Explanatory Memorandum
(Circulated By Authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 4 - Low income superannuation contribution
Outline of chapter
4.1 Schedule 4 to this Bill amends the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 to enable eligible low income earners to receive the low income superannuation contribution.
Context of amendments
4.2 The low income superannuation contribution is part of a suite of reforms to improve the superannuation outcomes for Australians. It is dependent on the implementation of the Minerals Resource Rent Tax package of Bills. It is designed to ensure a fairer distribution of Australia's wealth in the resources boom by benefiting low income earners.
Summary of new law
4.3 Concessional contributions are generally contributions to a superannuation fund that receive concessional tax treatment. Concessional contributions are generally before tax contributions that include an employer's superannuation guarantee (SG) contributions, contributions made under a salary sacrifice arrangement and an individual's personal contributions that are deducted
4.4 The low income superannuation contribution seeks to effectively return the tax paid on concessional contributions by a person's superannuation fund or retirement savings account (RSA) provider to a person who is a low income earner. Low income earners are defined as individuals with an adjusted taxable income of $37,000 or less.
4.5 The maximum amount payable is $500.
Detailed explanation of new law
4.6 The low income superannuation contribution is a different payment from the existing Government superannuation co-contribution and an individual's entitlement to this payment will be the subject of a separate determination.
4.7 The low income superannuation contribution is payable even if an individual is not entitled to the existing Government superannuation co-contribution.
4.8 A person is entitled to the low income superannuation contribution if they satisfy the following requirements:
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- The person has concessional contributions for the year.
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- The individual's adjusted taxable income does not exceed $37,000.
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- The individual is not a holder of a temporary resident visa (New Zealand citizens in Australia do not hold a temporary resident visa and are as such, eligible for the payment).
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- The individual satisfies an income test in which 10 per cent or more of their total income is derived from business or employment.
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- The amount payable for the individual is $20 or more.
[Schedule 4, item 2, section 12C]
Example 4.16
Alanna is an Australian resident. She has an adjusted taxable income of $30,000 which comprises of $2,000 in interest from her savings and $28,000 from working part time. Alanna's employer makes SG contributions on her behalf. These employer contributions are concessional contributions for Alanna. Alanna is entitled to receive the low income superannuation contribution with respect to the tax paid on her concessional contributions, as greater than 10 per cent of her income is from her employment.
4.9 There is no taper of adjusted taxable income. Individuals who have an adjusted taxable income of more than $37,000 will not be eligible for the low income superannuation contribution.
4.10 Adjusted taxable income is defined in Schedule 3 to the A New Tax System (Family Assistance) Act 1999 (disregarding Clauses 3 and 3A of that Schedule) as including taxable income, adjusted fringe benefits total, target foreign income, total net investment loss, tax-free pension or benefit, reportable superannuation contributions less any deductible child maintenance expenditure for that year.
4.11 When an individual does not lodge an income tax return (for example, an individual is under the tax-free threshold), the Commissioner of Taxation (Commissioner) will determine eligibility for the low income superannuation contribution based on information available to the Australian Taxation Office (ATO).
4.12 The ATO can have regard to a broad range of information when determining of eligibility for the low income superannuation contribution. This intended use of information is notwithstanding any other law. This includes information already held within the ATO which has been collected for another purpose as well as information from other agencies with respect to the components of an individual's adjusted taxable income and an individual's member contribution statement. The ATO can also use information relating to an individual's tax file number (TFN) if this has been provided to the ATO for another purpose.
4.13 These information-sharing provisions do not enable the ATO to gather additional information with respect to an individual, but, to make use of the information the ATO already has access to.
4.14 These information-sharing provisions allow the ATO to automatically make a payment of the low income superannuation contribution to a superannuation fund and operate in conjunction with section 264 of the Income Tax Assessment Act 1936 which is a broad information-gathering power of the ATO. This ensures that individuals who are not required to lodge a tax return are not required to apply for the payment.
4.15 The ATO is able to make a payment if the Commissioner is reasonably satisfied that an individual is eligible for the payment based on the information the ATO holds for the individual. [Schedule 4, item 3, paragraph 14(1)(d)]
Example 4.17
Alicia is a university student and will earn $18,000 as a part time medical receptionist in the 2012-13 income tax year and will have SG contributions of $1,620. As Alicia will earn below the tax-free threshold of $18,200 for that income year she may not be required to submit an income tax return. The ATO receives information about Alicia's income and her employer's superannuation contributions from her member contribution statement. The ATO is reasonably satisfied that Alicia is eligible for the low income superannuation contribution and makes the payment of $243 to her superannuation fund.
