Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 3 Indexation of superannuation concessional contributions cap
Outline of chapter
3.1 Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to temporarily pause the indexation of the superannuation concessional contributions cap so that it will remain fixed at $25,000 up to and including the 2013-14 financial year.
Context of amendments
3.2 Since 1 July 2007, concessional and non-concessional superannuation contributions have been subject to annual limits.
3.3 Concessional contributions are generally those contributions which are included in the assessable income of a superannuation fund and include employer contributions (including superannuation guarantee and salary sacrifice contributions) and tax deductible personal contributions.
3.4 For individuals aged under 50 years of age a general concessional contributions cap applies. This cap is indexed annually based on movements in full-time adult average weekly ordinary time earnings for the December quarter, rounded down to the nearest multiple of $5,000. The general concessional contributions cap is currently $25,000.
3.5 The indexation factor is the proportional change in full-time average weekly ordinary time earnings from the middle month of the December 2008 quarter to the middle month of the December quarter just before the relevant financial year.
3.6 The cap for 2012-13 will not be known with absolute certainty until the full-time adult average weekly ordinary time earnings figure for the December 2011 quarter is known. Based on current Treasury projections, however, the concessional contributions cap for the 2012-13 financial year is not expected to increase above $25,000.
3.7 A transitional concessional cap of $50,000 applies to individuals aged 50 or over, which is scheduled to expire on 1 July 2012. The Government has announced that individuals aged 50 and over with superannuation balances of less than $500,000 will continue to be eligible for a $50,000 cap.
3.8 The non-concessional contributions cap is currently set at six times the general concessional contributions cap.
3.9 In the 2011-12 Mid-Year Economic and Fiscal Outlook the Government announced that the indexation of the concessional contributions cap would be paused in 2013-14. In the absence of this measure it is expected that indexation would likely have increased the general concessional contributions cap from $25,000 to $30,000 in 2013-14.
Summary of new law
3.10 The indexation of the general concessional contributions cap will be paused, that is, the cap is not expected to increase until the 2014-15 financial year.
Comparison of key features of new law and current law
| New law | Current law |
| The cap for concessional contributions will be $25,000 for the 2012-13 and 2013-14 financial years. For the 2014-15 and later financial years the concessional contributions cap will be $25,000 indexed annually based on movements in full-time adult average weekly ordinary time earnings and rounded down to the nearest multiple of $5,000. | The cap for concessional contributions to superannuation is $25,000 indexed annually based on movements in full-time adult average weekly ordinary time earnings, and rounded down to the nearest multiple of $5,000. |
Detailed explanation of new law
3.11 The general concessional contributions cap is indexed annually in line with movements in full-time adult average weekly ordinary time earnings and rounded down to the nearest multiple of $5,000. This means that the cap only changes when the cumulative indexed amount reaches $5,000 or greater.
3.12 It was expected that indexation would increase the concessional contributions cap from $25,000 to $30,000 in the 2013-14 financial year.
3.13 For the 2012-13 and 2013-14 financial years the concessional contributions cap will be set at $25,000. For the 2014-15 and later financial years the concessional contributions cap will be worked out by annually indexing the amount of the concessional contributions cap for the 2013-14 financial year (that is, $25,000). [ Schedule 3, item 1, subsection 292-20(2 )]
3.14 The cap for the 2014-15 financial year and later financial years will be indexed as if the freeze had not been imposed. That is, the underlying formula governing indexation of the concessional contributions cap will not be reset (providing for indexation by reference to the December 2008 quarter).
3.15 The pause in indexation will flow on to the increased concessional contributions cap for individuals aged 50 and over and the non-concessional contributions cap.
Consequential amendments
3.16 A consequential amendment is made to section 960-285 of the ITAA 1997 to update a reference to the concessional contributions cap as a result of the changes made to section 292-20. Section 960-285 specifies the method for indexing the concessional contributions cap. The subparagraph 960-285(2)(a)(i) is updated to replace the reference to the concessional contributions cap applying in 2010-11 to refer to the cap which applies in 2013-14. The cap for both of these years is $25,000. [ Schedule 3, item 2, subparagraph 960-285(2)(a)(i )]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Indexation of superannuation concessional contributions cap
3.17 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .
Overview
3.18 This Schedule amends subsection 292-20(2) of the ITAA 1997.
3.19 The purpose of this Schedule is to defer the indexation applied to the general concessional superannuation contributions cap until the 2014-15 financial year. The pause in indexation will flow on to the increased concessional contributions cap for individuals aged 50 and over and the non-concessional contributions cap.
Human rights implications
3.20 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
3.21 This Schedule is compatible with human rights as it does not raise any human rights issues.
Minister for Superannuation, the Hon Bill Shorten
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