Revised Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 4 - Reasonable benefit limits
4.1 Schedule 4 to this bill will amend the ITAA 1936 to rectify an anomaly in the RBL provisions. This will ensure that a reversionary pension (or annuity) paid on the death of the original recipient will receive the same proportion of concessional taxation rebate as applied to the original pension (or annuity). Benefits that have been assessed as above the relevant RBL of the deceased, and thus subject to reduced concessional taxation treatment, will therefore continue to be treated in the same manner after death. The amendment also ensures that the RBL treatment of pension benefits paid on death is consistent with the RBL treatment of lump sum benefits paid on death.
4.2 Division 14 of Part III of the ITAA 1936 contains the legislation relating to RBLs.
4.3 The purpose of RBLs is to limit the amount of concessionally taxed superannuation and termination of employment benefits received by a person.
4.4 Lump sum benefits which do not exceed the relevant RBL are taxed at concessional rates. However, if a lump sum benefit exceeds a person's RBL then the amount by which the lump sum exceeds the RBL is taxed at the highest marginal rate.
4.5 Pension benefits which do not exceed the relevant RBL are normally entitled to a 15% rebate. However, if a pension benefit exceeds a person's RBL then the amount of the pension that attracts the 15% pension rebate is reduced. The part of a pension that attracts the pension rebate is called the 'rebatable proportion'.
4.6 Death benefits are generally measured against the RBL of the deceased. If the benefits are paid as a lump sum and found to be excessive then the excessive amount will be taxed at the highest marginal rate. If the benefits are paid as a reversionary pension, and the original pension was in excess of the deceased's RBL, then the intention is that the reversionary pension will receive the same reduced rebatable proportion as the original pension. However, an anomaly in the law means that the reversionary pension may not receive the same rebatable proportion as the original pension.
4.7 The amendment ensures that when a person receiving a superannuation pension or annuity dies, and the benefit is passed on to a reversionary beneficiary, the RBL treatment of those benefits does not change. That is, the same rebatable proportion applies to the reversionary pension or annuity as applied to the original pension or annuity.
4.8 The amendment inserts new subsection 140ZQ(1A) in Division 14 of Part III of the Act. The Subdivision provides that where a rebatable superannuation pension or a rebatable ETP annuity is payable to a person as the result of the death of another person, and is a reversion of another pension or annuity that was already payable to the other person, then the rebatable proportion of the pension or annuity is the same as the rebatable proportion of the original pension or annuity.
4.9 The amendment made by this Schedule applies, and is taken to have applied in relation to the 1999-2000 income year and later income years. This gives effect to the former Assistant Treasurer's Press Release No. 14 of 6 April 2000 which announced that the anomaly in the legislation would be corrected effective from that date (and hence effective for the 1999-2000 and later income years). Commencement of the measure from this date is necessary to maintain the integrity of the RBL system and ensure the revenue is protected.