House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Superannuation Contributions Taxes and Termination Payments Tax Legislation Amendment Bill 2001

This Bill amends the SCT(A & C)A 1997, the SCT(MCPSF)A 1997 and the TPT(A & C)A 1997 to improve the operation of the termination payments surcharge and the superannuation contributions surcharge as they apply to employer ETPs. In particular, this Bill amends these Acts to:

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make the existing transitional arrangements permanent where they relate to the portion of a termination payment that is subject to surcharge;

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change how a taxpayers adjusted taxable income is determined under the surcharge legislation in certain circumstances; and

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exempt the excessive component of an employer ETP from liability to the termination payments surcharge.

Date of effect: The amendments to the SCT(A & C)A 1997 and the TPT(A & C)A 1997 will take effect from 5 June 1997. The amendments to the SCT(MCPSF)A 1997 will take effect from 7 December 1997. These are the dates of effect of the relevant legislation.

However, the exemption of the excessive component of an employer ETP from the termination payments surcharge will only apply to payments made after 7.30 pm, by legal time in the Australian Capital Territory, on 22 May 2001.

Proposal announced: 2001-2002 Federal Budget.

Financial impact: The proposed amendments are expected to result in a revenue cost of $14 million in 2001-2002, $21 million in 2002-2003, $17 million in 2003-2004 and $21 million in 2004-2005.

Compliance cost impact: Superannuation providers will need to provide additional information to the ATO where an employer ETP has been rolled over to a superannuation provider. However, all the information required to be reported is already obtained by superannuation providers when the payment is rolled over.

Summary of regulation impact statement

Regulation impact on business

Impact: Where an employer ETP has been rolled over to a superannuation provider, additional reporting by the provider will be required. However, all the information required to be reported is already obtained by superannuation providers when the payment is rolled over.

Main points:

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The 2001-2002 Federal Budget announced a package of amendments to the termination payments surcharge and the superannuation contributions surcharge legislation.

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The amendments will improve the operation of the surcharge legislation as it applies to employer ETPs, such as redundancies.

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The objective of these amendments is to improve the overall equity of the surcharge legislation. The issues specifically addressed by the amendments are:

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where an employer ETP is received after 19 August 2001, the retained amount of the payment is potentially surchargeable (including any amount which may relate to pre-20 August 1996 service, that is, before the date of the original 1996-1997 Federal Budget announcement);

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certain individuals who would not normally be subject to the surcharge may become liable to pay the surcharge in a given year as a consequence of receiving an employer ETP; and

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some individuals may be faced with an effective tax rate greater than the top marginal income tax rate plus the Medicare levy on their employer ETP due to the interaction of the surcharge and the RBL systems.

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The impact of the amendments will be to reduce the amount of surcharge payable as a result of receiving certain termination payments, and to improve the overall operation of the surcharge legislation.

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The impact groups affected by these amendments are superannuation providers, certain individuals who received an employer ETP after 20 August 1996 and the ATO.