Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Chapter 10 - Rebate for superannuation contributions made on behalf of a low-income or non-working spouse
10.1 Schedule 10 of the Bill amends the Income Tax Assessment Act 1936 (the Act) to provide a rebate for a person contributing to superannuation on behalf of a low-income or non-working spouse.
Purpose of the amendments
10.2 The proposed amendments provide a tax rebate of up to $540 per annum for a taxpayer where:
- the taxpayer has a spouse;
- the taxpayer contributes to superannuation on behalf of the spouse;
- the contributions are not deductible to the taxpayer;
- both the taxpayer and the spouse are Australian residents; and
- the spouse's assessable income is less than $13800.
Date of effect
10.3 The proposed rebate will be available for contributions made on or after 1 July 1997. The rebate will be available from 1 July 1998 on assessment only.
10.4 As a part of proposals to improve superannuation and retirement incomes arrangements, the Government announced in the 1996 Budget that a rebate would be introduced for a person contributing to superannuation on behalf of a low-income or non-working spouse.
10.5 Currently, superannuation funds may only accept contributions for members who are less than 65 years of age (see Chapter 9 for changes to this requirement), and who are employed on a part-time or full-time basis, with limited exceptions. Superannuation funds can accept contributions made only by a member or an employer. Contributions made by a spouse on behalf of the member are not acceptable.
10.6 Amendments are being made to the Superannuation Industry (Supervision) Act 1993 (SIS) regulations to allow superannuation funds to accept contributions made by a spouse of a member who may not be in gainful employment.
10.7 Taxable contributions are included in the assessable income of a complying superannuation fund by section 281 of the Act and are generally taxed at the rate of 15 per cent. Taxable contributions are defined in section 274 of the Act as:
- all contributions made to the fund by a person to provide superannuation benefits for another person, other than contributions made by a person who is a trustee of an exempt life insurance fund, a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust;
- the amount of an eligible termination payment (ETP) that is rolled over into the fund and is an untaxed element of the post-June 1983 component of the ETP;
- payments to the fund of the shortfall component of a superannuation guarantee charge;
- deductible personal superannuation contributions; and
- amounts transferred to the fund from a person's individual account in the Superannuation Holdings Account Reserve (SHAR).
10.8 The amendments introduce a new Subdivision AACA in Division 17 of Part III of the Act. The new subdivision provides a rebate of up to $540 for superannuation contributions made on behalf of a low-income or non-working spouse. The rebate is calculated as 18 per cent of contributions up to a maximum of $3000. This limit is reduced where the spouse's assessable income exceeds $10800. The rebate is not available once the spouse's assessable income is $13800.
Who is entitled to a rebate?
10.9 A taxpayer is entitled to claim the proposed rebate for superannuation contributions under new section 159T where:
- the taxpayer has a spouse (see paragraph 10.11);
- the taxpayer makes an eligible spouse contribution (see paragraph 10.12);
- both the taxpayer and his or her spouse are residents (as defined in subsection 6(1) of the Act) when the eligible spouse contributions are made; and
- the spouse's assessable income is less than $13800. [Item1]
How is the rebate calculated?
10.10 The proposed rebate is calculated in one of three ways:
- where the taxpayer has made $3000 or less in eligible spouse contributions (see paragraph 10.12) and the spouse's assessable income is $10800 or less, the rebate is calculated as 18% of the eligible spouse contributions. (See Example 1 at paragraphs 10.23 and 10.24)
- where the taxpayer has made more than $3000 in eligible spouse contributions and the spouse's assessable income is $10800 or less, the rebate is calculated as 18% of $3000, that is $540. (See Example 2 at paragraphs 10.25 and 10.26)
- where the spouse's assessable income exceeds $10800, the eligible spouse contributions limit of $3000 is reduced by $1 for every $1 of assessable income in excess of $10800. The rebate is calculated as 18 per cent of the lesser of the reduced amount and the actual contributions. Therefore, the rebate is zero when the spouse's assessable income is $13800 or higher. (See Example 3 at paragraphs 10.27 to 10.28). [New section 159T - item1]
Who is a spouse?
10.11 'Spouse' is defined in subsection 6(1) of the Act to mean both a legal and a de facto husband or wife. A de facto spouse is one who lives with the taxpayer on a genuine domestic basis as the husband or wife of the taxpayer. For the purposes of the proposed rebate, 'spouse' does not include a person who lives separately and apart from the taxpayer on a permanent basis, even though legally married to the taxpayer. [New section 159TC - item1]
What are eligible spouse contributions?
10.12 'Eligible spouse contributions' are defined in new section 159TC as contributions which are made to:
- a complying superannuation fund (as defined in Part IX of the Act); or
- an RSA (a retirement savings account, as defined in subsection 6(1) of the Act);
- to obtain superannuation benefits for:
- the taxpayer's spouse; or
- the dependants of the spouse in the event of the spouse's death;
- and which are made during the period when the person is the taxpayer's spouse.
10.13 Superannuation benefits are defined in subsection 6(1) of the Act to be individual personal benefits, pensions or retiring allowances. Dependant is defined in subsection 10(1) of the SIS Act to include the spouse and child of the person.
