House of Representatives

Explanatory Memorandum

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

Chapter 1 - Extension of eligibility for Government co-contribution

Outline of chapter

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

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

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

Context of amendments

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

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

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

Summary of new law

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

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

Comparison of key features of new law and current law

Detailed explanation of new law

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

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

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

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

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

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

Application and transitional provisions

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

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

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

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

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is not a temporary resident.

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