House of Representatives

Tax Laws Amendment (Simplified Superannuation) Bill 2006

Superannuation (Excess Concessional Contributions Tax) Bill 2006

Superannuation (Excess Concessional Contributions Tax) Act 2007

Superannuation (Excess Non-concessional Contributions Tax) Bill 2006

Superannuation (Excess Non-concessional Contributions Tax) Act 2007

Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006

Superannuation (Excess Untaxed Roll-over Amounts Tax) Act 2007

Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006

Superannuation (Departing Australia Superannuation Payments Tax) Act 2007

Superannuation (Self Managed Superannuation Funds) Supervisory Levy Amendment Bill 2006

Explanatory Memorandum

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

Chapter 7 - Other changes

Outline of chapter

7.1 Schedules 3, 4, 6 and 7 to this Bill contain administrative arrangements and the key elements of Simplified Superannuation not directly related to income tax. Broadly:

·
Schedule 3 details the indexation provisions for certain thresholds applying to superannuation and employment termination payments.
·
Schedule 4 streamlines superannuation fund reporting arrangements.
·
Schedule 6 extends access to the Government co-contribution to the self-employed.
·
Schedule 7 makes a minor amendment to the definition of 'unclaimed money' and provides for a consistent legislative basis in respect of portability requirements for superannuation funds and retirement savings account (RSA) providers.

Context of amendments

Indexation

7.2 A number of key superannuation tax thresholds are currently indexed annually to full-time average weekly ordinary time earnings, including reasonable benefit limits (RBLs), age-based limits and the eligible termination payment low-rate threshold. Indexation ensures that these thresholds maintain value over time relative to average full-time earnings.

7.3 Simplified Superannuation abolishes RBLs and age-based limits and introduces annual caps on superannuation contributions. The new contribution thresholds will also be indexed to maintain value over time.

Superannuation fund reporting requirements

7.4 The existing legislative basis for the reporting of superannuation-related information to the Commissioner of Taxation (Commissioner) is fragmented and prescriptive. Superannuation entities provide information to the Commissioner, each other and individuals for co-contribution and superannuation guarantee (SG) purposes under separate legislation. Regulations detail the type of information to be provided. Additional reporting is required to support the new limits on superannuation contributions.

7.5 The penalties supporting the reporting requirements are similarly fragmented, resulting in anomalies in the severity and application of penalties for non-compliance. For example, under the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 , failure to provide a statement to another superannuation provider on transfers is a criminal offence (50 penalty units), whereas under the Superannuation Guarantee (Administration) Act 1992 the same offence is classed as administrative (5 penalty units).

Co-contribution for the self-employed

7.6 The Government introduced the superannuation co-contribution scheme for low and middle income employees from 1 July 2003.

7.7 Currently, under the co-contribution scheme, the Government provides $1.50 for every $1 of personal superannuation contributions, up to the maximum co-contribution of $1,500. The maximum co-contribution is available to those individuals on incomes up to the lower threshold (currently $28,000) with the payment phasing out at the upper threshold (currently $58,000).

7.8 Self-employed individuals do not currently have access to the co-contribution unless 10 per cent or more of their income is attributable to eligible employment (ie, income earned as an employee).

Meaning of unclaimed money

7.9 Currently, an amount payable to a member of a fund is taken to be unclaimed money if:

·
the member has reached the eligibility age specified in the regulations (currently 65);
·
the superannuation provider determines that, under the governing rules of the fund or by operation of law, a benefit (other than a pension or annuity) is immediately payable in respect of the member;
·
the superannuation provider has not received a contribution in respect of the member for at least two years; and
·
after making reasonable efforts and after a reasonable period has passed, the superannuation provider is unable to ensure that the member receives the benefit.

7.10 Prior to the removal of compulsory cashing on 10 May 2006, the effect of the definition in paragraph 7.9 was that the benefits of inactive members over the age of 65 who could not be contacted by their fund became unclaimed money. This arose because funds were required under law to cash the benefits of members over the age of 65 where they were unable to determine that the member satisfied the work test.

