Bills Digest No. 169 2003-04
Superannuation Laws Amendment (2004 Measures No.
1) Bill 2004
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Superannuation
Laws Amendment (2004 Measures No. 1) Bill 2004
Date Introduced: 27 May 2004
House: House
of Representatives
Portfolio: Treasury
Commencement: Royal Assent
The purpose of the Superannuation Laws Amendment (2004
Measures No. 1) Bill 2004 (the Bill) is to alter the eligibility criteria
for access to the government co-contribution and to make some administrative
and technical amendments to the Superannuation (Government Co-contribution
for Low Income Earners) Act 2003 (the Co-contribution Act) to ensure
the smooth operation of the government co-contribution system.
The Co-contribution Act commenced on 12 November 2003 and applies to
the 2003‑04 and later years of income. It provides for contributions
to be made by the government towards the superannuation of low income
earners.
Currently, to be eligible for a government co-contribution in the 2003-04
year of income an individual must have made personal contributions to
a complying superannuation fund, have employer–supported superannuation
and have total income(1) of less than $40 000 for the
year of income. Where an individual is eligible for the government co-contribution
the government will match dollar for dollar an individual’s personal contributions
up to the individual’s maximum co-contribution amount. For individuals
whose total income is $27 500 or less the maximum co-contribution
amount payable is $1000. For individuals whose total income is between
$27 500 and $40 000 the maximum co-contribution amount decreases
at a rate of eight cents for every dollar earned above $27 500.
An individual does not have to apply for the government co-contribution.
Provided they lodge a tax return for the relevant year of income, the
Australian Taxation Office will determine, using information collected
from superannuation surcharge member contribution statements provided
by superannuation providers, if an individual is eligible for a government
co-contribution payment and calculate the amount that is to be paid into
their superannuation fund.
More background information and history of the government co-contribution
can be found in the Bills Digests for the Superannuation (Government
Co-contribution for Low Income Earners) Bill 2002 (the S(GCLIE) Bill
2002) and the Superannuation
(Government Co-contribution for Low Income Earners) Bill 2003 (the
S(GCLIE) Bill 2003).
On 14 March 2004 the Minister for Revenue and the Assistant Treasurer,
Senator the Hon. Helen Coonan announced that the Government was going
to extend the Government’s superannuation co-contribution measure by:
[widening] the eligibility criteria to include people
who earn less than $450 a month and aren’t eligible for superannuation
contributions from their employer.(2)
Currently to be eligible to receive a Government co-contribution a recipient
must, amongst other things, have employer‑supported superannuation.
Employer‑supported superannuation is defined in the Co-contribution
Act as someone who has received contributions on their behalf in connection
with their eligible employment.
The main beneficiaries will be those employees who are paid less than
$450 in a month and part-time workers under 18 years of age who are not
caught by the superannuation guarantee system.(3) Along with
award superannuation, the superannuation guarantee system is the main
way low paid and young employees receive employer‑supported superannuation.
Without this change an employee paid less than $450 in a month or is under
18 years of age and working part-time falls outside the superannuation
guarantee system and usually does not receive employer supported superannuation
as currently defined in the Co-contribution Act.
This Bill is expected to result in a cost to revenue of $195 million
over the forward estimates ($45 million in 2004-05, $50 million in 2005-06,
$50 million in 2006-07 and $50 million in 2007-08).
Currently, under sections 82AAS and 82AAT of the Income Tax Assessment
Act 1936 (ITAA 1936), a person is not entitled to a claim a tax deduction
for personal superannuation contributions if they receive or are entitled
to employer superannuation support. The proposed amendments in this Bill
do not affect the conditions in the section 82AAS and 82AAT of the ITAA
1936.
