Senate

Taxation Laws Amendment Bill (No. 2) 1995

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)
THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE HOUSE OF REPRESENTATIVES TO THE BILL AS INTRODUCED

CHAPTER 9 - Superannuation guarantee - local government councillors

Overview

9.1 The amendment made in Part 3 of Schedule 4 of the Bill will exempt from the scope of the Superannuation Guarantee (Administration) Act 1992 (SGAA), the payments received by local government councillors in the course of their duties. However, the amendment will ensure that payments to members of eligible local governing bodies (as defined in section 221A of the Income Tax Assessment Act 1936 (ITAA) will continue to be subject to the requirements of the superannuation guarantee legislation.

Summary of the amendments

Purpose of the amendments

9.2 To exclude local government councillors and the payments they receive in the course of their duties from definitions of 'employee, employer' and 'salary or wages' contained in the SGAA. [Items 8 and 9]

9.3 To include members of eligible local governing bodies as defined in section 221A of the ITAA in the definition of employee under the SGAA and to ensure that the payments they receive are included in the definition of 'salary or wages' under the SGAA. [Item 9]

Date of effect

9.4 1 July 1993. [Item 10]

Background to the legislation

9.5 Payments by way of remuneration or allowances to a member of a local governing body are exempt from the pay-as-you-earn (PAYE) collection mechanism in the income tax law (by exclusion from the definition of 'salary or wages' in section 221A) unless the body elects (under section 221B), by unanimous resolution, to be treated as an 'eligible local governing body'.

9.6 Because the definition of 'employer', 'employee' and 'salary or wages' in the PAYE provisions are relied upon in other taxation laws, a resolution under section 221B will also affect members of the local governing body through the application of other taxation laws and laws relating to child support. For consistency, a resolution under section 221B should also have a similar effect on the application of the SGAA.

9.7 Under the ITAA(subsection 82AAS(3)), where a person earns more than 10 percent of their total assessable income from 'eligible employment' (activities that result in the person being treated as an employee for superannuation guarantee purposes) they are not entitled to a tax deduction in respect of any personal superannuation contributions.

9.8 Under the SGAA (subsection 12(10)), councillors are regarded as employees of the council. The payments they receive (essentially for attendance at meetings and the cost of travelling to those meetings) are in most cases regarded as salary or wages for superannuation guarantee purposes (paragraph 11(1)(e)). It follows, therefore, that where such amounts paid to an otherwise self-employed councillor exceed 10 percent of his or her total assessable income, the councillor will be unable to claim income tax deductions for personal superannuation contributions.

9.9 The amendment made by this Bill will exempt from the scope of the SGAA the payments received by a person who holds office as a member of a local government council. This is consistent with the PAYE treatment of payments received by local government councillors.

9.10 The payments to members of eligible local governing bodies are to be excluded from the exemption. In order to retain the income of members of eligible local governing bodies within the scope of the SGAA, the amendment to the definition of employee in subsection 12(10) will make reference to a person who is a member of an eligible local governing body under sec 221A of the ITAA.

9.11 The Superannuation Industry (Supervision) Act 1993 (SIS Act) adopted the definition of employee (and employer) as used in the SGAA which includes councillors. If councillors were not to be included in the definition of employee for SIS purposes, an unintended consequence would be that some funds may have to meet the provisions relating to non standard employer-sponsored funds. The SIS Act therefore is to be amended to retain councillors within the definition of employee for SIS purposes.

Explanation of the amendments

9.12 To overcome these problems, the definitions of 'salary or wages' and 'employee, employer' in the SGAA will be amended as follows:

·
subsections 12(9) and 12(10) to specifically exclude a person in the capacity of a local government councillor from the definition of employee [items 8 and 9; new subsections 12(9) and 12(9A)] ;
·
subsection 12(10) to include a person who is a member of an eligible local governing body under section 221A of the ITAA in the definition of employee under the SGAA [item 9, new subsection 12(10)] ;
·
by these amendments, the definition of 'salary or wages' in paragraph 11(1)(e) will exclude payments made to local government councillors (other than those who are members of an eligible local governing body).

9.13 The SIS Act will be amended to ensure that councillors continue to be treated as employees for the purposes of SIS as follows:

·
amend section 10 to delete the definition of 'employee' and 'employer'; and
·
insert a new section 15A to provide for definitions of 'employee' and 'employer' for the purposes of the SIS Act.


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