House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

Notification of Reasonable Benefit Limits Determinations

Summary of proposed amendments

11.1. The Bill will make changes to the arrangements for the administration of the reasonable benefit limits as set out in the Occupational Superannuation Standards Act 1987.

11.2. Abbreviations Used in this Chapter

11.3. This Bill amends the Act by

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requiring that only excessive determinations be notified to taxpayers by the ISC;

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allowing for non excessive determinations to be notified to taxpayers, upon the initiative of the ISC or upon request;

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adjusting the existing scheme of the Act in consequence of these changes, by ensuring review rights in respect of non excessive determinations and by allowing for improved ISC communication of determination information to the Commissioner of Taxation for tax assessment purposes.

Background to the legislation

11.4. The RBL are limits on the total amount of retirement benefits receivable on a concessionally taxed basis. The limits are prescribed for the purpose of confining and distributing equitably the revenue cost of taxation incentives for provision in retirement. The payment of amounts in excess of the RBL are identified by the ISC and communicated to the Commissioner of Taxation for tax assessment purposes.

11.5. An excess determination involves calculating the amount paid in excess of the RBL, and making necessary adjustments to any other components of an eligible termination payment. These components are required to be declared for annual income tax return purposes. An excessive component is taxed at marginal rates rather than the concessional rates that apply to the other components. The tax payable on an excessive component is assessed at the time of assessment of the taxpayer's return for the year in which the benefit was paid.

11.6. A taxpayer has two benefit limits, one that applies to pensions (and annuities) that meet certain standards - the pension RBL, and another that applies to other benefits, including lump sum payments - the lump sum RBL. The pension RBL is greater than the lump sum RBL, to encourage the taking of retirement benefits as a genuine income stream for the duration of retirement.

11.7. The RBL that apply to a taxpayer are calculated according to the circumstances of a taxpayer, including the income of the taxpayer and entitlements that predated the consolidation of the administration of the RBL in the Act.

11.8. The current arrangements for the administration of the RBL came into effect on 1 July 1990. Briefly, those arrangements are:

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payers of superannuation and similar benefits are required to notify the ISC of benefits paid to individual taxpayers and to also notify the taxpayer of the information given to the ISC;

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the ISC keeps a record of notified benefits paid to individuals after 15 February 1990 and determines whether a benefit received after 1 July 1990, when totalled with benefits previously paid and notified, is within or in excess of the person's RBL;

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the ISC sends a copy of the determination to the taxpayer concerned; and

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the taxpayer has 21 days from receipt of the copy in which to exercise rights of review.

11.9. The ISC is unable to make a Final Determination when:

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the payer has not provided the taxpayer's Tax File Number;

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the payer does not provide all relevant information. (The Regulations make the provision of some information optional.)

11.10. In these cases, the ISC is required to make an Interim Determination based on certain assumptions set out in the Regulations and to send a copy of the determination to the taxpayer. A final determination is made and sent out once the taxpayer provides the missing information.

11.11. A separate determination is made for each payment notified. Under current arrangements, a copy of each determination made is forwarded by the ISC to the relevant taxpayer.

Explanation of proposed amendments

11.12. The Bill proposes amendments to s.15M and s.15N to restrict the determinations required to be notified to taxpayers to those having direct taxation consequences, ie excessive determinations.

11.13. The proposed amendments to s.15M and s.15N also allow for non excessive determinations to be issued on the initiative of the ISC. For example, the ISC can consider that all Interim Determinations should be notified to taxpayers to give them the opportunity to correct any assumptions made. [Subclauses 87(1) and 88(1)]

11.14. Taxpayers already have and will continue to have the right to request a copy of a determination under s.15Q. Where a taxpayer first learns of a determination in this way, the existing time limit for exercising rights of review should commence from that time. However, a taxpayer should not be able to extend these rights indefinitely by declining from requesting notice of a determination. Section 16 of the Act is proposed to be amended to accomplish this by confirming the rights to review but limiting their exercise to the period of one year after the financial year of the making of the payment the subject of determination. [Clauses 89 and 90]

11.15. By way of enhancing the reliability of taxpayer declaration of excessive determinations, and in particular to assist Tax Office auditing, the Bill provides for extended and improved communication of RBL information by the ISC to the Commissioner of Taxation by the addition of new subsections 15M(2)(b) and 15N(5)(c)(ii) and a new section 18A. [Subclauses 87(1) and 88(1), Clause 91]

Commencement date

11.16. The Bill proposes that the amendments take effect upon commencement. This will permit the new scheme to apply in respect of payments made during the 1991/92 financial year. [Clause 2]

Clauses involved in proposed amendments

Clause 2: commencement date.

Clause 87: amends section 15M of the Act by altering subsection (1) and inserting new subsections (2), (3) and (4). The amendment to subsection (1) will effect the requirement that excessive determinations must be notified to taxpayers.

The proposed subsection (2): apart from subsection (2)(b), and subsection (3), mirrors the existing provisions of subsections (1)(c) and (2), and provide for the notification of determinations to the Commissioner of Taxation. Proposed subsection (2)(b) extends the information that can be provided to the Commissioner of Taxation to cover all information upon which a determination is made.

Proposed subsection (4): authorises the ISC to notify non excessive determinations.

Subclauses (2) and (3): allow the amended s.15M to apply in respect of payments made during the 1991/92 financial year, and maintains decisions made on the basis of the existing section 15M.

Clause 88: will amend section 15N(5) to effect the same changes in relation to the notification of interim determinations as are proposed by clause 87 in relation to notification of final determinations.

Clause 89: inserts a new subsection (3) to provide review rights to taxpayers in relation to non excessive determinations that are first notified after a taxpayer's request under section 15Q for a copy of a determination. The rights are identical to those conferred on persons who are notified of determinations under sections 15M and 15N.

Clause 90: limits the exercise of rights of review confirmed by clause 5 to the period of one year after the financial year of the making of the payment which has been the subject of a determination. As is the case for existing review rights, the period for exercise of these review rights can be extended by the ISC.

Clause 91: adds a new section 18A to permit transmission to the Commissioner of authorised information, including RBL determination information, by means of a data processing device. A data processing device is presently defined in subsection (3)(1) of the Act in connection with the transmission of information to the ISC. The proposed section will facilitate the assessment of amounts determined to be in excess of the RBL by allowing for the transmission of information in a computerised format.