Bills Digest No. 67, 2012–13

6 February 2013

Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012

Kai Swoboda
Economics Section 

Date introduced: 29 November 2012

House: House of Representatives

Portfolio: Treasury

Commencement: Royal Assent

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose of the Bill

The purpose of the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 (the Bill) is to amend the Income Tax Rates Act 1986 (ITR Act)[1] to increase the tax rate on superannuation funds which are received early by illegal means to
45 per cent.

The Bill is a companion to the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 (the companion Bill).[2]

Background

The amendments proposed by this Bill and the companion Bill are based on the recommendations of the Super System Review (also known as the ‘Cooper Review’ after the Chair of the Review Committee, Jeremy Cooper).[3]

Details about the policy rationale for this Bill are contained in the Bills Digest for the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012.[4]

Committee consideration

At its meeting of 28 November 2012, the Senate Selection of Bills Committee determined that this Bill and the companion Bill not be referred for inquiry and report.[5]

Similarly, the House of Representatives Selection Committee has not referred the Bills for inquiry and report.[6]

The Parliamentary Joint Committee on Human Rights has not commented on the Bills at the time of writing.[7]

At the time of writing this Bills Digest the Senate Standing Committee for the Scrutiny of Bills had not commented on the Bills.

Financial implications

According to the Explanatory Memorandum:

Commonwealth costs associated with implementation of the [Self-Managed Superannuation Funds] Stronger Super reforms relating to the promotion of illegal early release schemes, administrative directions and penalties contained in the Bill, and the income tax rates amendment contained in the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 is $17.1 million over five years. These costs will be offset by increases to the SMSF Supervisory Levy.[8]

Statement of Compatibility with Human Rights

The Statement of Compatibility with Human Rights can be found at pages 42–43 of the Explanatory Memorandum to the Bill. As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.

Key issues and provisions

Item 1 of the Bill amends the definition of ‘ordinary taxable income’ in subsection 3(1) of the ITR Act. Item 2 of the Bill inserts the definition of ‘unlawful early payment remainder’. These amendments operate so that moneys paid from superannuation funds in breach of the operating standards for superannuation funds are not assessed as ordinary taxable income.

The definition of ‘unlawful early payment remainder’ is so much of taxable income as is included in assessable income under section 304-10 of the Income Tax Assessment Act 1997 (ITAA).[9] The definition of ‘taxable income’ in section 304-10 and the definition of ‘superannuation benefit’ in section 307-15 of the ITAA have the effect of applying tax to the full amount withdrawn from a superannuation fund—inclusive of any fee or commission that may be paid to the promoter of an early release scheme and not simply the final amount received by the taxpayer.[10]

Items 3 and 4 specify a tax rate of 45 per cent as applying to these amounts for both resident and non-resident tax payers. Under current arrangements, these amounts would be taxed at the tax payer’s marginal rate.[11]

Stakeholder comments

The Australian Institute of Superannuation Trustees (AIST), in commenting on the draft Bill (which is in the same terms as this Bill), considered that an additional penalty, based on a sliding scale of penalties which takes into account an individual’s circumstances should be imposed.[12] The AIST considered that this would be consistent with the recommendations of the Cooper Review.[13]

The Self Managed Superannuation Funds Professionals’ Association of Australia, also commenting on the draft Bill, noted that some types of payments could inadvertently be covered by the definition ‘unlawful early payment remainder’ and that the Explanatory Memorandum ‘should exclude unlawful payments which the Commissioner considers should be excluded after considering all of the relevant factors’.[14]

Item 5 provides that the amendments have effect for the 2013–14 income year and later income years.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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ISSN 1328-8091

[1].              The text of the Income Tax Rates Act 1986 can be viewed at: http://www.comlaw.gov.au/Details/C2012C00617/Download

[2].              The Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 homepage can be viewed at: http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr4938%22

[3].              Review into the Governance, Efficiency, Structure and Operation of Australia’s Superannuation System website, viewed 3 January 2013, http://www.supersystemreview.gov.au/content/content.aspx?doc=html/final_report.htm. The Cooper Review was chaired by former deputy commissioner of ASIC Jeremy Cooper and was conducted over the period 2009–2010. The Cooper Review covered a broad range of issues including the performance and governance of the superannuation industry and has formed the basis for a number of recent legislative changes under the Government’s ‘Stronger Super’ package of measures. The ‘Stronger Super’ website can be viewed at: http://strongersuper.treasury.gov.au/content/Content.aspx?doc=home.htm

[4].              K Swoboda, Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012, Bills Digest, no. 65, 2012–13, Parliamentary Library, Canberra, 2013, viewed 6 February 2013, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F2209878%22

[5].              Selection of Bills Committee, Report No. 16 of 2012, Senate, Canberra, 29 November 2012, p. 4, viewed 10 December 2012, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=selectionbills_ctte/reports/2012.htm)

[6].              Selection Committee, Report No. 73: Private Members’ business and referral of bills to Committee, House of Representatives, Canberra, 29 November 2012, viewed 3 January 2013, http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=selc/reports.htm

[7].              Parliamentary Joint Committee on Human Rights website, Committee Reports, Examination of legislation in accordance with the Human Rights (Parliamentary Scrutiny) Act 2011, viewed 4 February 2013, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=humanrights_ctte/reports/index.htm

[8].              Explanatory Memorandum, pp. 7–8.

[9].              The text of the Income Tax Assessment Act 1997 can be viewed at: http://www.comlaw.gov.au/Details/C2012C00750/Download

[10].              The definition of ‘taxable income’ in section 304-10 specifies that assessable income includes ‘the amount of a superannuation benefit’, which is defined in section 307-5 to cover payments from a fund to an individual. This definition is further described in section 307-15 to include payments made to an individual, or received by an individual, if it is made for the individual’s benefit as well as to another person or to an entity at the individual’s request.

[11].              The Explanatory Memorandum notes that the 45 per cent rate is based on that applied to non-complying superannuation funds. It is also equivalent to the top marginal rate for individual taxpayers.

[12].              Australian Institute of Superannuation Trustees, Submission to Treasury, exposure draft, Tax Laws Amendment (Stronger Super Self Managed Superannuation Funds) Bill 2012: administrative penalties, 14 September 2012, viewed 17 December 2012, http://www.treasury.gov.au/~/media/Treasury/Consultations%20and%20Reviews/2012/Promoter%20Penalties/Submissions/PDF/AIST.ashx

[13].              Ibid.

[14].              Self Managed Superannuation Funds Professionals’ Association of Australia, Submission to Treasury, exposure draft, Tax Laws Amendment (Stronger Super Self Managed Superannuation Funds) Bill 2012: administrative penalties, 14 September 2012, viewed 17 December 2012, p. 6, viewed 13 December 2012, http://www.treasury.gov.au/~/media/Treasury/Consultations%20and%20Reviews/2012/Adminstrative%20Penalties/Submissions/PDF/SPAA.ashx