Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon Peter Costello MP)Chapter 2 - Consequential amendments
Outline of chapter
2.1 Part 2 of Schedule 1 to this Bill amends provisions consequential to the abolition of the superannuation surcharge. These include provisions in relation to the maximum amount of surcharge payable by members that are no longer necessary for the 2005-06 and later financial years. Other amendments remove reporting requirements relating to the 2005-06 and later financial years that are no longer necessary, and requirements for the Commissioner of Taxation (Commissioner) to make surcharge assessments and index relevant amounts for the 2005-06 and later financial years.
Context of amendments
2.2 Currently, the superannuation contributions surcharge is payable on individuals' surchargeable contributions where their adjusted income is above a specified amount.
2.3 The termination payments surcharge is also payable on part of certain employment-related termination payments that are not rolled over into a superannuation fund.
2.4 The Government announced in the 2005-06 Budget that it will abolish the surcharge payable on individuals' surchargeable contributions and relevant termination payments, with effect from 1 July 2005.
2.5 Assessments of surcharge relating to surchargeable contributions or termination payments made or received in the 2005-06 or later financial years will no longer be made. However, the legislation is still required to remain in force to allow the Commissioner to continue to issue assessments for the 2004-05 or previous financial years and continue to collect outstanding surcharge liabilities, including debts that remain within surcharge debt accounts.
Summary of new law
2.6 Maximum surcharge rates will no longer be necessary for the 2005-06 and later financial years. With the abolition of the surcharge from 1 July 2005, it is necessary to adjust the limit on the surcharge liability of members of constitutionally protected funds, or the reduction in benefits of members of certain unfunded defined benefits superannuation schemes, to exclude employer benefits accruing in the 2005-06 and later financial years from the calculation.
2.7 There is no longer any need for the Commissioner to publish certain indexed amounts or determine self-assessing superannuation providers for the 2005-06 and later financial years.
2.8 There is no longer any need for superannuation providers (including self-assessing superannuation providers) to give statements to the Commissioner or other superannuation providers for surcharge purposes, or for members to be required to provide information to the Commissioner for surcharge purposes, in relation to the 2005-06 and later financial years.
2.9 The Commissioner will only be required to calculate and issue assessments of surcharge for the financial years that end before 1 July 2005.
| New law | Current law |
|---|---|
| Notes outlining that surcharge will not be payable for the financial year that began on 1 July 2005 or a later financial year will be inserted. | Surcharge that is payable is imposed by the Superannuation Contributions Tax Imposition Act 1997 , the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 and the Termination Payments Tax Imposition Act 1997 . |
| There will be no maximum surcharge rate for the 2005-06 and later financial years. | The maximum surcharge rates are 12.5 per cent for 2004-05 and 10 per cent for 2005-06 and later financial years. |
| The limits that apply in relation to the surcharge liability of members of constitutionally protected funds and the reduction of benefits of members of certain unfunded defined benefits superannuation schemes will exclude employer benefits accruing in the 2005-06 and later financial years. | A limit applies in relation to the surcharge liability of members of constitutionally protected funds and the reduction of benefits of members of certain unfunded defined benefits superannuation schemes. The limit reflects the existing maximum surcharge rates. |
| There will be no lower and higher income amounts for the 2005-06 and later financial years. | The lower and higher income amounts used to calculate the relevant surcharge rate are specified and indexed. |
| The Commissioner is not required to publish indexable amounts for the 2005-06 and later financial years. | The Commissioner is required to calculate and publish certain indexable amounts for each financial year. |
| The Commissioner will only be required to make assessments where there are surchargeable contributions or termination payments for an individual for a financial year that ends before 1 July 2005. | For each financial year for which there are surchargeable contributions or termination payments for an individual, the Commissioner must make an assessment to determine whether any surcharge is payable. |
| Superannuation providers will no longer be required to give statements (and other information as necessary) for surcharge purposes to the Commissioner, other superannuation providers and members in relation to the 2005-06 and later financial years. | Superannuation providers are required to give statements (and other information as necessary) for surcharge purposes to the Commissioner, other superannuation providers and members for the purposes of the assessment and collection of the surcharge. |
| Members will only be required to provide information to the Commissioner as to the holder of their surchargeable contributions for financial years that end before 1 July 2005. | Members may be required to provide information to the Commissioner as to the holder of their surchargeable contributions. |
Detailed explanation of new law
Notes regarding the abolition of surcharge
2.10 Surcharge will not be payable for the financial year that began on 1 July 2005 or a later financial year. Notes to that effect will be inserted at the end of section 4 in each of the Superannuation Contributions Tax Imposition Act 1997 , the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 and the Termination Payments Tax Imposition Act 1997 . [Schedule 1, Part 2, items 16, 32 and 42]
2.11 The superannuation contributions surcharge is determined under the Superannuation Contributions Tax Imposition Act 1997 in relation to surchargeable contributions other than contributions to constitutionally protected funds. Superannuation contributions surcharge in relation to contributions to constitutionally protected funds is determined under the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 . The termination payments surcharge is determined under the Termination Payments Tax Imposition Act 1997 .