4.16 The ATO is able to make the payment to a superannuation fund, an RSA, to an individual or an individual's legal personal representative or to a Superannuation Holding Accounts Special Account consistently with the rules for the existing government co-contributions. [Schedule 4, item 2, section 12B]
4.17 Eligible contributions that will attract a payment of the low income superannuation contribution must be concessional contributions of the person. [Schedule 4, item 2, subsection 12C(b)]
4.18 'Concessional contribution' is defined in the Income Tax Assessment Act 1997 (ITAA 1997). Examples of concessional contributions that will be eligible include:
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- SG contributions;
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- notional taxed contributions;
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- allocations from reserves that are concessional contributions;
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- contributions an employer makes under a salary sacrifice arrangement; or
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- personal contributions which are allowed as an income tax deduction.
4.19 As eligible concessional contributions include amounts allocated from a fund's reserves and the notional taxed contributions worked out for a defined benefit interest of an individual, the low income superannuation contribution may be payable in relation to an amount that is not an actual contribution that has been included in a fund's assessable income as a contribution.
4.20 The ITAA 1997 defines concessional contributions as belonging to a 'complying superannuation plan'. As this legislation incorporates the definition of 'concessional contribution' from that Act, a concessional contribution must for the purposes of the low income superannuation contribution belong to a complying superannuation plan.
Example 4.18
Joel works for a company that has its own corporate superannuation fund. The trustee of the superannuation fund allocates an amount from the reserves of the superannuation fund to every member's interest in the fund. The superannuation fund reports this amount on Joel's member contribution statement. The ATO may make a payment of the low income superannuation contribution in relation to the amount allocated to Joel's superannuation interest.
Example 4.19
Xavier is a member of a public sector superannuation scheme. His interest in the fund is a defined benefit interest. Xavier's employer is required to make contributions for Xavier to fund part of the superannuation benefits payable to him (or his beneficiaries on his death). These contributions are included in the assessable income of the scheme. These contributions are the notional taxed contributions for Xavier and are eligible for the low income superannuation contribution.
Example 4.20
Yolanda is a member of a public sector superannuation scheme. Her interest in the fund is a defined benefit interest. Notional taxed contributions for Yolanda are worked out using the formula in the Income Tax Assessment Regulations 1997. These notional taxed contributions are eligible for the low income superannuation contribution.
4.21 This payment will only apply to 'concessional contributions'. For example, payments to 'constitutionally protected funds' would be excluded.
4.22 The amount of low income superannuation contribution is calculated at a rate of 15 per cent of the total eligible concessional contributions for the year up to a maximum payment of $500. [Schedule 4, item 2, paragraph 12E(2)(a)]
4.23 There is a minimum payment amount of $20. Individuals who are entitled to less than $20 will not be matched. This ensures that the ATO does not have to process very small amounts. [Schedule 4, item 2, paragraph 12E(2)(c)]
4.24 The general administrative machinery provisions that apply to the superannuation co-contribution in the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 will apply to the low income superannuation contribution. [Schedule 4, item 2, section 12B]
4.25 When the ATO has made a payment to an individual or their legal representative, the ATO must give information as prescribed in the regulations when the payment is made.
4.26 The ATO may be liable to pay interest on late payments and underpayments after certain time periods, as may be prescribed in the regulations, are exceeded. The Commissioner may recover overpayments directly from individuals or funds that the payment was made into.
4.27 If a superannuation fund is returning monies that cannot be credited to an account, the ATO may issue an infringement notice if the superannuation fund fails to provide the prescribed information as required in the regulations with the returned monies.
4.28 The ATO has broad powers of entry to premises to obtain and make copies of examinable documents to ensure compliance with the Act.
4.29 The Governor-General may make regulations pertaining to the low income superannuation contribution.
4.30 However, the specific reporting requirements for the existing government co-contribution do not apply to the low income superannuation contribution.
4.31 Also, these amendments ensure appropriate income tax consequences flow. For example, the low income superannuation contribution will not be included in the assessable income of any superannuation provider to which it is paid because of subsection 295-170(1) of the ITAA 1997. The low income superannuation contribution will also form part of the contributions segment (and therefore tax-free component of any superannuation benefit) for the person for whom it is paid under section 307-220 of the ITAA 1997. [Schedule 4, item 2, section 12B]
Application and transitional provisions
4.32 These provisions apply to the 2012-13 income year and later income years. These provisions are dependent on the passing of the Minerals Resource Rent Tax package of Bills.