Second Reading Speechby the assistant Treasurer the Hon. George Gear, MP
I move that the Bill be now read a second time.
Mr Speaker, the Taxation Laws Amendment (Superannuation) Act 1992 implemented many of the measures outlined in the Treasurer's 'Security in Retirement' statement of 30 June 1992.
Those measures introduce changes to both the voluntary and compulsory tiers of the Government's superannuation policies; changes which are designed to make the Government's policies fairer, simpler and more efficient.
This Bill now before you, which is largely the same as Taxation Laws Amendment (Superannuation) Bill (No 2) 1992, will introduce two of the remaining measures outlined in that Statement; the treatment of death benefits and excessive components.
The Bill also gives effect to the Treasurer's announcement of 4 September 1992 relating to the tax exemption available to continuously complying fixed interest approved deposit funds (ADFs).
Other amendments contained in the Bill change the notice requirements relating to personal superannuation contributions and rectify some technical difficulties relating to the tax treatment of allocated annuities.
Finally, the Bill will make some changes to the Occupational Superannuation Standards Act 1987 (OSS Act) which are consistent with current policy and to the Superannuation Guarantee (Administration) Act 1992 to allow a superannuation scheme which is not a defined benefit scheme to be treated as a defined benefit scheme for the purposes of the Act.
Taxation Laws Amendment (Superannuation) Bill (No 2) 1992, which was introduced on 16 December 1992 but lapsed on the dissolution of Parliament in February, proposed amendments to the OSS Act and to the Income Tax Assessment Act 1936 to allow ADFs to provide allocated pensions. That proposal is not included in the current Bill but will be considered in the development of Superannuation Savings Accounts.
I turn now to a more detailed discussion of the measures in the Bill.
The Bill introduces amendments to assess lump sum superannuation benefits received by a person, on the death of another person, against the deceased's pension reasonable benefit limits (RBLs). The purpose of these amendments is to reduce the scope for estate planning and to ensure the retirement plans of non-dependants are not disrupted by a bequest of a superannuation benefit.
The Bill also changes the taxation treatment of death benefit eligible termination payments (ETPs). Under the current arrangements the tax treatment of a death benefit varies considerably, depending upon the source of the benefit and whether it is received direct or through the deceased's estate. The new arrangements are both simpler and more equitable.
If a death benefit ETP is within the deceased's pension RBLs and is paid to a dependant of the deceased the benefit will be exempt from tax. If the benefit is paid to a non-dependant the ETP will be broken into its ordinary components. However, the post-June 1983 component of the benefit will be taxed at a maximum rate of 15% (plus medicare levy) if paid from a taxed source and 30% (plus medicare levy) if paid from an untaxed source.
Benefits in excess of the deceased's RBL entitlement will be taxed as an excessive component of an ETP whether paid to a dependant or a non-dependant of the deceased.
These measures will apply from 1 July 1994 and are not expected to have any revenue implications.
At present, under the Income Tax Rates Act 1986, the excessive component of an ETP is taxed at the taxpayer's marginal rates of tax. In line with the Treasurer's Statement, the Bill will amend that Act to ensure that the excessive component of an ETP (ie. the amount in excess of the RBL) is taxed at the top marginal rate of tax (currently 47%) plus medicare levy.
These amendments will apply from 1 July 1994. This measure, combined with the measures relating to limits on deductions for superannuation contributions and RBLs, is expected to increase revenue by $20 million in 1995-96.
The Bill will amend the notice requirements relating to the tax treatment of personal superannuation contributions. Under the existing arrangements superannuation funds must treat all personal superannuation contributions as taxable contributions unless they are notified that the member is not going to claim a tax deduction for their contribution.
As most personal superannuation contributions do not qualify for a deduction, the Bill proposes that personal superannuation contributions will not be treated as taxable contributions by a superannuation fund unless the fund has received a notice from the member stating that they are intending to claim a deduction for their contributions.
Consequently, taxpayers will be eligible for a deduction for personal superannuation contributions to a complying superannuation fund only if they give a notice to the fund advising the fund that they are intending to claim a tax deduction for their contributions and receive an acknowledgment of the notice from the fund.
These new arrangements have been actively sought by the superannuation industry because they substantially reduce the administrative burden on superannuation funds.
These amendments will apply to contributions made to a fund on or after 1 July 1992, other than contributions made by a person who has ceased to be a member of the fund before the date of Royal Assent.
These measures are not expected to have any revenue implications.
Continuously Complying Fixed Interest ADFs
The Bill will make a technical amendment in relation to continuously complying fixed interest ADFs.
Continuously complying fixed interest ADFs are exempt from tax on income that is referable to certain deposits held in ADFs as at 25 May 1988 when the tax arrangements applying to superannuation funds and ADFs were announced. The exemption applies only if an ADF receives at least 90% of its investment income as interest or from amounts received in respect of the disposal of long term securities.
Given that the disposal of securities is a normal activity of these investment bodies, the Bill will allow ADFs to take into account profits on the disposal of securities to determine whether they qualify as continuously complying fixed interest ADFs.
This measure will apply from 1 July 1988 as it is broadly consistent with the original policy intention of exempting continuously complying fixed interest ADFs. The measure is not expected to have any revenue implications.
The Bill will make some technical amendments to ensure that the income derived by an annuity provider in respect of an allocated annuity is exempt from tax and that allocated annuities are not qualifying securities for taxation purposes.
The amendments will apply from 22 December 1992, when allocated annuities became acceptable products for ETP purposes, and are not expected to have any revenue implications.
Occupational Superannuation Standards Act
The Bill makes some changes to the OSS Act which are consistent with current policy. Very briefly, the changes to the OSS Act are to put appropriate rules on the number of employer sponsors that have to be notified for superannuation guarantee purposes if there is a breach of the OSS Act, formalise the arrangements under which the ISC can release information to the public, make some minor changes to the information that the ISC can release about superannuation funds used for superannuation guarantee purposes, provide the Insurance and Superannuation Commissioner with discretionary powers to deal with prospectus requirements for superannuation funds, make it easier for retired persons to select the pension provider of their choice, and extend the exemption from reporting ETPs of small value for reasonable benefit limit purposes to all payers of ETPs other than ADFs and deferred annuity funds.
Superannuation Guarantee (Administration) Act
Finally, the Bill will amend the Superannuation Guarantee (Administration) Act to allow the trustee of a superannuation scheme which is not a defined benefit superannuation scheme to elect that the scheme be treated as a defined benefit superannuation scheme for the purposes of the Act. This will enable employers, when measuring the level of employer support in such a scheme, to take account of reserves or surpluses which are used to provide benefits to members. The amendments will not have any revenue effect.
Full details of the amendments are contained in the Explanatory Memorandum being circulated to Honourable members.
Mr Speaker, I commend the Bill to the House.