House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Superannuation Contributions Taxes and Termination Payments Tax Legislation Amendment Bill 2001

This Bill amends the SCT(A&C)A 1997, the SCT(MCPSF)A 1997 and the TPT(A&C)A 1997 to improve the operation of the termination payments surcharge and the superannuation contributions surcharge as they apply to employer ETPs. In particular, this Bill amends these Acts to:

•

make the existing transitional arrangements permanent where they relate to the portion of a termination payment that is subject to surcharge;

•

change how a taxpayers adjusted taxable income is determined under the surcharge legislation in certain circumstances; and

•

exempt the excessive component of an employer ETP from liability to the termination payments surcharge.

Date of effect: The amendments to the SCT(A&C)A 1997 and the TPT(A&C)A 1997 will take effect from 5 June 1997. The amendments to the SCT(MCPSF)A 1997 will take effect from 7 December 1997. These are the dates of effect of the relevant legislation.

However, the exemption of the excessive component of an employer ETP from the termination payments surcharge will only apply to payments made after 7.30 pm, by legal time in the Australian Capital Territory, on 22 May 2001.

Proposal announced: 2001-2002 Federal Budget.

Financial impact: The proposed amendments are expected to result in a revenue cost of $14 million in 2001-2002, $21 million in 2002-2003, $17 million in 2003-2004 and $21 million in 2004-2005.

Compliance cost impact: Superannuation providers will need to provide additional information to the ATO where an employer ETP has been rolled over to a superannuation provider. However, all the information required to be reported is already obtained by superannuation providers when the payment is rolled over.

Summary of regulation impact statement

Regulation impact on business

Impact: Where an employer ETP has been rolled over to a superannuation provider, additional reporting by the provider will be required. However, all the information required to be reported is already obtained by superannuation providers when the payment is rolled over.

Main points:

•

The 2001-2002 Federal Budget announced a package of amendments to the termination payments surcharge and the superannuation contributions surcharge legislation.

•

The amendments will improve the operation of the surcharge legislation as it applies to employer ETPs, such as redundancies.

•

The objective of these amendments is to improve the overall equity of the surcharge legislation. The issues specifically addressed by the amendments are:

-

where an employer ETP is received after 19 August 2001, the retained amount of the payment is potentially surchargeable (including any amount which may relate to pre-20 August 1996 service, that is, before the date of the original 1996-1997 Federal Budget announcement);

-

certain individuals who would not normally be subject to the surcharge may become liable to pay the surcharge in a given year as a consequence of receiving an employer ETP; and

-

some individuals may be faced with an effective tax rate greater than the top marginal income tax rate plus the Medicare levy on their employer ETP due to the interaction of the surcharge and the RBL systems.

•

The impact of the amendments will be to reduce the amount of surcharge payable as a result of receiving certain termination payments, and to improve the overall operation of the surcharge legislation.

•

The impact groups affected by these amendments are superannuation providers, certain individuals who received an employer ETP after 20 August 1996 and the ATO.

Chapter 1 - Permanent application of transitional arrangements

Outline of chapter

1.1 This chapter explains the amendments that will make the existing transitional arrangements permanent where they relate to the portion of a termination payment that is subject to surcharge.

Context of reform

1.2 This measure was announced in the 2001-2002 Federal Budget and is designed to improve the operation of the termination payments surcharge and the superannuation contributions surcharge as they apply to employer ETPs, such as redundancies.

1.3 At present, as a transitional measure until 19 August 2001, taxpayers are liable for the termination payments surcharge only on the portion of an employer ETP that accrued after the surcharge was announced on 20 August 1996.

Summary of new law

1.4 This Bill will remove the sunset provisions and continue to apply the termination payments surcharge only to the portion of the termination payment that accrued after 20 August 1996.

Detailed explanation of new law

1.5 The SCT (A&C)A 1997 provides for the assessment and collection of a superannuation contributions surcharge payable on surchargeable contributions made on behalf of high-income individuals after 20 August 1996. Surchargeable contributions include the portion of a termination payment that accrued after 20 August 1996 that is rolled over to a superannuation provider.

1.6 The SCT (MCPSFA)A 1997 provides for the assessment and collection of a superannuation contributions surcharge on high-income members of constitutionally protected superannuation funds.

1.7 The TPT (A&C)A 1997 provides for the assessment and collection of a termination payments surcharge. The surcharge is payable on employer ETPs made to high-income taxpayers from 20 August 1996 in consequence of the termination of their employment. The termination payments surcharge was introduced to prevent employer ETPs being used as a means of surcharge avoidance.