7.11 With the removal of compulsory cashing under Simplified Superannuation , the benefits of inactive members who have reached age 65 and who cannot be contacted by their fund are no longer immediately payable under law. The benefits of these members therefore do not become unclaimed money unless the rules of the particular fund require that a benefit is immediately payable to a member. The amendments change the definition of 'unclaimed money' to restore the previous effect of the law. This is achieved by removing the requirement for a benefit to be immediately payable in respect of a member.

Portability requirements

7.12 Since 1 July 2004, members of most superannuation funds have been able to move their superannuation benefits into a fund of their choice, subject to some limited exceptions (this is referred to as portability).

7.13 The legislative basis for the portability requirements of superannuation funds and RSA providers is inconsistent. In particular, the portability requirements for superannuation funds are specified in the Superannuation Industry (Supervision) Regulations 1994 , whereas the requirements for RSA providers are specified in the Retirement Savings Accounts Act 1997 . The penalties that apply for failure to comply with portability requirements are also inconsistent.

7.14 Under the Superannuation Industry (Supervision) Act 1993 , complying with a portability request is an operating standard for the purposes of the Act and a breach of this standard attracts a penalty of up to 100 penalty units. If the portability requirements were similarly prescribed as a 'standard' for the purposes of the Retirement Savings Accounts Act 1997 , the more detailed portability requirements could be contained in regulations and the penalty for failure to comply with a portability request could be made consistent with that which applies to superannuation funds.

Summary of new law

Indexation

7.15 Schedule 3 incorporates the indexation provisions for the new thresholds into the Income Tax Assessment Act 1997 (ITAA 1997).

7.16 Existing indexation provisions (related to redundancy and early retirement scheme payments and pre-1 July 1988 funding credits) are also consolidated.

Superannuation fund reporting requirements

7.17 Schedule 4 creates a new Division in the Taxation Administration Act 1953 (TAA 1953) which consolidates the existing superannuation entity reporting requirements and new requirements under Simplified Superannuation .

7.18 The new Division contains the framework for approved reporting form contents, which allows the Commissioner to obtain the required information by designing approved forms in consultation with industry.

7.19 The uniform administrative and criminal penalty regime for non-compliance prescribed in the TAA 1953 applies.

Co-contribution for the self-employed

7.20 Schedule 6 extends the superannuation co-contribution scheme to the self-employed.

Meaning of unclaimed money

7.21 Schedule 7 amends the general meaning of unclaimed money in the Superannuation (Unclaimed Money and Lost Members) Act 1999 to remove the requirement for a benefit to be immediately payable in respect of a member. Under the amendments, superannuation providers are required to make reasonable efforts to contact their inactive members over the age of 65 every five years to determine whether their benefits are unclaimed money.

Portability requirements

7.22 The portability requirements for RSA providers are removed from the Retirement Savings Accounts Act 1997 and are inserted in the Retirement Savings Accounts Regulations 1997 .

Comparison of key features of new law and current law

New law Current law
Indexation
Superannuation tax thresholds (except those relating to most transitional measures) are indexed annually to average weekly ordinary time earnings and rounded down to the nearest multiple of $5,000. Key superannuation tax thresholds are indexed annually to average weekly ordinary time earnings and rounded to the nearest dollar.
The indexation calculation utilises the original thresholds as of 1 July 2007 and the cumulative change in average weekly ordinary time earnings from the middle month of the December quarter 2006 to the middle month of the December quarter in the year preceding the year to which the new indexed threshold relates.
The existing indexation arrangements using the March quarter figure is used for genuine redundancy payments and early retirement scheme payments and pre-1 July 1988 funding credits.
The indexation calculation is based on the previous year's thresholds and the annual change in average weekly ordinary time earnings up to the middle month of the March quarter preceding the year to which the new threshold relates.
Superannuation fund reporting requirements
Superannuation entity reporting obligations in relation to contributions and benefits paid are consolidated. Superannuation entity reporting obligations in relation to contributions and benefits paid are contained in separate legislation.
There are minimal details of approved reporting form contents in the legislation. The content of reporting forms is prescribed in the legislation.
Penalties for non-compliance with reporting obligations are consolidated and standardised. Penalties for non-compliance with reporting obligations are contained in separate legislation and are inconsistent.
Co-contribution for the self-employed
The self-employed are eligible for the superannuation co-contribution. The self-employed are not eligible for the superannuation co-contribution unless 10 per cent or more of their income is earned as an employee.
Meaning of unclaimed money
The general meaning of unclaimed money is amended to remove the requirement for a benefit to be immediately payable in respect of a member.
Superannuation providers are required to make reasonable efforts to contact their inactive members over the age of 65 every five years to ascertain the status of their benefits.
In order for an amount payable to a member to be unclaimed money, one of the conditions is that a superannuation provider must determine that, under the governing rules of the fund or by operation of law, a benefit (other than a pension or annuity) is immediately payable in respect of a member.
A further condition is that superannuation providers are required to make reasonable efforts to ensure that the member receives the benefit.
Portability requirements
The portability requirements for RSA providers are specified in the Retirement Savings Accounts Regulations 1997 . The portability requirements for RSA providers are specified in the Retirement Savings Accounts Act 1997 .