Nevertheless, removing the requirement for employer‑supported superannuation
and replace it with test dependent on the proportion of their income earned
from eligible employment (which is not reliant on a person actually being
eligible for employer‑supported superannuation) could result in
a person being able to claim a tax deduction for personal superannuation
contributions and receiving the government co‑contribution. Consequently,
the provisions relating to a person claiming a tax deduction for personal
superannuation contributions must be amended so that a person eligible
for the government co-contribution from also being able to claim a tax
deduction for their personal superannuation contributions.
Item 1 amends the note following subsection 82AAT(1) of the ITAA
1936 so that rather than telling the reader that under section 26-80 of
the Income Tax Assessment Act 1997 (ITAA 1997) the deduction under
section 82AAT will be denied if the contribution is made more than 28
days after the person turns 70 years of age it will inform the reader
that section 26-80 of the Income Tax Assessment Act 1997 provides
for cases where the deduction under subsection 82AAT(1) will not apply.
Item 2 inserts proposed paragraph 26-80(3)(c) into the
ITAA 1997 so that a person is denied a deduction under section 82AAT of
the ITAA 1936 if they are entitled to a government co-contribution.
Item 3 provides that the amendment made by item 2 of the
Bill will apply to the 2004-05 year of income and later years of income.
Currently a person must satisfy a number of criteria set out in section
6 of the Co‑contribution Act to be eligible for the government co‑contribution.
One of the criteria is that the person must be in receipt of employer‑supported
superannuation. Items 4 and 5 amend the Co‑contribution
Act so that from 2003‑04 year of income a person will be eligible
for the government co‑contribution even though they do not receive
employer‑supported superannuation.
To be eligible for the government co-contribution a person must meet
all of the following conditions:
-
the person makes an eligible personal superannuation contribution
during an income year (paragraph 6(1)(a)), and
-
the person has employer-supported superannuation for the income
year (paragraph 6(1)(b)), and
-
the person’s total income for the income year is less than the higher
income threshold ($40 000 for the 2003-04 year of income(4))
(paragraph 6(1)(c)), and
-
an income tax return for the person has been lodged (paragraph 6(1)(d)),
and
-
the person is less than 71 years old at the end of the income year
(paragraph 6(1)(e)), and
-
the person does not hold an eligible temporary resident visa at
any time during that year of income (paragraph 6(1)(f)).
Item 4 amends paragraph 6(1)(b) of the Co-contribution Act removing
the requirement that the person has employer-supported superannuation
for the income year and replacing it with a requirement that the person
must have 10 per cent or more of their total income for the year of income
attributable to eligible employment. Item 5 removes the definition
of employer-supported superannuation in subsection 6(2) of the Co-contribution
Act and replaces it with a definition of eligible employment. This definition
refers to the definition of eligible employment in Subdivision AB of Division
3 of Part III of the ITAA 1936.
The result of these two amendments is that for the 2003-04 year of income
a person will be eligible for the government co‑contribution if
the person:
-
receives 10 per cent or more of their total income as an employee
for the purposes of the Superannuation Guarantee Administration
Act 1992 (the SGAA), and
-
they meet the other requirements in paragraphs 6(1)(a) and 6(1)(c)
to (f) of the Co‑contribution Act.
The amendments widen the eligibility criteria as they permit employees
who do not receive employer contributions, such as superannuation guarantee
contributions due to the fact they satisfy one of the exceptions in the
SGAA, to be eligible for a government co‑contribution. The current
eligibility criteria require the member to have employer contributions
made on their behalf.
Item 6 provides that the amendments made by items 4 and
5 of the Bill apply to government co-contribution for the 2003-04
year of income and later years of income.
Currently under the Co‑contribution Act where the Commonwealth
is late in making a co‑contribution payment to an eligible person,
they are required to pay interest to the eligible person on the unpaid
amount. Currently references to interest on unpaid amounts in the Co‑contribution
Act refer to a rate specified in the Superannuation (Government Co‑contribution
for Low Income Earners) Regulation 2004. Part 1 amends the interest
on unpaid amounts provisions of the Co‑contribution Act so that
the interest rate will be determined by referring to the base interest
rate defined in section 8AAD of the Administration Act.
