Introductory Info
Date introduced: 30 November 2023
House: House of Representatives
Portfolio: Treasury
Commencement: Various dates as set out in the body of this Bills Digest
Purpose of
the Bill
The Treasury
Laws Amendment (Better Targeted Superannuation Concessions and Other Measures
Bill 2023 (the Bill) is an omnibus Bill which contains a range of measures
relevant to the Treasury portfolio.
The primary purpose of the Bill is to reduce the tax
concessions available to individuals with total superannuation balances (TSBs)
exceeding $3 million. The purpose of the Superannuation
(Better Targeted Superannuation Concessions) Imposition Bill 2023 (the
Imposition Bill) is to implement that measure.
Structure of the Bill and commencement
The Bill has 8 Schedules which amend existing Commonwealth
statutes and are scheduled to commence as set out in Table 1 below.
Table 1: Schedules and commencement dates
| Schedule |
Commencement |
| Schedule 1 inserts new Division 296 into the Income Tax
Assessment Act 1997 (ITAA 97) and amends the Defence
Force Retirement and Death Benefits Act 1973 (DFRDB Act), the Governor-General
Act 1974, the Income Tax
(Transitional Provisions) Act 1997, Judges’
Pensions Act 1968, Parliamentary
Contributory Superannuation Act 1948, Superannuation
Act 1976, Superannuation
Act 1990 and the Taxation
Administration Act 1953 (TA Act) to insert references to new Division
296 of the ITAA 97. |
At the same time as the Superannuation (Better Targeted
Superannuation Concessions) Imposition Act 2023—but only if that Act
commences. |
| Schedule 2 amends the definition of Total Superannuation
Balance (TSB) in the ITAA 97 and inserts a reference to the TSB value
into the TA Act. |
The first 1 January, 1 April, 1 July or 1 October
after Royal Assent. |
| Schedule 3 amends the ITAA 97 to clarify that
Subdivision 293H of that Act overrides subsection
73(3A) of the Australian
Capital Territory (Self-Government) Act 1988. |
The first 1 January, 1 April, 1 July or 1 October
after Royal Assent. |
| Schedule 4 amends the Australian
Charities and Not-for-profits Commission Act 2012 (ACNC Act)
to provide two new exceptions for the public disclosure of protected Australian Charities and Not-for-profits
Commission (ACNC) information about new and ongoing investigations. |
The day after Royal Assent. |
| Schedule 5 amends Financial
Regulator Assessment Authority Act 2021 (FRAA Act) to reduce
the frequency of the Financial
Regulator Assessment Authority’s (FRAA) reviews of the Australian Securities and Investments
Commission (ASIC) and the Australian
Prudential Regulation Authority (APRA) from two yearly to five yearly. |
The day after Royal Assent. |
| Schedule 6 makes minor and technical amendments to a
number of Acts, including the A New Tax
System (Goods and Services Tax Act) 1999 (GST Act), the Fuel Tax Act
2006 and the ITAA 97 to simplify provisions, clarify intended
outcomes and reduce red tape.[1] |
Part 1 on the day after Royal Assent. Part 2 on the first
1 January, 1 April, 1 July or 1 October after Royal Assent. |
| Schedule 7 amends the Corporations
Act 2001 to establish three exemptions from the requirement to hold
an Australian Financial Services licence for foreign financial services
providers. |
1 April 2025 |
| Schedule 8 amends the Payment
Systems (Regulation) Act 1988 (PSR Act), the Australian
Securities and Investments Commission Act 2001 (ASIC Act), the
Competition
and Consumer Act 2010 (CCA), the Corporations Act and
the ITAA 97 to modernise the payments regulatory framework.[2] |
6 months after Royal Assent |
Treasury
Laws Amendment (Better Targeted Superannuation Concessions and Other Measures)
Bill 2023, section 2.
The Imposition Bill imposes Division 296 tax on
individuals with ‘taxable superannuation earnings’ in an income year and sets
the amount of the tax at 15 per cent. The date of commencement for the
Imposition Bill is the first 1 January, 1 April, 1 July or 1 October after
Royal Assent.
The measures are presented in two Bills – an assessment
Bill and an imposition Bill. This is because the Constitution requires
that laws imposing taxation deal only with the imposition of taxation (section
55).
Structure
of the Bills Digest
This Bills Digest deals only with the terms of Schedules
1–3, Part 2 of Schedule 6 and Schedule 8 to the Bill.
Matters not discussed in this Bills Digest are set out in
the Explanatory Memorandum to the Bills.
As the matters covered by Schedules 1–3, Schedule 6 and
Schedule 8 are independent of each other, the relevant background, stakeholder
comments (where available) and analysis of the provisions are set out under
each Schedule number.
Committee
consideration
Senate Economics Legislation Committee
The Bill and the Imposition Bill have been referred to the
Senate Economics Legislation Committee for inquiry and report by 19 April 2024.[3]
At the time of writing this Bills Digest no submissions to the Committee have
been published.
