Supplementary Explanatory Memorandum
Amendments and New Clauses to be Moved on Behalf of the Government(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)CHAPTER 4 - AMENDMENTS 11 to 13 - SUPREANUATION - REASONABLE BENEFITS LIMITS
Overview
4.1 These amendments will make a minor technical change to the formula used to determine the excessive component of an eligible termination payment (ETP) arising from the commutation of a pension or annuity so that, when making an reasonable benefit limit (RBL) determination, the rebatable proportion is applied only to that part of the ETP that is counted for RBL purposes rather than the whole of the ETP.
Background to the amendments
4.2 Clauses 96 and 97 of the Bill propose to insert new subsection140R(1A) and subsection140T(2B) to ensure that where a person is paid an ETP resulting from the commutation of a pension that was in excess of the person's RBL, the ETP will similarly be determined to be in excess of the person's RBL.
Why are changes being made?
4.3 The formulae in proposed new subsection140R(1A) and subsection140T(2B) apply the rebatable proportion worked out when a pension or annuity is first measured for RBL purposes to the whole of the ETP received on the commutation of that pension or annuity entitlement to work out the extent to which the ETP is within the recipient's RBL. This potentially results in amounts that are not counted for RBL purposes being treated as excessive component.
Explanation of the amendments
4.4 The amendments change the formulae in subsection140R(1A) and subsection140R(2B) so that they refer to the RBL amount of the ETP rather than the Amount of ETP.
4.5 The RBL amount of the ETP is defined in section140C to have the meaning given by the applicable provision in SubdivisionH. The RBL amount identifies that part of the ETP which is counted for RBL purposes.
4.6 A consequential amendment is being made to section140ZI to ensure that the RBL amount of an ETP paid by a life assurance company or registered organisation is properly determined. [New clause98A]
Exampl
4.7 Margaret receives an ETP of $550000 from a taxed superannuation fund. $50000 of this amount represents undeducted contributions. Margaret rolls over the whole of the amount received to purchase an allocated annuity from a life assurance company (which is measured for RBL purposes against the lump sum RBL).
4.8 The rebatable proportion of Margaret's allocated annuity worked out under section140ZQ is based on the RBL amount of the ETP used to purchase the annuity. The RBL amount under section 140ZM is the amount of the ETP reduced by undeducted contributions. Therefore, the RBL amount is $500000 and the rebatable proportion is80%. If the benefit had been taken as a lump sum the excessive component would have been $100000.
4.9 Several months later Margaret decides to commute the pension and receives an ETP of the same amount (ie, $550000). She has not used up any of her undeducted contributions as undeducted purchase price. The RBL amount of the ETP received under amended section140ZI will be $500000. The RBL determination under section 140R(1A) as amended will be show that Margaret's ETP contains an excessive component of:
$500000 * [1 - 0.8] = $100000.