of 'defined benefit superannuation scheme' from subsection 6(1).

Clause 58: Inserts new sections 6A and 6B. New section 6A inserts a new definition of 'defined benefit superannuation scheme'. This definition:

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restates the definition deleted from section 6; and

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adds a new category of superannuation scheme to the definition, being a scheme in relation to which a conversion notice has effect.

New section 6B defines what a conversion notice is, and sets out the date on which a conversion notice may take effect and the conditions which must be satisfied for a conversion notice to be effective. The section also provides for the revocation of a conversion notice and sets out the conditions which must be satisfied for a revocation to be effective.

Clause 59: Amends section 10 by adding a further circumstance in which a benefit certificate ceases to have effect.

Clause 60: Amends section 23 by adding a new subsection (8A). New subsection 23(8A) ensures that contributions to a scheme at a time when a conversion notice is in force, are not claimed a second time, for example, as prepaid contributions, in a period before or after the period in which the conversion notice is effective.

Clause 61: Proposes that the amendments apply to assessments in respect of the 1992-93 and subsequent financial years.