10.14 Eligible spouse contributions do not include contributions made by a taxpayer who is the employer of his or her spouse. In this case, the taxpayer is entitled to claim a deduction under section 82AAC of the Act for the contributions. This will also apply to contributions to RSAs when the RSA (Consequential Amendments) Act 1997 (the RSA Act) commences. Section 82AADA of the RSA Act entitles a taxpayer to a deduction under section 82AAC where superannuation contributions are made to an RSA on behalf on an employee. [New section 159TC - item 1]
10.15 Where the RSA Act has not commenced before the commencement of these provisions, eligible spouse contributions do not include contributions made by the taxpayer to an RSA. Once the RSA Act has commenced, eligible spouse contributions may be made to an RSA. [Item 2 and subclause 2(4)]
More than one spouse in an income year
10.16 New subsection 159TA limits the amount of the proposed rebate which may be claimed where the taxpayer has more than one spouse during the income year. Where the taxpayer satisfies the conditions for the rebate in relation to more than one spouse, the rebate is the lesser of:
- the sum of the rebate entitlements for each spouse; and
- $540. (See Examples 5 and 6 at paragraphs 10.32 and 10.34 respectively.) [Item1]
Quotation of tax file number
10.17 New section 159TB allows the taxpayer to quote the tax file number (TFN) of the spouse. The consent of the spouse is required before the quotation can be made. It is not compulsory for the taxpayer to quote the spouse's TFN to qualify for the rebate. [Item 1]
10.18 Because the proposed rebate is only available on assessment, it is not taken into account in the calculation of provisional tax liability and taxpayers are not able to vary their provisional tax in anticipation of the rebate. PAYE taxpayers are not able to reduce their tax instalment deductions to take account of the rebate. Section 221YCAA of the Act deals with the calculation of provisional tax. The definition of 'qualifying reductions' in paragraph 221YCAA(2)(m) is amended to exclude the proposed rebate from the calculation of provisional tax. [Item 3]
10.19 Taxable contributions, as defined in subsection 274(1) of the Act, are included in the assessable income of a complying superannuation fund or RSA with limited exceptions. Subparagraphs 274(1)(a)(i) and 274(1)(ba)(i) are amended to exclude eligible spouse contributions from taxable contributions. [Items 4 and 5]
10.20 The amendments to taxable contributions apply to contributions made to a superannuation fund on or after 1 July 1997 [item 6]. Where the RSA Act has not commenced before the commencement of these provisions, taxable contributions do not include contributions made by the taxpayer to an RSA. [Item5 and subclause 2(4)]
Treatment of end benefits
10.21 The superannuation contributions made on behalf of the spouse are 'undeducted contributions' (defined in subsection 27A(1) of the Act). Broadly, undeducted contributions are contributions for which a deduction has not been allowed to either the taxpayer or another person.
10.22 The undeducted contributions component of an ETP is not included in a taxpayer's assessable income; therefore, it is tax free. The taxpayer may roll over all or part of the undeducted contributions. When rolled over, the undeducted contributions component retains its identity and gives rise to an undeducted contributions component in a payment by the roll-over fund.
10.23 Fred and Indira are married and Fred contributes to a complying superannuation fund for Indira's benefit from 1 July 1997. On 1 July 1998, Fred calculates that he has made $2500 in superannuation contributions on behalf of Indira. Indira's assessable income for the year ending 30 June 1998 is $10800.
10.24 Fred is entitled to a rebate equal to 18% of $2500, or $450.
10.25 Vladimir and Taminga are in a de facto relationship. Vladimir makes one contribution of $4000 to an RSA for Taminga's benefit on 1 July 1997 and does not make any other contributions during the income year. Taminga's assessable income for the year ending 30 June 1998 is $10800.
10.26 Vladimir is entitled to a rebate of $540, or 18% of the maximum contributions allowable of $3000 because his actual contributions exceed $3000.
10.27 Andre and Brooke are married and Andre contributes to a complying superannuation fund for Brooke. For the year ending 30 June 1998, he contributes a total of $4000 in superannuation and Brooke's assessable income is $12800.
10.28 Andre is entitled to a reduced rebate because Brooke's assessable income exceeds $10800. The rebate is calculated in the following manner:
- Determine the difference between Brooke's assessable income and $10800 --
12800 - 10800 = 2000
- Reduce the maximum contribution amount of $3000 by the excess at (a) to determine the rebatable amount --
3000 - 2000 = 1000
- Calculate the rebate as 18% of the rebatable amount --
18% x 1000 = 180
10.29 Andre is, therefore, entitled to a rebate of $180.
10.30 Camellia and Karl marry on 30 December 1997; however, Camellia has been contributing to superannuation on behalf of Karl since 1 July 1997. Camellia makes a contribution of $250 on the first of each month. Karl's assessable income for the year ending 30 June 1998 is $10800.
10.31 Camellia is entitled to a rebate in relation to the contributions made from 30 December 1997 (a total of $1500). The rebate is 18% of $1500, or $270.
10.32 Hoa and David are in a de facto relationship. Hoa has contributed $2000 to a complying superannuation fund on behalf of David. Hoa leaves David and marries Arnie on 1 January 1998. She then contributes $500 to superannuation on behalf of Arnie. Both Arnie and David have assessable income of less than $10800 for the year ended 30 June 1998. Hoa is entitled to a rebate in relation to both spouses but the total rebate must not exceed $540.
10.33 Hoa's rebate is calculated as the sum of:
- 18% x 2000 = 360; and
- 18% x 500 = 90
- Hoa is entitled to a rebate of $450.
10.34 Assume the same circumstances as in Example 5 except that Hoa contributes $2000 to superannuation for Arnie. Her rebate will now be $540 because the sum of the individual rebates ($720) exceeds the maximum allowable rebate of $540.