2.12 Subsection 5(1AA) of the Superannuation Contributions Tax Imposition Act 1997 , subsection 5(1A) of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 and subsection 5(1AA) of the Termination Payments Tax Imposition Act 1997 provide definitions of 'maximum surcharge percentage'. Under these definitions, the maximum surcharge percentage is 12.5 per cent for the 2004-05 financial year and 10 per cent for 2005-06 and later financial years.
2.13 As a result of the abolition of the surcharge there will no longer be a need for maximum surcharge rates to apply to the 2005-06 and later financial years. [Schedule 1, Part 2, items 19, 20, 35, 36, 45 and 46]
2.14 The Defence Force Retirement and Death Benefits Act 1973 generally provides for the payment of retirement benefits to certain defence force employees. The payment of the surcharge liability in respect of such employees' superannuation contributions is deferred until a benefit is paid. When a benefit becomes payable the trustee of the fund is liable to pay the deferred surcharge liability plus accumulated interest.
2.15 Under the Defence Force Retirement and Death Benefits Act 1973 , the trustee may not reduce the benefits of a member by more than the amount of the employer financed component of the benefits that accrued after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996, as determined by the trustee in accordance with subsection 6C(3). Paragraph 6C(3)(d) of the Defence Force Retirement and Death Benefits Act 1973 will be repealed to reflect that, consistent with the abolition of the surcharge for the 2005-06 and later financial years, there is no longer a need for a benefit reduction limit for the 2005-06 and later financial years. [Schedule 1, Part 2, item 4]
2.16 The Parliamentary Contributory Superannuation Act 1948 provides for an occupational superannuation scheme for Members of the Australian Parliament who were Members before the general election of 9 October 2004. The payment of the surcharge liability in respect of surchargeable contributions of those Members is deferred until a benefit is paid. When a benefit becomes payable the Parliamentary Retiring Allowances Trust is liable to pay the deferred surcharge liability plus accumulated interest.
2.17 Under the Parliamentary Contributory Superannuation Act 1948 , the Parliamentary Retiring Allowances Trust may not reduce the benefits of a Member by more than the amount of the employer financed component of the benefits that accrued after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996, as determined by the Trust in accordance with subsection 4E(3). Paragraph 4E(3)(d) of the Parliamentary Contributory Superannuation Act 1948 will be repealed to reflect that, consistent with the abolition of the surcharge for the 2005-06 and later financial years, there is no longer a need for a benefit reduction limit for the 2005-06 and later financial years. [Schedule 1, Part 2, item 5]
2.18 The Superannuation Act 1976 provides for an occupational superannuation scheme, known as the Commonwealth Superannuation Scheme (CSS), for people employed by the Australian Government and for certain other people. The payment of the surcharge liability in respect of CSS members' surchargeable contributions is deferred until a benefit is paid. When a benefit becomes payable, the Commonwealth Superannuation Scheme Board (CSS Board) is liable to pay the deferred surcharge liability plus accumulated interest.
2.19 Under the Superannuation Act 1976 , the CSS Board may not reduce the benefits of a member by more than the amount of the employer financed component of the benefits that accrued after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996, as determined by the Board in accordance with subsection 80A(3). Paragraph 80A(3)(d) of the Superannuation Act 1976 will be repealed to reflect that, consistent with the abolition of the surcharge for the 2005-06 and later financial years, there is no longer a need for a benefit reduction limit for the 2005-06 and later financial years. [Schedule 1, Part 2, item 6]
2.20 The Superannuation Contributions Tax (Application to the Commonwealth - Reduction of Benefits) Act 1997 allows trustees of certain unfunded defined benefits superannuation schemes to reduce the benefits payable to members of such funds by no more than an amount of the employer financed component of that part of the benefits payable to the member that accrued after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996, as determined under subsection 4(2A). Paragraph 4(2A)(d) of the Superannuation Contributions Tax (Application to the Commonwealth - Reduction of Benefits) Act 1997 will be repealed to reflect that, consistent with the abolition of the surcharge for the 2005-06 and later financial years, there is no longer a need for a benefit reduction limit for the 2005-06 and later financial years. [Schedule 1, Part 2, item 7]
2.21 The Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 imposes the superannuation contributions surcharge on certain members of constitutionally protected funds. Surcharge assessed each year for each surchargeable constitutionally protected fund member, plus interest, accumulates in a 'surcharge debt account' maintained by the Commissioner.