Detailed explanation of new law

Indexation

7.23 The thresholds that are subject to indexation and the corresponding areas of the tax law in which the thresholds can be found are listed in a table. Items 5 to 7 in the table consolidate existing indexation provisions (related to redundancy and early retirement scheme payments and pre-1 July 1988 funding credits), and items 8 to 12 are new items (related to superannuation and employment termination). The non-concessional cap is (and will remain) three times the concessional contributions cap. [ Schedule 3, item 1, section 960 - 265 ]

7.24 Thresholds related to transitional provisions are not indexed (with the exception of the transitional termination payment lower cap amount).

7.25 Existing indexation provisions related to genuine redundancy and early retirement scheme payments and pre-1 July 1988 funding credits are consolidated. While the wording is updated, it is not intended to change the meaning of these provisions. [ Schedule 3, items 3, 5 and 6 ]

7.26 The existing indexation provisions do not apply to items 8 to 12 in the table (related to superannuation and employment termination). [ Schedule 3, items 2 and 4 ]

7.27 New thresholds are indexed annually to average weekly ordinary time earnings and apply from 1 July each year. However, thresholds are rounded down to the nearest multiple of $5,000 to ensure thresholds remain in round figures. This should assist in maintaining simplicity and minimise the risk of inadvertent breaches of the excess contributions caps. [ Schedule 3, item 7, subsections 960 - 285(1 ) and  ( 2 )]

7.28 The indexation factor is the proportional change in average weekly ordinary time earnings from the middle month of the December quarter 2006 to the middle month of the December quarter just before the relevant income year. The indexation factor is calculated to four decimal places and rounded to three decimal places. [ Schedule 3, item 7, subsections 960 - 285(4 ) to ( 6 )]

7.29 The amount cannot be reduced by indexation, that is, it is not indexed if the indexation factor is less than one. [ Schedule 3, item 7, subsection 960 - 285(3 )]

Example 7.1 If the amount to be indexed is $50,000 and the indexation factor increases this to an indexed amount of $53,710 in the second year, the indexed amount is rounded back down to $50,000. In the third year, the new cumulative indexation factor is again applied to the $50,000 threshold and gives an indexed amount of $57,250. This amount is rounded down to $55,000.If the $50,000 in this example represents the concessional contributions cap, the non-concessional contributions cap would be$150,000 (3 × $50,000) in the first and second years and $165,000 (3  × $55,000) in the third year.Once an individual breaches the non-concessional cap and activates the bring forward arrangements, the amount the individual can contribute over the three year period is based on the cap in the first year. Indexation of the cap in the second or third year does not increase the amount that can be brought forward. For example, if an individual makes a contribution of $450,000 in 2007-08, they are not able to make further contributions until 2010-11, even if the cap is increased during that period. Similarly, if the individual first utilises the bring forward arrangements when the non-concessional contributions cap is $165,000, they are able to bring forward contributions of up to $495,000 over the three year period, even if indexation increases the amount of the non-concessional cap in the second or third years.If the amount to be indexed is $1 million and the indexation factor increases this to an indexed amount of $1,043,000, the indexed amount is rounded back down to $1,040,000.