1.8 For a transitional period, the termination payments surcharge only applies to the component of an employer ETP that accrues after 20 August 1996. This transitional period will expire on 19 August 2001.

1.9 This Bill amends subsection 8(2A) of the SCT(A&C)A 1997 to remove the reference to ETPs made before 20 August 2001 and to provide that only the reduced amount of an ETP is used in the calculation to determine the surchargeable amount. The definition of reduced amount inserted in subsection 8(2A) refers to the amount of an ETP remaining after deducting any post-June 1994 invalidity component, CGT exempt component or any part made from an employee share acquisition scheme. [Schedule 1, items 3 and 4, subsection 8(2A)]

1.10 As a result, the contributions surcharge will only apply to so much of an employer ETP (less the amounts mentioned in paragraph 1.9) rolled over to a superannuation provider, that is taken to have accrued after 20 August 1996.

1.11 In relation to members of constitutionally protected superannuation funds, this Bill amends subsection 9(3) of the SCT(MCPSF)A 1997 to remove the reference to employer ETPs made before 20 August 2001, and to provide that only the reduced amount of an ETP is used in the calculation to determine the surchargeable amount. The definition of reduced amount inserted in subsection 9(3) refers to the amount of an ETP remaining after deducting any post-June 1994 invalidity component, CGT exempt component or any part made from an employee share acquisition scheme. [Schedule 2, items 2 and 3, subsection 9(3)]

1.12 As a result, the contributions surcharge will only apply to so much of an employer ETP (less the amounts mentioned in paragraph 1.11) rolled over to a superannuation provider, that is taken to have accrued after 20 August 1996.

1.13 In relation to the termination payments surcharge, this Bill repeals the current section 9 of the TPT(A&C)A 1997 and replaces it with a new section 9. This change will ensure that only the amount of the termination payment that is taken to have accrued after 20 August 1996 will be subject to the termination payments surcharge. [Schedule 3, item 3, section 9]

1.14 The repeal of section 9 also removes current subsection 9(2) of the TPT(A&C)A 1997. Currently, subsection 9(2) provides that where a taxpayer has an entitlement to the payment of a termination payment under a written agreement entered into before 20 August 1996, then the transitional arrangements would continue to apply to that termination payment paid after 20 August 2001. [Schedule 3, item 3, section 9]

Application and transitional provisions

1.15 These amendments to the SCT(A&C)A 1997 and the TPT(A&C)A 1997 take effect from 5 June 1997. The amendments to the SCT(MCPSF)A 1997 take effect from 7 December 1997. This will provide continuity of application of the surcharge and termination payments legislation.

Consequential amendments

1.16 This Bill removes the reference to specified rollover amounts in subparagraph 8(2)(c)(iii) of the SCT(A&C)A 1997 as a result of the permanent application of the transitional arrangements in subsection 8(2A). Specified rollover amounts that constitute amounts accrued after 20 August 1996 are not amounts that should be included as surchargeable contributions from 20 August 2001. Instead, subsection 8(2A) will continue to apply in relation to calculating the proportion of a rolled over employer ETP which is included as a surchargeable contribution. [Schedule 1, item 2, subparagraph 8(2)(c)(iii)]

1.17 Subsection 8(2A) (as currently administered in accordance with Superannuation Contributions Determination SCD 1999/5) provides that the amount to be included as a surchargeable contribution is the total ETP (less the amount of any post-June 1994 invalidity component or CGT exempt component or an ETP from an employee share acquisition scheme) multiplied by the post-20 August 1996 period divided by the total period. (It is expected that Superannuation Contributions Determination SCD 1999/5 will be withdrawn after the date of Royal Assent of this Bill.)

1.18 The definition of specified rollover amount in section 43 is repealed, and reference to the term in subparagraph 13(7)(a)(i) is omitted, as it is no longer referred to in subparagraph 8(2)(c)(iii) of the SCT(A&C)A 1997. [Schedule 1, item 8, definition of specified rollover amount in section 43, item 5, subparagraph 13(7)(a)(i)]

1.19 This Bill also removes the reference to specified rollover amounts in subparagraph 9(2)(c)(iii) of the SCT(MCPSF)A 1997 as a result of the permanent application of subsection 9(3). Specified rollover amounts that constitute amounts accrued after 20 August 1996 are not the amounts that should be included as surchargeable contributions from 20 August 2001. Instead, subsection 9(3) will continue to apply in relation to calculating the proportion of a rolled over ETP which is included as a surchargeable contribution. [Schedule 2, item 1, subparagraph 9(2)(c)(iii)]