2.22 Under subsections 15(6), 15(6AA) and 15(6A) of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 , when a benefit becomes payable to a constitutionally protected fund member or when a constitutionally protected fund ceases to be a constitutionally protected fund, the constitutionally protected fund member is liable to pay the surcharge. Subsection 15(6AA) applies where a superannuation interest in a constitutionally protected fund has been split and later becomes payable. Constitutionally protected fund members' surcharge liability is the lesser of the amount by which their surcharge debt account is in debit or the value of the employer-financed component of that part of the benefits payable to the member that accrued after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996, as determined under either paragraph 15(6)(b), paragraph 15(6AA)(d) or paragraph 15(6A)(b), as relevant.
2.23 Consistent with the abolition of the surcharge for the 2005-06 and later financial years, there is no longer a need for a benefit reduction limit for the 2005-06 and later financial years. [Schedule 1, Part 2, items 29 to 31]
2.24 Currently, the maximum surcharge rates phase in between a lower income amount and a higher income amount. These amounts are specified in the Superannuation Contributions Tax Imposition Act 1997 , the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 and the Termination Payments Tax Imposition Act 1997 .
2.25 As a result of the abolition of the surcharge there will no longer be a need to retain these income amounts for the 2005-06 and later financial years. [Schedule 1, Part 2, items 17, 18, 33, 34, 43 and 44]
2.26 The Commissioner is required to index certain amounts that are used in calculations of surcharge (including the lower and higher income amounts). As a result of the abolition of the surcharge, indexation will no longer be needed for the 2005-06 and later financial years.
2.27 There will consequently no longer be a need for the Commissioner to publish the indexable amounts for the 2005-06 and later financial years pursuant to subsections 7(6) and (7) of the Superannuation Contributions Tax Imposition Act 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 , subsection 9(7) of the Superannuation Contributions Tax Imposition Act 1997 , subsection 10(7) of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 , subsections 6(6) and (7) of the Termination Payments Tax Imposition Act 1997 , and subsection 10(7) of the Termination Payments Tax (Assessment and Collection) Act 1997 . [Schedule 1, Part 2, items 9, 21, 22, 24, 37, 38, 40, 47 and 48]
Assessments and information gathering
2.28 Assessments of surcharge relating to surchargeable contributions or termination payments made or received in the 2005-06 and later financial years will no longer be made.
2.29 As a result, subsections 15(1) of the Superannuation Contributions Tax Imposition Act 1997 , subsection 14(1) of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 and subsection 11(1) of the Termination Payments Tax (Assessment and Collection) Act 1997 will be amended so that the Commissioner must only make assessments where there are surchargeable contributions or termination payments made or received by or for an individual for a financial year that ends before 1 July 2005. [Schedule 1, Part 2, items 13, 28 and 41]
2.30 Consistent with these amendments, the simplified outlines of the Superannuation Contributions (Assessment and Collection) Act 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (in paragraph 6(a) for both Acts) and the Termination Payments Tax (Assessment and Collection) Act 1997 (at section 6) will be amended to reflect that the Commissioner will only calculate surcharge for a financial year that ends before 1 July 2005. [Schedule 1, Part 2, items 8, 23 and 39]
2.31 As a result of the abolition of the surcharge for the 2005-06 and later financial years, superannuation providers (including self-assessing superannuation providers) will no longer be required to give statements (and other information as necessary) for surcharge purposes to the Commissioner, other superannuation providers and members in relation to the 2005-06 and later financial years. However it should be noted that superannuation providers will still have to report much of this information to the Commissioner for the purposes of the Government superannuation co-contribution scheme.
2.32 Subsections 13(2) to (4), 13(4A) and 15B(1) of the Superannuation Contributions (Assessment and Collection) Act 1997 and subsections 12(2) and (3) of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 will be amended to limit the reporting requirements under these provisions to financial years that end before 1 July 2005. [Schedule 1, Part 2, items 10, 11, 15, 25 and 26]
2.33 Subsection 12(6) of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 will be amended to limit the reporting requirements to the Commissioner under this provision, to only those members who were potentially surchargeable. [Schedule 1, Part 2, item 27]
2.34 Paragraph 14A(1)(a) of the Superannuation Contributions (Assessment and Collection) Act 1997 will also be amended to limit the requirement on members needing to provide information to the Commissioner as to the holder of the member's surchargeable contributions to those contributions relating to a financial year that ends before 1 July 2005. [Schedule 1, Part 2, item 12]
2.35 As a result of the changes to reporting requirements, the Commissioner will also not need to determine self-assessing superannuation providers for the 2005-06 and later financial years. As a result subsection 15A(2) of the Superannuation Contributions (Assessment and Collection) Act 1997 will be amended to limit its application to financial years that end before 1 July 2005. [Schedule 1, Part 2, item 14]