Superannuation fund reporting requirements

7.30 Several superannuation provider reporting obligations are rationalised in a new Division 390 of the TAA 1953.

Contributions statements

7.31 Superannuation providers are required to provide contribution statements to the Commissioner in the approved form in respect of individuals who were members at the end of the period, and also individuals who were members during the period and were paid superannuation benefits other than roll-over benefits. [ Schedule 4, item 15, subsections 390 - 5(1 ), ( 3 ) and ( 4 )]

7.32 Where a superannuation provider rolls over a superannuation benefit, the paying provider does not have to provide a contribution statement to the Commissioner but is required to report to the receiving provider in respect of the amounts rolled over. The receiving provider is required to report the amounts in a contributions statement. [ Schedule 4, item 15, section 390 - 5 and section 390 - 10 ]

7.33 The approved form may require the statement to contain, among other things, details of contributions made or paid in respect of a member, including the amount and type of the contributions. [ Schedule 4, item 15, subsection 390 - 5(9 )]

7.34 Contributions are taken to include notional taxed contributions and allocated surplus amounts. [ Schedule 4, item 15, subsection 390 - 5(2 )]

7.35 Where the superannuation plan is a self-managed superannuation fund, the approved form may require the superannuation provider to supply a statement to the effect that no contributions were made in respect of the member during the period. This assists the Commissioner to target his compliance activities for self-managed superannuation funds. [ Schedule 4, item 15, subsections 390 - 5(1 ) and ( 9 )]

7.36 The approved form may also require the tax file numbers (TFNs) of the superannuation provider and the superannuation plan. In addition, if the member in respect of whom contributions are made has quoted their TFN to the superannuation provider, the approved form may also require the TFN of the member. This also applies if an individual making contributions on the member's behalf has legally provided the member's TFN to the superannuation provider. [ Schedule 4, item 15, subsection 390 - 5(11 )]

7.37 The period covered by a statement and the day on which it must be provided are determined by the Commissioner. [ Schedule 4, item 15, subsections 390 - 5(5 ) to ( 8 )]

7.38 The information collected by the Commissioner in the contribution statement may be used for co-contribution, SG and excess contributions cap purposes. Therefore, the approved form may contain any information the Commissioner may reasonably require to administer the legislation for those purposes. [ Schedule 4, item 15, subsection 390 - 5(10 )]

Statements about superannuation benefits paid from one superannuation plan to another superannuation plan

7.39 Superannuation providers which transfer benefits on behalf of a member to another superannuation provider must supply the receiving provider with a statement in the approved form within seven days of making the transfer. The superannuation provider must also supply the affected member with a statement in the approved form within 30 days of making the transfer. [ Schedule 4, item 15, sections 390 - 10 and 390 - 25 ]

7.40 The approved form may require the statement to contain, among other things:

·
details of the value of the superannuation benefit transferred, the tax free component, the taxable component, the element taxed in the fund and the element untaxed in the fund; and
·
information about contributions made to the superannuation provider transferring the benefit in the financial year in which the transfer was made.

[ Schedule 4, item 15, subsections 390 - 10(4 ) to ( 9 )]

7.41 Contribution information is required to be reported to the other superannuation provider so it can provide an accurate contribution statement to the Commissioner for the relevant income year. [ Schedule 4, item 15, sections 390 - 5 and 390 - 10 ]

Superannuation statements to members

7.42 Arrangements for superannuation statements to members are maintained from the existing legislation. While the wording has been updated, it is not intended to change the meaning of the existing provisions. [ Schedule 4, item 15, section 390 - 15 ]

Statements relating to release authorities

7.43 Where a member or the Commissioner has requested via a release authority that a superannuation provider pay a liability using the member's superannuation monies and the superannuation provider has acted on that authority, the superannuation provider must supply the Commissioner with a statement in the approved form within 30 days of the amount being paid from the member's account. This reporting requirement exists even if the superannuation provider has paid the amount to the Australian Taxation Office (ATO) rather than to the individual. [ Schedule 4, item 15, section 390 - 65 ]

7.44 The approved form must include details of the release authority provided by the member or the Commissioner to the superannuation provider. [ Schedule 4, item 15, subsection 390 - 65(4 )]

7.45 The approved form may require the statement to contain, among other things:

·
details of the amount paid on behalf of or to the member;
·
information about the superannuation provider; and
·
information about the member who provided the release authority to the superannuation provider.

