House of Representatives

Explanatory Memorandum

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

General outline and financial impact

Simplified Superannuation reforms - consequential and other amendments

On 7 December 2006 the Tax Laws Amendment (Simplified Superannuation) Bill 2006 (main Bill) and supporting Bills, which implement the key elements of Simplified Superannuation , were introduced into Parliament.

Simplified Superannuation seeks to simplify the current raft of complex tax arrangements and remove restrictions that apply to superannuation benefits. It aims to provide retirees with greater flexibility as to how and when they draw down their superannuation benefits.

In addition to implementing Simplified Superannuation , the main Bill rewrites superannuation taxation provisions from the Income Tax Assessment Act 1936 (ITAA 1936) into the Income Tax Assessment Act 1997 (ITAA 1997). Consolidating these provisions will provide a clearer picture of the taxation treatment of superannuation savings across the phases of the superannuation investment: when the money is contributed; during the investment phase; and at the benefit payment phase. It is drafted in a contemporary and consistent style and will cut the number of superannuation related pages in the income tax assessment Acts by over a third.

The Superannuation Legislation Amendment (Simplification) Bill 2007 (this Bill) and companion Bills are related Bills to the main Bill. This Bill makes:

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consequential amendments necessary due to the rewrite of the superannuation taxation law (such as the repeal of the old law and updating references to the old law contained in various Acts);

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minor additions to the law giving effect to the Simplified Superannuation reforms; and

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amendments to enable future flows of unclaimed superannuation monies to be paid to the Australian Government.

Schedule 1 to this Bill contains consequential amendments including the repeal of the old superannuation taxation law in the ITAA 1936.

Schedule 2 contains other consequential amendments relating to small business relief for capital gains tax (CGT) events.

Schedule 3 contains minor additions to the law created by the Simplified Superannuation reforms. It also provides for future flows of unclaimed superannuation monies from private sector superannuation funds to be paid to the Australian Government. The amendments will assist the Australian Taxation Office (ATO) in establishing a single access point for lost and unclaimed superannuation and a simpler nationalised claims process going forward. As a result, individuals will be able to seek advice directly from the ATO on any superannuation-related issue, without having to contact numerous government agencies.

Schedule 4 contains technical corrections.

The Income Tax Amendment Bill 2007 makes consequential amendments to the Income Tax Act 1986 . The Income Tax (Former Complying Superannuation Funds) Amendment Bill 2007 makes consequential amendments to the Income Tax (Former Complying Superannuation Funds) Act 1994 . The Income Tax (Former Non-resident Superannuation Funds) Amendment Bill 2007 makes consequential amendments to the Income Tax (Former Non-resident Superannuation Funds) Act 1994 . The Income Tax Rates Amendment (Superannuation) Bill 2007 makes consequential amendments to the Income Tax Rates Act 1986 . Each of these Bills deals with a separate object of taxation.

Date of effect : Simplified Superannuation commences on 1 July 2007. The revised age pension arrangements commence on 20 September 2007.

Proposal announced : The proposals were released for community consultation on 9 May 2006 in A Plan to Simplify and Streamline Superannuation . The Government's final decisions were announced on 5 September 2006 in Press Release No. 93, issued jointly by the Treasurer and the Minister for Revenue and Assistant Treasurer. On 7 December 2006 in Press Release No. 131, issued jointly by the Treasurer and Minister for Revenue and Assistant Treasurer, it was announced that the Simplified Superannuation legislation had been introduced into Parliament.

Financial impact, compliance cost impact and regulation impact statement : The financial impact, compliance cost impact and regulation impact statement associated with the Simplified Superannuation reforms are contained in the explanatory memorandum to the main Bill. The consequential amendments in this Bill have no impact on the financial and compliance costs identified in the explanatory memorandum to the main Bill.

Summary of following chapters

The following chapters group amendments based on whether they relate to the rewrite of the taxation rules regarding:

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contribution rules (Chapter 1);

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the taxation of superannuation benefit payments or employment termination payments (Chapter 2);

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the taxation of superannuation entities (Chapter 3); and

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other changes, such as those made to arrangements for self-managed superannuation funds or unclaimed superannuation money (Chapter 4).

This grouping of amendments is broadly similar to that of the explanatory memorandum to the main Bill and should assist in providing readers with a complete picture of changes made to a particular area of superannuation taxation and in understanding the relationship between the amendments in this Bill and the main Bill.

Within each chapter, amendments are split into additions to the law created by the main Bill and consequential amendments contained in this Bill (including repeals of old law and updates to legislative references to the old law).

All references in this explanatory memorandum to sections of the ITAA 1997 that are to be created by the main Bill are denoted by an asterisk (*).