1.20 The definition of specified rollover amount in section 38 is repealed, and reference to the term in subparagraph 12(5)(a)(i) is omitted, as it is no longer referred to in subparagraph 9(2)(c)(iii) of the SCT(MCPSF)A 1997. [Schedule 2, item 7, definition of specified rollover amount in section 38, item 4, subparagraph 12(5)(a)(i)]

1.21 As a consequence of the changes, this Bill inserts a definition of rolled over into both the SCT(A&C)A 1997 and the SCT(MCPSF)A 1997. [Schedule 1, item 7, section 43; Schedule 2, item 6, section 38)]

Chapter 2 - Calculation of adjusted taxable income

Outline of chapter

2.1 This chapter explains the amendments necessary to change how a taxpayers adjusted taxable income is determined under the surcharge legislation in certain circumstances.

Context of reform

2.2 This measure was announced in the 2001-2002 Federal Budget and is designed to improve the operation of the termination payments surcharge and the superannuation contributions surcharge as they apply to employer ETPs, such as redundancies.

2.3 It is intended that taxpayers who receive moderate ETPs and who otherwise do not have high incomes should have reduced or no liability to the termination payments surcharge and superannuation contributions surcharge.

Summary of new law

2.4 This Bill provides that where an ETP is below the upper surcharge threshold for the financial year, only the amount calculated by dividing the taxable amount of the ETP by the taxpayers period of service is included in the calculation of ATI.

Detailed explanation of new law

2.5 ATI is defined in section 43 of the SCT(A&C)A 1997. The Commissioner calculates a persons ATI to determine whether superannuation contributions surcharge or termination payments surcharge are payable and if so at what rate (up to a maximum of 15%).

2.6 This Bill repeals the definition of ATI in section 43 in the SCT(A&C)A 1997 and inserts new provisions which provide 2 methods of calculating ATI which apply in different circumstances. Which method is applicable depends upon whether a person received one or more employer ETPs (as defined in paragraph (a) of the definition of ETP in subsection 27A(1) of the ITAA 1936 in the financial year and on the total amount of the ETPs). The total amount of such payments is compared to the upper surcharge threshold for the financial year (as specified in subsection 5(2) of the Superannuation Contributions Tax Imposition Act 1997).

2.7 For the purposes of comparison against the upper surcharge threshold for the financial year, the amount of an employer ETP used is the reduced amount of the ETP. The reduced amount of an ETP is the employer ETP less any CGT exempt component, post-June 1994 invalidity component and any part of the payment that was made from an employee share acquisition scheme.

2.8 The first case method of calculating ATI (set out in new section 7A of the SCT(A&C)A 1997) applies where a person did not receive any employer ETPs in a financial year or if they did, the sum of the reduced amounts was equal to or greater than the upper surcharge threshold for that year. In these circumstances, the calculation of ATI is the same as under the existing definition of ATI in section 43 of the SCT(A&C)A 1997. [Schedule 1, item 1, section 7A]

2.9 At present, where an employer ETP is retained (taken in cash), the taxable portion of the ETP (less the CGT exempt component, post-June 1994 invalidity component and any part of the payment that was made from an employee share acquisition scheme) is included in the calculation of the persons ATI. Where an employer ETP is rolled over to a superannuation provider the portion which accrued after 20 August 1996 of the ETP (less the CGT exempt component, post-June 1994 invalidity component and any part of the payment that was made from an employee share acquisition scheme) is included in the calculation of ATI as a surchargeable contribution.

2.10 The second case method of calculating ATI (set out in new section 7B of the SCT(A&C)A 1997) applies where a person receives one or more employer ETPs in a financial year and the total of the reduced amounts of the ETPs is less than the upper surcharge threshold for that year. In this case, the calculation of ATI will be different from the current calculation, under the existing definition of ATI in section 43 of the SCT(A&C)A 1997. [Schedule 1, item 1, section 7B]

2.11 Under the new provisions to determine the calculation of ATI, where the second case method applies and the taxpayer retains an employer ETP which has a relevant service period of 365 days or more, the following arrangement will apply. The taxable portion of the reduced amount of each employer ETP will be deducted from the persons taxable income, and an amount derived by dividing the taxable amount of the reduced amount of each employer ETP by the relevant period of service will be included in the calculation of ATI.