[ Schedule 4, item 15, subsections 390 - 65(5 ) and ( 6 )]

Change or omission in information given to the Commissioner

7.46 A superannuation provider must correct material errors or omissions in information supplied to the Commissioner within 30 days of becoming aware of them. The definition of 'material' depends on the particular facts and circumstances of each case. For example, if a member's contribution is initially reported as $1,000 where the amount is actually $2,000, that would generally be classed as a material change because of the relative difference between the two amounts. In contrast, an under-reporting by a few dollars would generally not be classed as a material change. A change may also be material because it does, or could, affect an individual's liability or entitlement. [ Schedule 4, item 15, section 390 - 115 ]

Example 7.2 ABC Superannuation Fund (ABC) is a large fund which reports contributions for the 2008-09 financial year for 20,000 members. Using the details contained in the report (after matching details from the member's tax return for the 2008-09 financial year), the ATO pays co-contributions and issues assessments of excess contributions taxes.After checking with ABC in early 2009, Jonathon realises he has not been paid a co-contribution, even though he believes he satisfies the eligibility criteria (and has made personal contributions to ABC). He contacts the ATO which advises him that ABC did not report that he had made personal contributions for the 2008-09 financial year. Jonathon contacts ABC with details of the personal contributions he made during the 2008-09 financial year. ABC is required to correct this error and re-report the information to the ATO in respect of Jonathon's account within 30 days of Jonathon contacting ABC and alerting it to the error.In that same report, ABC mistakenly reports $100,000 of contributions for Nina instead of $10,000. The ATO issues Nina with an excess assessable contributions tax assessment because of this information. Nina contacts ABC and points out that the contribution made on her behalf was $10,000. ABC is required to re-report the information to the ATO in respect of Nina's account within 30 days of Nina contacting ABC and alerting it to the error.

Application

7.47 Superannuation fund reporting obligations, in relation to contributions, roll-overs and benefits paid, apply to things done or events occurring on or after 1 July 2007. These obligations will therefore apply where, for example, an amount is contributed to a fund or rolled over on or after that date, or where an individual holds a superannuation interest in a self-managed superannuation fund on or after that date. Reporting obligations for superannuation entities to provide statements about the release authorities (and to notify the Commissioner of material changes or omissions in relation to such statements) apply to release authorities given (and payments made in accordance with those authorities) on or after 10 May 2006. [ Schedule 4, item 16 and Schedule 1, item 25, section 292 - 80 of the Income Tax ( Transitional Provisions ) Act 1997 ]

Penalty regime

7.48 Penalties for non-compliance are standardised with the penalty regime under the TAA 1953. The existing TAA 1953 administrative and criminal penalties apply for late, or non-lodgement, of required statements and information. [ Schedule 4, items 11 to 14 ]

Co-contribution for the self-employed

Who is eligible for the co-contribution?

7.49 Individuals (including the self-employed) are eligible for the superannuation co-contribution if they meet certain criteria. First, they must earn 10 per cent or more of their total income from carrying on a business, eligible employment or a combination of both. Second, their total income (as reduced for individuals who are entitled to deductions for carrying on a business) must be under the co-contribution upper income threshold. They must not be a temporary resident at any time during the income year in which the contribution is made, and be under age 71 at the end of that income year. [ Schedule 6, items 1, 2, 7 and 8 ]

Example 7.3 Susie is an Australian resident aged 26 who receives income from a religious vocation of $25,000 per year and also receives passive income of $2,000 per year. The definition of business within the meaning of the ITAA 1997 includes any profession, trade, employment, vocation or calling but does not include an occupation as an employee. Susie is carrying on a business for co-contribution purposes. As more than 10 per cent of her income is from carrying on a business, Susie would be eligible for a co-contribution payment if she makes personal contributions to her superannuation fund.

Example 7.4 Andrew is in a partnership and receives partnership income from carrying on a business of $45,000 per year. Andrew also receives $5,000 in passive income. Andrew's partnership income is business income for co-contribution purposes.

Which contributions qualify for a co-contribution payment?

