House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Outline and financial impact

Splitting of superannuation contributions

The Tax Laws Amendment (Superannuation Contributions Splitting) Bill 2005 amends the Income Tax Assessment Act 1936 (ITAA 1936).

The amendments provide for the tax consequences of the Government's election commitment to allow members to split their superannuation contributions with their spouse.

The splitting of superannuation contributions will assist families to maximise the benefits available in superannuation and provide an avenue for spouses to share in superannuation benefits. It will be of particular benefit to low income or non-working spouses by allowing them to have superannuation assets under their own control and have their own income in retirement.

It will provide single income couples with access to two eligible termination payment (ETP) low-rate thresholds and two reasonable benefit limits in a similar way to dual-income families.

The Government has selected a voluntary, 'annual split' model for the splitting of contributions. That is, after the end of the financial year members of participating superannuation entities could request that contributions made in the previous year be split with their spouse.

The exact details of how this will operate will be specified in amendments to the Superannuation Industry (Supervision) Regulations 1994, Retirement Savings Account Regulations 1997 and Income Tax Regulations 1936 . Where a split of contributions is made in accordance with those regulations then the tax consequences will be as set out in this Bill. The basic principle of the taxation treatment of contributions splitting will be:

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contributions in respect of a member (the splitting spouse) that are split in favour of their spouse (the receiving spouse) will be paid to another fund or transferred to an account within the existing fund for the receiving spouse. This payment or transfer will be considered to be an ETP roll-over for the receiving spouse.

Date of effect: The amendments will apply from Royal Assent, but will not take practical effect until regulations are made specifying the detail of how and from when the contributions-splitting regime will operate. These regulations are expected to provide that contributions made on or after 1 January 2006 will be able to be split.

Proposal announced: This measure was originally announced in the Government's policy statement A Better Superannuation System on 5 November 2001. The Government subsequently recommitted to this policy in its policy statement Super for All and Understanding Money on 6 October 2004.

Financial impact: This measure will have a cost to revenue as follows:

Compliance cost impact: Superannuation providers may incur additional administrative costs in providing their members with the ability to split superannuation contributions.

Summary of regulation impact statement

Regulation impact on business

Impact: This measure will assist families to maximise the benefits available in superannuation and provide an avenue for spouses to share superannuation benefits. This is particularly important for families with one spouse working in the home or receiving a low income.

There is no impact on employers, and employers' superannuation guarantee obligations will not change as a result of this measure.

However, superannuation providers may incur administration and system development costs, where they decide to offer splitting.

Main points:

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Members of eligible funds will be able to split both personal and employer contributions with their spouse, including compulsory superannuation guarantee contributions.

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For participating members, contributions made on behalf of one spouse (the splitting spouse) would be transferred to a separate interest in the fund or to another superannuation provider for the benefit of the other spouse (the receiving spouse). Existing superannuation benefits will not be eligible for splitting.