House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 6 - Superannuation co-contribution

Outline of chapter

6.1 Schedule 6 to this Bill amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 by:

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reducing the rate of payment for the superannuation co-contribution from 100 per cent to 50 per cent;

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decreasing the maximum amount payable from $1,000 to $500;

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extending the freeze on the indexation of the lower income threshold for the 2012-13 income year; and

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setting the higher income threshold at $15,000 above the lower income threshold (down from $30,000).

Context of amendments

6.2 The superannuation co-contribution matches eligible personal superannuation contributions made to a superannuation fund up to a maximum amount.

6.3 An eligible personal superannuation contribution is a non-concessional contribution made to a superannuation fund. It does not include contributions that attract an income tax deduction. Other exclusions apply such as transfers from foreign superannuation funds and roll-overs.

6.4 Individuals eligible for the full rate of this payment have their total income at or below the lower income threshold. The superannuation co-contribution phases down for individuals with total income between the lower and higher income thresholds. The lower income threshold is indexed but has been frozen at $31,920 for the 2010-11 and 2011-12 income years.

6.5 Total income is the sum of an individual's:

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assessable income;

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reportable fringe benefits;

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reportable employer superannuation contributions; and

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is reduced by eligible deductions (if any) from carrying on a business.

6.6 In the 2011-12 Budget, the Government announced an extension of the freeze on the indexation of the lower income threshold of the superannuation co-contribution for the 2012-13 income year (remaining at $31,920 for the 2012-13 income year).

6.7 In the 2011-12 MYEFO, the Government announced that the rate at which this payment would be made would be reduced from 100 per cent (dollar for dollar matching) to 50 per cent. Other changes announced were that the maximum amount available would be reduced from $1,000 to $500. The higher income threshold would be set at $46,920 for the 2012-13 income year.

6.8 Eligible individuals with adjusted taxable income up to $37,000 will benefit from the low income superannuation contribution (LISC) which is a different payment available from the 2012-13 income year. Adjusted taxable income is a more comprehensive income definition to total income as it also included deductions, tax-free pensions and benefits and deductible child maintenance expenditure. This LISC pays an amount equivalent to the concessional contributions tax paid by superannuation funds in respect of low income individuals, up to a maximum of $500 each year.

6.9 The LISC is a better targeted payment, covering over an estimated five times as many individuals as the superannuation co-contribution as a result of these amendments. It also does not require that low income individuals make eligible personal superannuation contributions to their superannuation fund, which increases the coverage of assistance available to low income earners. Historically, only 20 per cent of the people eligible to receive the co-contribution make the voluntary contributions required to receive it.

Summary of new law

6.10 These amendments will reduce the amount of superannuation co-contribution available and apply to the 2012-13 income year and later income years.

6.11 There will be a reduction in the rate at which this payment is made, reducing from 100 per cent (dollar for dollar matching) to 50 per cent (50 cents matched for every dollar of eligible personal superannuation contributions by the individual).

6.12 The maximum amount payable will be reduced to $500 (previously $1,000).

6.13 The higher income threshold is being reduced to $15,000 above the lower threshold. In 2012-13, this threshold will be $46,920. The lower income threshold will continue to be $31,920 for the 2012-13 income year. Indexation of the lower income threshold will resume for 2013-14 and later income years.

Comparison of key features of new law and current law

Detailed explanation of new law

Payment rate and maximum amount payable

6.14 The income years where the amount of superannuation co-contribution payable is paid at a rate equal to 100 per cent of the sum of eligible personal superannuation contributions made during the income year (dollar for dollar matching) is limited to the 2009-10, 2010-11 and 2011-12 income years. [Schedule 6, item 1, paragraph 9(1)(c)]

6.15 For the 2012-13 income year or a later income year, the amount of superannuation co-contribution payable is paid at a rate equal to 50 per cent of the sum of eligible personal superannuation contributions made during the income year.

6.16 The 50 per cent rate at which the payment is made means that the Government will contribute 50 cents for every dollar of eligible personal superannuation contributions. [Schedule 6, item 2, paragraph 9(1)(d)]

6.17 The $1,000 maximum amount of superannuation co-contribution available is limited to payments made in respect of the 2009-10, 2010-11 and 2011-12 income years. [Schedule 6, item 3, paragraph 10(1B)]

6.18 From the 2012-13 income year, the new maximum amount of superannuation co-contribution available is $500. Individuals with total income at or below the lower income threshold, (that is, $31,920 in 2012-13) are entitled to receive a payment up to this new maximum amount.

Example 6.10

Verity has a total income of $28,000 and makes a $1,000 eligible personal superannuation contribution to her superannuation fund in the 2012-13 income year. As her total income is below the lower income threshold, her rate of payment for the superannuation co-contribution is 50 per cent and she is entitled to the maximum $500 amount.

6.19 Also, from the 2012-13 income year, the superannuation co-contribution will phase down for eligible individuals with total income between the lower and higher income thresholds. The superannuation co-contribution will be tapered by a rate of 3.333 cents for each dollar of total income for the year that exceeds the lower income threshold. [Schedule 6, item 4, paragraph 10(1C)]

Example 6.11

Andrew has a total income of $40,000 and makes a $1,000 eligible personal superannuation contribution to his superannuation fund in the 2012-13 income year. As Andrew's total income is between the lower and higher income thresholds, he will be paid a superannuation co-contribution of $230.70.

6.20 Provisions relating to the minimum payment rules, the payment of interest on late or underpaid amounts and small underpayments also apply to the payment of the superannuation co-contribution from 2012-13 onwards. [Schedule 6, item 5, sub-section 10(2)]

Freeze in the indexation of the lower income threshold

6.21 The freezing of the lower income threshold in 2010-11 and 2011-12, will continue for the 2012-13 income year, remaining at $31,920. [Schedule 6, item 6, paragraph 10A(1)]

6.22 The mechanism by which indexation is frozen for 2012-13 income is setting by the indexation factor for this year at 1. [Schedule 6, item 9, paragraph 10A(5A)]

Higher income threshold

6.23 The higher income threshold is set at $30,000 above the lower income threshold from the 2007-08 income year until the 2011-12 income year. [Schedule 6, item 7, paragraph 10A(3)(c)]

6.24 The higher income threshold is set at $15,000 above the lower income threshold for the 2012-13 income year and later income years.

6.25 As the lower income threshold is frozen for the 2012-13 income year (remaining at $31,920), the higher income threshold will be $46,920. [Schedule 6, item 8, paragraph 10A(3)]

Example 1.3

Angela's total income is $60,000 in 2012-13. Although previously entitled to the co-contribution in 2011-12, she is no longer eligible as her total income is above the higher income threshold.

6.26 These amendments apply from the 2012-13 income year. [Schedule 6, item 10]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Superannuation Co-contribution

6.27 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

6.28 This Schedule amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 .

6.29 The purpose of this Schedule is to reduce the rate of payment for the superannuation co-contribution and the maximum payment. In addition, the freeze on indexation of the lower income threshold continues for the 2012-13 income year but will resume in 2013-14 and later income years. The higher income threshold is lowered to be set at $15,000 above the lower income threshold.

Human rights implications

6.30 This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

6.31 This Schedule is compatible with human rights as it does not raise any human rights issues.

Minister for Financial Services and Superannuation, the Hon, Bill Shorten MP