7.50 The co-contribution is only available in respect of a personal superannuation contribution to the extent that the Commissioner has not allowed the contribution as a deduction. [ Schedule 6, item 6, section 7 ]

Example 7.5 Hector, a self-employed individual, makes a personal superannuation contribution of $5,000 to a complying fund on 30 June 2008. On 31 October, Hector claims a $4,000 deduction for this contribution in his 2007-08 income tax return, and his total income less business deductions is $28,000. The Commissioner receives contribution data from Hector's fund that $5,000 of personal contributions have been received. From the fund data and the income tax return, the Commissioner determines that $1,000 of the personal contribution is not deductible and that a co-contribution of $1,500 is payable into Hector's account.

7.51 To be a personal superannuation contribution that is eligible for co-contribution payment, the contribution must have been made on or after 1 July 2003 (by employees) or after 1 July 2007 (by the self-employed) to a complying fund or RSA to provide benefits for themselves, or to provide benefits on their death to their dependants. [ Schedule 6, items 3 and 4, section 7 ]

7.52 The following contributions are not eligible for a co-contribution: a roll-over superannuation benefit, a lump sum paid from a foreign superannuation fund, and a transfer from an overseas fund. [ Schedule 6, item 5, section 7 ]

How is total income for the year calculated?

7.53 Total income is used for determining the amount of co-contribution payable, and is the total of assessable income and reportable fringe benefits. Total income is reduced by amounts for which an individual is entitled to a deduction for carrying on a business. These deductions do not include work-related employee deductions or deductions that are available to eligible individuals (including the self-employed) for their personal superannuation contributions. The income concept used here is a net concept for individuals who carry on a business, and is designed to ensure that self-employed individuals with high gross business receipts are not arbitrarily exceeding the co-contribution income threshold. [ Schedule 6, items 7 and 8 ]

7.54 For the purposes of determining eligibility for the co-contribution, a total income concept is also used. However, in determining whether an individual satisfies the 10 per cent test (ie, 10 per cent or more of total income earned from eligible employment, carrying on a business or a combination of both), total income is not reduced by the deductions that result from carrying on a business. The income concept used here is a gross concept, designed to ensure that self-employed individuals with low incomes or low profit margins are not disadvantaged by arbitrarily failing the test. [ Schedule 6, item 8, sections 6 and 8 ]

Example 7.6 The use of the net and gross concepts of income mentioned above ensures that a self-employed individual with gross business receipts of $43,000, business deductions of $41,500, and other personal investment income of $15,000, would receive a co-contribution because the percentage of gross income from employment or carrying on a business would be 74% ($43,000 / ($43,000 + $15,000))and the net income for threshold purposes would be

$16,500 ($43,000  +  $15,000 - $41,500).

Meaning of unclaimed money

7.55 The requirement for a benefit to be immediately payable in respect of a member under the rules of the fund or by operation of law is removed from the definition of 'unclaimed money'. Superannuation providers are required to make reasonable efforts to contact their inactive members over the age of 65 every five years to determine whether their benefits are unclaimed money. [ Schedule 7, items 2 to 6 ]

7.56 The effect of the amendments is that the benefits of a superannuation fund member become unclaimed money once:

·
the member has reached the eligibility age specified in the regulations (currently 65);
·
the superannuation provider has not received a contribution on behalf of the member for at least two years; and
·
after a period of five years since the superannuation provider last had contact with the member, the superannuation provider is unable to contact them again after making reasonable efforts.

Portability requirements

7.57 To ensure a consistent legislative framework for superannuation funds and RSA providers in respect of portability, the portability requirements for RSA providers are prescribed in the Retirement Savings Accounts Regulations 1997 . To facilitate this, the specific provision in the Retirement Savings Accounts Act 1997 covering portability is removed. [ Schedule 7, item 1, section 50 ]

Consequential amendments

Indexation

7.58 There are no consequential amendments.

Superannuation fund reporting requirements

7.59 Several consequential amendments are required to remove current reporting requirements that are being consolidated as part of the new law. [ Schedule 4, items 1 to 10 ]

Co-contribution for the self-employed

7.60 There are no consequential amendments.

Meaning of unclaimed money

7.61 There are no consequential amendments.

Portability requirements

7.62 There are no consequential amendments.


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