2.12 Where the second case method applies and the taxpayer rolls over an employer ETP which has a relevant service period of 365 days or more to a superannuation provider, the taxpayers ATI will be adjusted as follows. The portion of the reduced amount of each employer ETP that would be taxable if the employer ETP had been retained in cash, is divided by the relevant period of service and included in the calculation of ATI. The portion of the rolled over employer ETP that accrued after 20 August 1996 (calculated under subparagraph 8(2)(c)(iii) of the SCT(A&C)A 1997 as a surchargeable contribution) is deducted from surchargeable contributions for the purposes of calculating the persons ATI.

2.13 However, where the taxpayers ETP has a relevant period of service after 20 August 1996 which is less than 365 days, instead of the taxable portion of the reduced amount of the employer ETP divided by period of service being included in ATI, only the amount that is taken to have accrued after 20 August 1996 is included in ATI. This is to ensure that the taxpayer does not have a higher ATI, and possibly higher surcharge rate under the new arrangements than under the existing legislation.

Example 2.1

Theo commenced work with Jacks Investment Services on 21 August 1994. On 19 February 1997, Theo terminates employment with Jacks Investment Services and is paid an employer ETP of $25,000 which he takes in cash.

For the 1996-1997 financial year, Theo has taxable income of $86,000 (including the ETP) and surchargeable contributions of $3,600.

As the total amount of employer ETPs received by Theo in the 1996-1997 financial year is less than the upper surcharge threshold ($85,000), his ATI for surcharge purposes is worked out under the second case method. His ATI will therefore be:

($86,000 - $25,000) + ((183 days / 914 days) * $25,000) + $3,600
= $61,000 + $5,005 + $3,600
= $69,605


Since Theos ATI is less than the surcharge threshold amount ($70,000), no surcharge will be payable. Under the current arrangements, Theo would have a surcharge rate of 15%.

Example 2.2

Kate was employed by Solutions IT on 13 October 1997. She ceases work for Solutions IT on 1 September 2000 and was paid an employer ETP of $40,000 which she takes in cash.

She subsequently finds employment with another company from 1 October 2000 until 15 May 2001. On ceasing employment with the second company she receives an employer ETP of $1,000 which she also takes as cash.

For the 2000-2001 financial year, Kate has taxable income of $106,000 (including the 2 ETPs) and surchargeable contributions of $5,200.

As the total amount of employer ETPs received by Kate in the 2000-2001 financial year is less than the upper surcharge threshold ($98,955), her ATI for surcharge purposes is worked out under the second case method. Her ATI will therefore be:

($106,000 - $41,000) + ((365 days / 1055 days) * $40,000) + ((228 days / 228 days) * $1,000) + $5,200
= $65,000 + $13,838 + $1,000 + $5,200
= $85,038


Kates ATI is above the surcharge threshold amount ($81,493), and her surcharge rate will be 3.04292%. Under the current arrangements, Kate would have a surcharge rate of 15%.

Example 2.3

Stuart commenced work with Sunrise Airlines on 1 August 1991. On 1 June 2001, Stuart leaves the company and receives an employer ETP of $95,000, of which he decides to take $45,000 in cash and rollover $50,000 into his superannuation fund.

For the 2000-2001 financial year, Stuart has taxable income of $115,000 (including the retained ETP), and surchargeable contributions of $29,897.24 (including $24,297.24 representing the post-20 August 1996 amount of the rolled over ETP).

As the total amount of employer ETPs received by Stuart in the 2000-2001 financial year is less than the upper surcharge threshold ($98,955), his ATI for surcharge purposes is worked out under the second case method. His ATI will therefore be:

($115,000 - $45,000) + ((365 / 3593 days) * $95,000) + ($29,897.24 - $24,297.24)
= $70,000 + $9,650 + $5,600
= $85,250


Stuarts ATI is above the surcharge threshold amount ($81,493), and his surcharge rate will be 3.22489%. Under the current arrangements, Stuart would have a surcharge rate of 15%.

Application and transitional provisions

2.14 The amendments to the SCT(A&C)A 1997 and the TPT(A&C)A 1997 take effect from 5 June 1997. The amendments to the SCT(MCPSF)A 1997 take effect from 7 December 1997. This will provide continuity of application of the surcharge and termination payments legislation.

