House of Representatives

Tax Laws Amendment (2009 Measures No. 1) Bill 2009

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 7 Exclusion of certain employer superannuation contributions from test for exceptional circumstances relief payment

Outline of chapter

14.1 Part 4 of Schedule 3 to this Bill amends the Farm Household Support Act 1992 to ensure that particular employer superannuation contributions, which would have been assessed as income for exceptional circumstances (EC) relief payment purposes due to reforms to income tests announced in the 2008-09 Budget, are disregarded.

14.2 However, the amendments do not exclude those superannuation contributions made by or on behalf of an individual that are currently considered in determining an individual's income for EC relief payment purposes

Context of amendments

14.3 EC relief payment provides assistance to farmers living in 'EC declared areas' that are experiencing difficulty in meeting living expenses. EC relief payment is also available to small business operators whose gross business turnover and therefore income has been significantly reduced by the effects on farmers, farm workers and their families of living in an 'EC declared area'.

14.4 There are guidelines stating that EC are rare and severe events outside those that a farmer could normally be expected to manage using responsible farm management strategies. An EC event is expected to occur once every 20 to 25 years on average and have an impact on farm income for a prolonged period. An EC event cannot be used to define part of long-term structural adjustment processes or normal fluctuations in commodity prices.

14.5 'EC declared areas' are the result of a declaration from the Australian Government Minister for Agriculture, Fisheries and Forestry. Applications for an EC declaration are typically made by state or territory governments on behalf of an affected region or relevant industry body.

14.6 There is no set duration for EC declarations although such declarations are initially issued for two years. EC declarations are reviewed prior to cessation and, if required, are generally extended for 12 months.

14.7 Once an EC declaration covers an area, farmers and small business operators located in that area may apply for EC relief payment. However, to be eligible under the Farm Household Support Act 1992 , applicants must hold an EC certificate from Centrelink to prove they reside in the 'EC declared area'.

14.8 The rate of EC relief payment for farmers and small business operators is the fortnightly rate of Newstart Allowance to which the individual would be entitled. If the applicant is of 'youth allowance age', as defined in the Social Security Act 1991 (SS Act 1991), the fortnightly rate is the amount of Youth Allowance to which the individual would be entitled.

14.9 Through this means, the income assessed for Newstart and Youth Allowance purposes is relevant in determining an individual's rate of EC relief payment.

14.10 From 1 July 2009, income test reforms announced in the 2008-09 Budget will extend what income is assessed for income support purposes to include the new concept of 'reportable employer superannuation contributions' (RESC) where those contributions are made in respect of an individual below age pension age. This ensures that such contributions are treated consistently as income with how they are treated where made in respect of an individual above age pension age.

14.11 These reforms, which are to be made through administrative changes with no need for legislative reform, are part of broader 2008-09 Budget reforms to include 'reportable superannuation contributions' in income across means-tested tax and transfer systems.

14.12 Reportable superannuation contributions are an individual's RESC and their deductions for personal superannuation contributions under Subdivision 290-C of the ITAA 1997. These deductible personal contributions are currently assessed as income for income support payments made under the SS Act 1991.

14.13 The 2008-09 Budget reforms would mean that, from 1 July 2009, the income assessed in determining a farmer or small business operator's rate of EC relief payment would include the individual's RESC for individuals below age pension age. The test already includes contributions similar to RESC for farmers and small business operators above age pension age.

Summary of new law

14.14 Part 4 of Schedule 3 excludes contributions that would have become income for the purposes of EC relief payment from 1 July 2009, as a result of reforms announced in the 2008-09 Budget, from the definition of income used to determine a farmer or small business operator's rate of EC relief payment.

14.15 The amendments mean that the income definition used for EC relief payment purposes will be unchanged following 1 July 2009.

Comparison of key features of new law and current law

New law Current law
No change. RESC of below age pension age individuals are not assessed as income for EC relief payment.

Detailed explanation of new law

14.16 The amendments provide for certain superannuation contributions, which would have been assessed as income for EC relief payment purposes as a consequence of reforms announced in the 2008-09 Budget, to be disregarded in determining an individual's rate of EC relief payment.

14.17 This reform is made in recognition of the difficult conditions faced by many of Australia's farmers and small business operators in 'EC declared areas'.

