House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Taxation Laws Amendment (Superannuation) Bill (No. 2) 2002

The main purpose of this bill is to implement 5 measures designed to enhance the overall attractiveness, accessibility and security of superannuation. In particular, the 5 measures will:

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require employers to make at least quarterly superannuation contributions on behalf of their employees;

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reduce the superannuation surcharge rates by one-tenth of their current level over 3 years;

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allow superannuation contributions to be made on behalf of children who would not otherwise have superannuation;

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increase the deduction limit for personal superannuation contributions made by the self employed; and

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increase from 70 to 75 the age up to which working members of superannuation funds can make personal superannuation contributions.

This bill also includes a range of enhancements to the SGAA 1992, and a number of technical amendments to correct legislative oversights arising from the Taxation Laws Amendment (Superannuation) Act (No. 1) 2002 (which enables superannuation to be paid to temporary residents who permanently depart Australia), the TLAA5 2001 (which provides for a CPF to change status to a taxed fund) and the Family Law Legislation Amendment (Superannuation) (Consequential Provisions) Act 2001 (which ensures the appropriate tax treatment is applied to superannuation interests which may be split).

Date of effect: Four of the 5 measures contained in this bill will take effect from 1 July 2002, with the exception being the introduction of the quarterly SG regime which will commence from 1 July 2003.

The technical amendment allowing for an amalgamation of payment summaries will commence on the later of 1 July 2002 or Royal Assent, and all of the other technical amendments will commence on the later of 1 July 2002 or the 28th day following Royal Assent.

Proposal announced: The 5 main measures were foreshadowed in the Governments election policy statement A Better Superannuation System released on 5 November 2001. In line with this statement, the implementation of these measures was announced in the 2002-2003 Federal Budget.

The enhancements to SG and the minor technical amendments have not been previously announced.

Financial impact: The 5 main measures are expected to result in the following revenue impacts:

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for quarterly SG, a revenue gain of $35 million in 2003-2004, $5 million in 2004-2005 and $6 million in 2005-2006;

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for the reduction in surcharge rates, a revenue cost of $50 million in 2003-2004, $120 million in 2004-2005 and $200 million in 2005-2006;

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for child contributions, a revenue cost of $0.2 million in 2002-2003, $0.6 million in 2003-2004, $1 million in 2004-2005 and $1.5 million in 2005-2006;

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for the increased fully deductible amount for self-employed persons, a revenue cost of $10 million for 2003-2004, $10 million for 2004-2005 and $10 million for 2005-2006; and

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for allowing personal superannuation contributions up to age 75, there will be a negligible impact on revenue.

Compliance cost impact: Some employers will have additional compliance obligations under a quarterly SG regime. The impact will vary depending on a number of factors including current frequency of payment of contributions. Administrative costs are likely to be incurred in reporting to employees on contributions made on their behalf.

Some public sector superannuation schemes may have additional reporting obligations as a result of the surcharge reduction.

Superannuation Guarantee Charge Amendment Bill 2002

The main purpose of Superannuation Guarantee Charge Amendment Bill 2002 is to provide for the quarterly imposition of the SGC.

Date of effect: These amendments, giving effect to a quarterly SG regime, will commence from 1 July 2003.

Proposal announced: The amendments contained in the Superannuation Guarantee Charge Amendment Bill 2002 derive from the quarterly SG regime proposed in the Governments election policy statement A Better Superannuation System released on 5 November 2001.

Financial impact: The amendments made by the Superannuation Guarantee Charge Amendment Bill 2002 are an integral part of the move to a quarterly SG regime. As the majority of the amendments to enact this measure are contained in the Taxation Laws Amendment (Superannuation) Bill (No. 2) 2002, the financial impact of the measure is discussed under the outline of that bill.

Compliance cost impact: The amendments made by the Superannuation Guarantee Charge Amendment Bill 2002 are an integral part of the move to a quarterly SG regime. As the majority of the amendments to enact this measure are contained in the Taxation Laws Amendment (Superannuation) Bill (No. 2) 2002, the compliance cost impact of the measure is discussed under the outline of that bill.

Summary of regulation impact statement

Regulation impact on business

Impact: The move to a quarterly contribution regime under the SG system will impact on different employers in different ways depending on the regularity of contributions they currently make and whether they become subject to the SGC.

Approximately 85% of all businesses make superannuation contributions for their employees on a quarterly or more frequent basis. Businesses that are not currently contributing on a quarterly basis may incur additional administrative and cash flow costs to move to an appropriate contribution regime.

Some employers may also incur minor administrative costs in reporting the contributions they make to their employees.

The actual effect on total administrative costs of these changes is unclear as the widespread use of computerised payroll packages should minimise the impact.

Some businesses may also make administrative gains through the move from a monthly SG exclusion threshold to a quarterly exclusion threshold.

Main points:

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A quarterly SG contribution and assessment regime best satisfies the policy objectives of ensuring fairness between employees and encouraging employers to make regular superannuation contributions whilst not placing an onerous compliance burden on business.

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Some businesses will derive significant benefit from the move from a monthly SG exclusion threshold to a quarterly exclusion threshold.

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Businesses that inadvertently incur the SGC in a single quarter will have significantly reduced costs compared to the current system.

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Employees will benefit from more frequent contributions in terms of the additional interest compounded on contributions and from continued death and disability cover.