2.15 It is intended that a person should not be in a worse position as a result of the amendments contained in this Bill. An anti-detriment provision has been inserted in each Act to ensure that the Commissioner can only amend an assessment to reduce a persons liability to the surcharge as a result of the amendments made by this Bill. An assessment cannot be amended to increase a persons surcharge liability if the increase is only as a result of amendments made by this Bill. [Schedule 1, item 9; Schedule 2, item 8; Schedule 3, item 5]

Consequential amendments

2.16 The definition of ATI in section 43 of the SCT(A&C)A 1997 is repealed and replaced with a reference to the new methods of calculating ATI in sections 7A and 7B. [Schedule 1, item 6, section 43]

2.17 The definition of ATI in section 38 of the SCT(MCPSF)A 1997 is repealed and replaced with a reference to the SCT(A&C)A 1997. This will ensure that the definition of ATI under SCT(MCPSF)A 1997 will have the same meaning as ATI in section 43 of the SCT(A&C)A 1997 (which will refer to new sections 7A and 7B). [Schedule 2, item 5, section 38]

Chapter 3 - Exemption from termination payments surcharge

Outline of chapter

3.1 This chapter explains the amendments necessary to exempt the excessive component of an employer ETP from liability to the termination payments surcharge.

Context of reform

3.2 This measure was announced in the 2001-2002 Federal Budget and is designed to improve the operation of the termination payments surcharge as it applies to employer ETPs, such as redundancies.

Summary of new law

3.3 Currently, where an employer ETP is subject to the termination payments surcharge and part or all of that ETP exceeds the taxpayers RBL, this excessive component is potentially taxable at a maximum rate of 63.5% (top marginal rate plus the Medicare levy plus the termination payments surcharge). This Bill will amend the TPT(A&C)A 1997 to exempt an excessive component of a retained employer ETP from the termination payments surcharge.

Detailed explanation of new law

3.4 Subsection 8(1) of the TPT(A&C)A 1997 states that termination payments surcharge is payable on any termination payments made to or for a taxpayer. However, under subsection 8(2) no surcharge is payable unless the persons ATI is greater than the surcharge threshold.

3.5 This Bill inserts a new subsection 8(1A) to exclude an excessive component of an employer ETP from being subject to the termination payments surcharge for termination payments made after 7.30 pm, by legal time in the Australian Capital Territory, on 22 May 2001. [Schedule 3, items 1 and 2, subsection 8(1)]

3.6 An excessive component is an amount determined by the Commissioner under subsection 140R(1) of the ITAA 1936.

3.7 Subsection 9(1) of the TPT(A&C)A 1997 is currently a transitional provision which provides that, for termination payments made before 20 August 2001, only the portion of a termination payment that accrued after 20 August 1996 is liable to the surcharge. However, the existing transitional arrangements are to be made permanent by this Bill (see Chapter 1), with current section 9 being repealed and replaced with a new section 9. New subsection 9(1) provides that section 9 only applies to termination payments made after 20 August 1996. New subsection 9(2) sets out the method of determining the amount of a termination payment made before 7.30 pm, by legal time in the Australian Capital Territory, on 22 May 2001 which is subject to the surcharge. New subsection 9(3) sets out the method of determining the amount of a termination payment made after 7.30 pm, by legal time in the Australian Capital Territory, on 22 May 2001 that is subject to the surcharge. [Schedule 3, item 3, section 9]

Application and transitional provisions

3.8 The amendments to the TPT(A&C)A 1997 to exempt the excessive component from the termination payments tax will apply to payments received after 7.30 pm, by legal time in the Australian Capital Territory, on 22 May 2001. [Schedule 3, item 4]

Chapter 4 - Regulation impact statement

Scope of this regulation impact statement

4.1 The 2001-2002 Federal Budget announced a package of amendments to the termination payments surcharge and the superannuation contributions surcharge legislation.

4.2 The amendments will improve the operation of the surcharge legislation as it applies to employer ETPs, such as redundancies.

4.3 This regulation impact statement deals with the 3 announced amendments.

Policy objective

4.4 The objective of the amendments is to improve the overall equity of the surcharge legislation. The issues specifically addressed by the amendments are:

•

where an employer ETP is received after 19 August 2001, the retained amount of the payment is potentially surchargeable (including any amounts which may relate to pre-20 August 1996 service - that is, before the date of the original 1996-1997 Federal Budget announcement);

•

certain individuals who would not normally be subject to the surcharge may become liable to pay the surcharge in a given year as a consequence of receiving an employer ETP;and

•

some individuals may be faced with an effective tax rate greater than the top marginal income tax rate plus the Medicare levy on their employer ETP due to the interaction of surcharge and the RBL systems.

