House of Representatives

Superannuation Laws Amendment (2004 Measures No. 1) Bill 2004

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:

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

New law Current law
The eligibility criteria will be extended. An individual will no longer require receipt of, or entitlement to, employer superannuation support.
An individual earning at least 10% of their income as an employee will be able to qualify for a Government co-contribution in respect of the 2003-2004 and subsequent income years.
Among the current eligibility criteria for a Government co-contribution an individual must be in receipt of, or entitled to, employer superannuation support, and not be eligible to claim a taxation deduction for their personal superannuation contributions.
For example, employees earning less than $450 per month and employees under the age of 18 employed on a part-time basis are generally unable to qualify for the Government co-contribution.
An individual will not be able to claim a deduction in the 2004-2005 and subsequent income years for personal superannuation contributions if they now qualify for a Government co-contribution. Employees not in receipt of employer superannuation support are able to claim a deduction for personal superannuation contributions.

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:

has a total of assessable income and reportable fringe benefits of less than $40,000;
has at least 10% of their total income attributable to eligible employment;
is under the age of 71 in the income year the personal superannuation contribution is made; and
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]


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