Senate

Suplementary Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 1 - Amendments to the Minerals Resource Rent Tax Repeal and Other Measures Bill 2014

Outline of chapter

1.1 The amendment to the Minerals Resource Rent Tax Repeal and Other Measures Bill 2014 (the Bill):

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further adjust the proposed amended timetable for increasing the superannuation guarantee (SG) charge percentage to 12 per cent by pausing the SG rate at 9.5 per cent for financial years up to and including 2020-21. The SG charge percentage will then increase by half a percentage point each year, until it reaches 12 per cent for years starting on or after 1 July 2025;

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change the repeal date for the low income superannuation contribution (LISC) so that it applies to concessional contributions made for the 2017-18 financial year and later financial years;

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change the repeal date for the income support bonus (ISB) to 31 December 2016 and make minor technical and consequential amendments as a result of the delayed repeal; and

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change the repeal date of the schoolkids bonus (SKB) to 31 December 2016, and apply an income test for payments of the bonus between Royal Assent of the Bill and the new repeal date.

Detailed explanation of new law

Amendment 2 - Rephasing of the superannuation guarantee

SG charge percentage

1.2 Under the SG legislation, employers are required to make a prescribed minimum level of superannuation contributions to a complying superannuation fund or a retirement savings account on behalf of their eligible employees.

1.3 The minimum level of employer superannuation contribution is calculated with reference to the SG 'charge percentage' (as defined in subsection 19(2) of the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992) and each eligible employee's ordinary time earnings, salary or wages.

1.4 The Superannuation Guarantee Charge Act 1992 imposes the SG charge on any employer who has an SG shortfall in respect of a quarter. An employer who does not contribute the minimum level of required employer superannuation contributions on time is liable to pay a charge based on the SG shortfall. The SG shortfall for a quarter is calculated under section 17 of the SGAA 1992 and consists of the total of the employer's individual SG shortfalls for that quarter, a nominal interest component, and an administration component.

Rephasing of the SG charge percentage increase

1.5 The SG charge percentage is currently legislated to gradually increase to reach 12 per cent for quarters in years starting on or after 1 July 2019.

1.6 The passage of legislation to repeal the MRRT and make amendments to related spending measures (including the SG charge percentage) was delayed prior to the 2014-15 Budget, creating uncertainty for businesses. To provide certainty, the Government announced in the 2014-15 Budget changes to the schedule for increasing the SG charge percentage to 12 per cent. The amendments now extend the pause in the SG charge at 9.5 per cent for a further three years.

1.7 The SG charge percentage will remain at 9.5 per cent for the financial years up to and including 2020-21. The SG charge percentage will then increase by half a percentage point each year, until it reaches 12 per cent for years starting on or after 1 July 2025.

1.8 The rephasing of the SG charge percentage is summarised in Table 1.1.

1.9 The rephasing of the SG charge percentage increase applies to quarters starting on or after 1 July 2015.

Amendments 1, 3, 4, 5 and 6 - Repeal of the low income superannuation contribution

1.10 The LISC is a superannuation contribution made on behalf of individuals with an adjusted taxable income (ATI) of $37,000 or less in an income year. The contribution is designed to effectively return the tax paid on concessional contributions by an individual's superannuation fund. The maximum contribution amount payable in any year is $500.

1.11 The LISC was funded with the expected revenue from the MRRT, and is being phased-out with the removal of the MRRT. The Government will revisit incentives in superannuation for low income earners once the Budget is back in a strong surplus and after the completion of the Government's White Paper on the reform of Australia's Tax System, which provides a longer-term considered approach to tax reform.

1.12 The amendments alter the date of effect of the repeal so that it will apply to concessional contributions made for financial years starting on or after 1 July 2017. As a result, the LISC will not be payable in respect of concessional contributions made for the 2017-18 financial year and later financial years but will remain payable for earlier financial years.

Amendments 1, 7, 8 and 9 - Income support bonus

Repeal of the income support bonus

1.13 The ISB is an indexed, non-means tested payment that is paid twice annually to eligible social security recipients. The ISB is intended to provide additional support for eligible income support recipients to manage unanticipated expenses.

1.14 The Bill, as introduced, would repeal the ISB from the earlier of a day to be proclaimed or 12 months after Royal Assent.

1.15 This proposed commencement date ensured that whenever the Bill passed, the date of effect could be adjusted to address any compliance or administrative issues (for example, to avoid the difficulties that could otherwise arise if the repeal occurred the day before a payment was to be made).

1.16 The repeal of the ISB will now apply from 31 December 2016. As a result, individuals will no longer be eligible for payments of the ISB after this time.

1.17 Consistent with the Bill as introduced, the amendments will not affect the entitlement of individuals that have arisen prior to this date.

Consequential amendments

1.18 The amendments also make minor technical changes to the consequential amendments proposed as part of the repeal of the ISB.