Implementation options

4.5 The approach proposed as being appropriate to address the issues identified involves amendments to the surcharge legislation.

4.6 The first amendment is to the existing transitional arrangements.

4.7 Currently, as a transitional measure until 19 August 2001, taxpayers are liable for the termination payments surcharge only on the portion of the termination payment that accrued after the surcharge was announced on 20 August 1996. The amendment will remove the sunset provisions and continue to apply the termination payments surcharge only to the portion of the payment that accrued after 20 August 1996, when the surcharge commenced.

4.8 The second amendment will change how a taxpayers adjusted taxable income is determined under the surcharge legislation.

4.9 Under the proposed arrangements, only the taxable amount of the termination payment divided by the taxpayers period of service will be included in the calculation of adjusted taxable income, compared with either the full taxable or post-20 August 1996 amount at present. This will mean that taxpayers who receive moderate termination payments and who otherwise do not have high incomes will have a reduced or no surcharge liability.

4.10 This change will apply only for termination payments less than the upper surcharge threshold (e.g. $98,955 in 2000-2001, indexed to average weekly ordinary time earnings). For termination payments equal to or greater than the upper surcharge threshold, the entire payment will continue to be included in the taxpayers adjusted taxable income.

4.11 This second amendment will apply to all employer ETPs made since 20 August 1996.

4.12 The third amendment will exempt the excessive component of an employer ETP from liability to the termination payments surcharge, while retaining its liability to the top marginal income tax rate of 47% plus the Medicare levy as an excessive component of taxable income.

4.13 This third amendment will apply to payments received after 7.30 pm, by legal time in the Australian Capital Territory, on 22 May 2001.

Assessment of impacts

4.14 Each of the amendments set out in the previous paragraphs specifically deals with an issue that has been identified as needing to be addressed to enhance the equity of the surcharge regime. The impact of the amendments will be to reduce the amount of surcharge payable as a result of receiving certain termination payments, and to improve the overall operation of the surcharge legislation.

Impact group identification

4.15 The impact groups affected by these amendments are:

•

superannuation providers;

•

certain individuals who received an employer ETP after 20 August 1996; and

•

the ATO.

Analysis of costs/benefits

Compliance costs

4.16 Superannuation providers are currently required to report certain information to the ATO for surcharge purposes. For the 1998-1999 financial year, 18,390 administrators lodged statements on behalf of superannuation providers.

4.17 Where an employer ETP has been rolled over to a superannuation provider, additional reporting by the provider will now be required. This is to enable the ATO to calculate the notional value of an employer ETP (i.e. the taxable amount of the termination payment divided by the taxpayers period of service). This notional value is used in determining a taxpayers adjustable taxable income for surcharge purposes.

4.18 Employer ETPs rolled over to a superannuation provider are accompanied by an ETP rollover statement. Currently, these statements are used by superannuation providers for essentially internal purposes. As a consequence of the announced changes, superannuation providers will be required to provide information from the statement to the ATO. This will require most superannuation providers to institute systems changes so the information is recorded and reported to the ATO.

4.19 However, most employer ETPs are taken as cash, and only a small proportion (possibly 10%) are rolled over.

Administration costs

4.20 The ATO will be undertaking the bulk of the work necessary to implement the proposed amendments. A significant amount of this work will involve giving effect to the backdated aspects of the proposal. In this respect, the ATO will be writing to all taxpayers who are likely to benefit from the changes, seeking additional information to facilitate reassessment and payment of any refunds.

Government revenue

4.21 The proposed amendments are expected to result in a revenue cost of $14 million in 2001-2002, $21 million in 2002-2003, $17 million in 2003-2004 and $21 million in 2004-2005.

Economic effects

4.22 There will be a potential reduction, or no surcharge liability, in the surcharge payable on certain termination payments for taxpayers who receive moderate termination payments and who otherwise do not have high incomes. This may particularly benefit employees with reasonable periods of service who receive an employer ETP on becoming redundant.

Other issues - consultation

4.23 The amendments to the surcharge legislation were developed following consultation between the Government, various departments and the Commissioner, in response to concerns raised by taxpayers.

4.24 Following the 2001-2002 Federal Budget announcement, the measures were raised with the superannuation industry in the context of a regular discussion on business systems. No significant concerns or issues in respect of the proposed reporting requirements were raised by the industry at that meeting.

Conclusion and recommended option

4.25 The amendments to the surcharge legislation will provide an appropriate balance between the objective of improving the equity of the arrangements, while maintaining the integrity of the superannuation contributions surcharge regime.