14.18 From 1 July 2009, the definition of income used to determine a farmer's rate of EC relief payment under section 24A of the Farm Household Support Act 1992 will be unchanged from what was assessed before 1 July 2009. [Schedule 3, Part 4, item 92]

14.19 Similarly, the amendments to section 24AA of the Farm Household Support Act 1992 mean the definition of income assessed in determining a small business operator's rate of EC relief payment will be unchanged. [Schedule 3, Part 4, item 93]

14.20 However, those contributions which are currently assessed as income for EC relief payment will continue to be assessed from 1 July 2009.

14.21 For example, under the current Newstart Allowance income definition, contributions broadly equating to RESC are assessed as income of individuals above age pension age. Deductible personal superannuation contributions are also assessed.

14.22 Further, the amendments do not alter the inclusion of superannuation contributions in the definition of income for Newstart Allowance purposes as a result of the attribution of income rules in Part 3.18 of the SS Act 1991.

14.23 Under the SS Act 1991, income and assets of companies and trusts may be attributed to individuals in some circumstances. For an entity's income to be attributed to an individual, the company or trust must be a controlled private company or trust of the individual and the individual must be an 'attributable stakeholder' as defined in section 1207X of the SS Act 1991.

14.24 If an individual is an 'attributable stakeholder', ordinary income of the company or trust will be attributed to them pursuant to section 1207Y of the SS Act 1991. As a result, that income will be assessed in determining the individual's entitlement for income support payments under the SS Act 1991 which affects their rate of EC relief payment.

14.25 Section 1208B of the SS Act 1991 allows business or investment income of a company or trust to be reduced by any amounts that would be allowed as a tax deduction against that income. Section 1209C also allows company or trust income from a 'primary production enterprise' (as defined in section 1207A of the SS Act 1991) to be reduced by any amounts that would be tax deductible against that income.

14.26 These provisions reduce the company or trust's income and, therefore, the amount of income that may be subject to the attribution rules.

14.27 However, subsections 1208B(2) and 1209C(2) of the SS Act 1991 do not allow 'ineligible deductions' to be applied against business or investment income or income from a primary production enterprise. The power to specify particular expenses as an 'ineligible part' of a deduction is in subsections 1208B(5) and 1209C(5) of the SS Act 1991.

14.28 The Social Security (Attribution of Income - Ineligible Deductions) Determination 2004 , made on 1 April 2004, provides that superannuation contributions made by a company or trust on behalf of an 'attributable stakeholder', or prescribed associate of an 'attributable stakeholder', are an 'ineligible part' of a deduction if they exceed the contribution required to be made under superannuation guarantee legislation.

14.29 That is, these excess contributions cannot be applied against a company or trust's business or investment income, or the income of a primary production enterprise. As a result, their amount will be added to the income of the company or trust that will be attributed as income to the relevant 'attributable stakeholder' under section 1207Y of the SS Act 1991.

14.30 By excluding contributions made by a company or trust to an 'attributable stakeholder', or associate of an 'attributable stakeholder' such as a relative or business partner, the new subsection 24A(9) of the Farm Household Support Act 1992 does not alter the current assessment of such contributions in determining an individual's rate of EC relief payment.

Example 14.1 Simon is an employee of XYP Pty Ltd (XYP). XYP manages Simon's farm in an 'EC-declared area' and he is the company's sole director. As such, Simon is an 'attributable stakeholder' of XYP and the company's net income should be attributed to him in accordance with section 1207Y of the SS Act 1991. XYP makes superannuation contributions on Simon's behalf and $2,000 of the annual contributions total exceed what is required to have been made under superannuation guarantee law. This $2,000 is added to the remainder of XYP's net income and the total (including the $2,000) is attributed as income to Simon. That total is then taken into account in determining Simon's rate of EC relief payment.

14.31 New subsection 24A(9) means, from 1 July 2009, individuals below age pension age will have these excess contributions, which would fall within the RESC definition, assessed in determining their rate of EC relief payment. This is unchanged from the current contributions assessed for these individuals.

Application and transitional provisions

14.32 These amendments will commence the day after Royal Assent.

14.33 The amendments apply in relation to income years starting on or after 1 July 2009.


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