Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)General outline and financial impact
Additional one-off Government superannuation co-contribution
The Government will provide an additional one-off Government superannuation co-contribution that will double the amount received by eligible persons in the 2005-06 income year.
For example, if a person was eligible for a co-contribution of $1,500 in respect of the 2005-06 income year, they will now receive an extra $1,500 making a total of $3,000 for that year.
Date of effect : This measure commences on Royal Assent and applies to contributions made in the 2005-06 income year.
Proposal announced : This measure was announced on 8 May 2007 in the 2007-08 Budget.
Financial impact : This measure is expected to result in a cost of $990 million in 2006-07 and $80 million in 2007-08.
Compliance cost impact : The increase in compliance costs for superannuation providers will be negligible, since they already accept Government co-contribution payments.
Chapter 1 - Additional one-off Government superannuation co-contribution
Outline of chapter
1.1 Schedule 1 to this Bill will amend the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 to double the co-contribution paid for persons who are entitled to receive a co-contribution in respect of the 2005-06 income year.
Context of amendments
1.2 The Government announced in the 2007-08 Budget that it will improve superannuation savings for low to middle income earners by further rewarding, with an additional co-contribution payment, those people who have already saved for their retirement by making contributions that were eligible for the Government co-contribution in the 2005-06 income year.
Summary of new law
1.3 The Government will provide an additional one-off superannuation co-contribution that will double the co-contribution for those persons who were eligible to receive a co-contribution in respect of the 2005-06 income year.
1.4 For example, if a person was eligible for a co-contribution of $1,500 in respect of the 2005-06 income year they will now receive an extra co-contribution making a total co-contribution of $3,000 for that year. If they were eligible for a $500 co-contribution they will receive a total co-contribution of $1,000 for the year.
1.5 Interest will not be payable on amounts that arise solely from this additional one-off payment. However, the Government expects the Commissioner of Taxation (Commissioner) to make the great majority of payments before 30 June 2007 and any remainder in the following financial year.
Comparison of key features of new law and current law
| New law | Current law |
|---|---|
| The amount of Government superannuation co-contribution that a person is entitled to under the existing provisions will be doubled in respect of the 2005-06 income year.
Interest will not be payable on amounts that arise solely from this additional one-off payment. |
A qualifying employee's eligible personal superannuation contributions are matched by a Government co-contribution at the level of $1.50 for each dollar, up to a maximum Government contribution of $1,500.
The maximum Government contribution of $1,500 is available for qualifying employees on incomes (for co-contribution purposes) up to $28,000. The maximum Government contribution phases out at a rate of 5 cents for every dollar of income above $28,000, and phases out completely at $58,000. Interest is payable in certain circumstances, including where a payment is made by the Commissioner after a specified payment date, or where the Commissioner has made an administrative error. |
Detailed explanation of new law
1.6 Section 12A provides that the Government co-contribution (as worked out under sections 9, 10, 10A and 11 of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003) that would otherwise be payable to a person in respect of eligible personal superannuation contributions made in the 2005-06 income year will be doubled. Only those persons who would have been eligible for the co-contribution in respect of that year under the eligibility criteria that applied at the time are eligible for the additional payment. [Schedule 1, item 1]
1.7 Interest may continue to arise in respect of 'original' co-contribution payments (those determined with regard to sections 9, 10, 10A and 11 of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003) but not in respect of the additional one-off payment arising from new subsection 12A(2). However, the Government expects the Commissioner to make the great majority of payments before 30 June 2007 and any remainder in the following financial year. [Schedule 1, item 1]
Application and transitional provisions
1.8 The measure applies in respect of contributions made in the 2005-06 income year.