It is interesting to note the difference between the rate of interest
that the Commonwealth must pay where it owes money people under the tax
system verses the rate of interest that a taxpayer must pay where it owes
money to the Commonwealth under the tax system. Generally, in the tax
system when a taxpayer has made an overpayment of tax or the Australian
Taxation Office (ATO) is late in making a refund to a taxpayer, the Commissioner
of Taxation is required to pay interest on an overpayment or late refund
payment. The rate of interest is set in section 214A of the ITAA 1936
which refers to the base interest rate which is defined in section 8AAD
of the Taxation Administration Act 1953 (the Administration Act).
Section 8AAD of the Administration Act defines the base interest rate
for each quarter as the monthly average yield of the 90-day Bank Accepted
Bills published by the Reserve Bank of Australia for the middle month
of the previous quarter. When a taxpayer is late in paying a tax assessment
the payment is subject to a penalty called the general interest charge
(GIC). Section 8AAD of the Administration Act defines the annual GIC set
in each quarter as seven percentage points above base interest rate. Therefore,
if the ATO over taxes a taxpayer the interest they pay as penalty is significantly
lower than if the taxpayer/superannuation provider is late in making a
payment/repayment.
Part 2 amends some of the payments provisions and underpayment
and overpayment provisions. There are time limits for superannuation providers
to credit co‑contribution amounts to member’s accounts (item
7) and time limits for superannuation fund trustees to repay to the
Commonwealth an underpaid amount where that amount cannot be credited
to the eligible person (item 9). Items 13 to 15 also
impose the general interest charge on amounts that the superannuation
providers are required to repay if the repayments are not made within
the legislated timeframes.
Currently section 54 of the Co‑contribution Act requires the Commissioner
of Taxation to provide each quarter a report for the Minister on the operations
of the government co‑contribution. However, it does not specify
exactly what information the Commissioner of Taxation is required to provide.
Part 3 amends the reporting requirements in section 54 of the Co-contributions
Act specifying the information on the government co-contribution that
the Commissioner of Taxation must provide to the Minister so that the
Minister can present a report to the Parliament from 1 July 2004.
Part 4 is a technical amendment to replace references to the Superannuation
Holding Account Reserve with the Superannuation Holding Accounts Account.
The Bill achieves the government’s objective of improving the practical
and administrative operations of the Co-contribution Act. It makes a sensible
adjustment to the eligibility criteria for the government co-contribution
so that all employees, regardless of whether they are entitled to have
superannuation guarantee contributions made on their behalf, will be eligible
for the government co-contribution if they meet all the eligibility criteria.
This is where the problem occurs for the government co-contribution measure.
These amendments to the government co-contribution measure will not help
those employees, who currently cannot afford to make personal contributions,
to find the extra money to benefit from the government co-contribution
systems and these amendments.
The reports that will be published in accordance with section 54 of the
Co‑contribution Act should provide some information on this issue
in the future. However, a more interesting report would be for the Commissioner
of Taxation to provide information on the number of taxpayers whose total
income is below the government co-contribution thresholds, who have received
the minimum superannuation guarantee contribution from their employer
but who do not receive the government co-contribution because they have
not made any personal contributions.
-
Section 8 of the Superannuation (Government Co-contribution for
Low Income Earners) Act 2003 defines total income as the sum of
a person’s assessable income and reportable fringe benefits for the
income year.
-
Senator H. Coonan, Matched super extended to one million more
Australians, Press Release, no. C013/04, Department of the Treasury,
Canberra, 14 March 2004.
-
Explanatory Memorandum, p. 5
-
This will increase to $58 000 for the 2004-05 year of income
if the Superannuation Budget Measures Bill 2004 is passed by parliament
and receives Royal Assent.
Graeme Selleck
21 June 2004
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 2004
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Published by the Parliamentary Library, 2004.
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