1.19 The amendments clarify the effect of the changes to take into account recent legislative amendments to other Acts.

1.20 They also ensure that changes to the structure of the Bill do not cause inappropriate interactions with amendments consequential on the passage of the Bill in the Farm Household Support (Consequential and Transitional Provisions) Act 2014.

Amendments 1, 10, 11, 12 and 13 - Repeal of the schoolkids bonus

1.21 The SKB is an indexed payment that is available to eligible families receiving Family Tax Benefit Part A (FTB) and young people in school receiving youth allowance or certain other income support or payments (such as the Veterans' Children Education Scheme).

1.22 The SKB is paid twice annually, with instalments generally paid in January and July each year. Eligibility for each payment is determined on the relevant 'bonus test day' which occurs on 1 January and 30 June of each year. The payment was designed to provide assistance to families in meeting education expenses. It is exempt from income tax.

1.23 The Bill, as introduced, would repeal the SKB from the earlier of a day to be proclaimed or 12 months after Royal Assent.

1.24 The amendments introduce a means test for SKB from the date of Royal Asset.

1.25 The repeal of the SKB will now instead apply from 31 December 2016.

Means test

1.26 The amendments introduce a new requirement for payments of the SKB between the day of Royal Assent and 31 December 2016, when the SKB is then repealed.

1.27 For bonus test days that occur between the day of Royal Assent and 31 December 2016, there will be an additional income test limiting eligibility to the SKB to relevant individuals with an ATI of $100,000 or less ^[1] in the relevant income year in which eligibility for the payment is determined.

1.28 This additional income test will not apply where the payment that triggers eligibility for the SKB is not already subject to an income test (for example, certain veterans' education allowance payments or disability support pension payments for those who are permanently blind).

1.29 Section 35UA of A New Tax System (Family Assistance) Act 1999 sets out the circumstances under which an individual is eligible for the SKB, including where the individual is entitled to FTB for a school aged child, or who is being paid youth allowance, disability support pension or another specified payment in respect of a young person. Section 35UE of A New Tax System (Family Assistance) Act 1999 sets out the circumstances under which young persons who are paid youth allowance, disability support pension or another specified payment in their own right can be eligible for SKB.

1.30 The amendments to these provisions amend the eligibility conditions for SKB to include an income test where the payment that triggers eligibility for the SKB is also subject to an income test.

1.31 Amendments are also made to the A New Tax System (Family Assistance) (Administration) Act 1999 to allow eligibility for the SKB to be based on an estimate of ATI where actual income is not known. When actual income is known, an individual's eligibility for SKB can be reviewed and a reconciliation undertaken.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

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

Amendments to the Minerals Resource Rent Tax Repeal and Other Measures Bill 2014

1.32 The amendments are 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.

Amendment 2 - Rephasing of the superannuation guarantee

Overview

1.33 The amendments further adjust the proposed amended timetable for increasing the SG charge percentage to 12 per cent by pausing the SG rate at 9.5 per cent for financial years up to and including 2020-21. The SG charge percentage will then increase by half a percentage point each year, until it reaches 12 per cent for years starting on or after 1 July 2025.

Human rights implications

1.34 The amendments do not engage any of the applicable rights or freedoms in any way outside of those outlined in relation to the Bill. For further information on the broader changes made by the Bill, please see the explanatory memorandum to the Bill.

Conclusion

1.35 The amendments are compatible with human rights as they do not raise any human rights issues.

Amendments 1, 3, 4, 5, and 6 - Repeal of the low income superannuation contribution

Overview

1.36 The amendments change the repeal date for the LISC to apply to concessional contributions made for the 2017-18 financial year and later financial years.

Human rights implications

1.37 The amendments do not engage any of the applicable rights or freedoms in any way outside of those outlined in relation to the Bill. For further information on the broader changes made by the Bill, please see the explanatory memorandum to the Bill.

Conclusion

1.38 The amendments are compatible with human rights as they do not raise any human rights issues.

Amendments 1, 7, 8 and 9 - amendments to the repeal of the income support bonus

Overview

1.39 The amendments change the repeal date for the ISB to 31 December 2016 and make minor technical and consequential amendments as a result of the delay in the repeal of ISB.

Human rights implications

1.40 The amendments do not engage any of the applicable rights or freedoms in any way outside of those outlined in relation to the Bill. For further information on the broader changes made by the Bill, please see the explanatory memorandum to the Bill.

Conclusion

1.41 The amendments are compatible with human rights as they do not raise any human rights issues.

Amendments 1, 10, 11, 12 and 13 - Repeal of the schoolkids bonus

Overview

1.42 The amendments change the repeal date of the SKB to 31 December 2016, and apply an income test for payments of the bonus between Royal Assent and repeal.

Human rights implications

1.43 The amendments do not engage any of the applicable rights or freedoms in any way outside of those outlined in relation to the Bill. For further information on the broader changes made by the Bill, please see the explanatory memorandum to the Bill.

Conclusion

1.44 The amendments are compatible with human rights as they do not raise any human rights issues.