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
(Scrutiny of Bills Committee) commented about the Bills in Scrutiny
Digest 1 of 2024 (pp. 24–28). The comments
are canvassed under the relevant Schedule heading below.
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bills’ 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 Bills are compatible.[4]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights had no
comment on the Bills.[5]
Schedules
1–3: reducing tax concessions
Background
The modern Australian retirement income system comprises
three elements, which have become known as the three
pillars:
- a
publicly provided means tested age pension
- mandatory
private superannuation saving and
- voluntary
saving (including voluntary superannuation saving).
Compulsory superannuation was introduced in Australia in
1992.[6]
When it was first introduced, the Superannuation Guarantee was 3% of wages.[7]
While this was a big change, in November 1991, 71%
of employed persons were covered by superannuation. Over time superannuation
was subject to various tax concessions.[8]
Until 2007 there were no limits on non-concessional (after tax) contributions
to superannuation and so some people accumulated very large balances.[9]
In 2007 a limit of $50,000 on concessional contributions was also introduced.[10]
Changes have been made to both the concessional and non-concessional caps since
2007, but both are indexed.
There have been equity concerns about disparities in
superannuation savings and earnings for some time. In 2013, the Labor Government
proposed a 15% tax on superannuation income streams above $100,000.[11]
The Government’s policy intent in relation to
superannuation is that it is designed to provide for a person’s retirement
rather than acting as a wealth creation vehicle. Consistently with this, the
Government is currently seeking to implement an objective for superannuation in
its Superannuation
(Objective) Bill 2023, as follows: ‘The objective of superannuation is to
preserve savings to deliver income for a dignified retirement, alongside
government support, in an equitable and sustainable way.’[12]
On 28 February 2023, the Treasurer, Dr Jim Chalmers MP,
issued a media
release which stated:
The Albanese
Government is making Australia’s world‑class superannuation system more
sustainable and fairer with one modest change that affects less than
0.5 per cent of all Australians. …
Currently, earnings from superannuation in the accumulation
phase are taxed at a concessional rate of up to 15 per cent. This will continue
for all superannuation accounts with balances below $3 million.
From 2025‑26,
the concessional tax rate applied to future earnings for balances above $3
million will be 30 per cent.
This is expected to apply to around 80,000 people, and they
will continue to benefit from more generous tax breaks on earnings from the $3
million below the threshold.
This adjustment does not impose a limit on the size of
superannuation account balances in the accumulation phase. And it applies to
future earnings – it is not retrospective.
The $3 million cap was included in the 2023–24 Budget (Budget Paper
No. 2, p. 15). The Budget Paper stated the rationale for the measure as
follows: ‘This reform is intended to ensure generous superannuation concessions
are better targeted and sustainable.’
According to the Government
the change is expected to apply to around 80,000 people, which is less than
0.5% of Australians with a superannuation account in the 2025–26 income year.
The tax will only apply to the proportion of earnings
corresponding to balances above $3 million, and earnings corresponding to funds
below $3 million will continue to be taxed at 15 per cent or less.
The tax is imposed directly on the individual and is
separate from the tax arrangements of the superannuation fund or scheme.
The Government is not planning to index the $3 million
cap, to limit the amount that can be accumulated in superannuation or to
require members to withdraw amounts in excess of $3 million.[13]
Policy
considerations
The measure appears to be aimed at achieving policy
consistency, which is an objective of a good tax system.[14]
The superannuation system was intended to provide for people in retirement,
rather than enabling some taxpayers to avoid tax and build their wealth to pass
on to the next generation.[15]
When assessed against the
principles of a good tax system, the $3 million cap should also improve
vertical and horizontal equity. In
the tax system, horizontal equity is the principle that taxpayers with
equal income should pay equal tax. Vertical equity requires that tax
obligations vary in proportion to income such that if A has a greater income
than B, A will owe more income tax than B.
The measures in Schedules 1–3 of the Bill are likely to
promote vertical equity because most superannuation tax concessions go to high
income earners who are most likely to have a superannuation balance of more
than $3 million. Under the present system, older taxpayers pay less tax than
younger taxpayers, and better-off taxpayers pay less tax than less well-off
taxpayers.
Many different stakeholder groups observed that making
changes to superannuation undermines confidence in superannuation, which is a
long-term investment vehicle.[16]
The proposal could also be seen as lacking in fairness to those taxpayers who
have contributed to superannuation in accordance with the pre-existing rules
and are now being required to pay the tax.
Additionally, the proposed new tax affects individuals
differently, depending on their ability to change their financial arrangements.
Several factors influence this, including whether an individual is in the
retirement or accumulation phase, the liquidity of assets held in
superannuation, and whether an individual is in a defined benefit scheme.
There are two particularly contentious aspects of the
proposal. The first is that the $3 million cap is not indexed, which means that
owing to inflation increasing numbers of taxpayers will become liable, and the
second is that it will tax unrealised gains.
Indexation
Submissions
to the Treasury consultation on the draft Bill were almost universally critical
of the lack of indexing. From Australian Super:
Indexation of the threshold at which the measure applies
would lead to greater certainty and promote stability and confidence in the
system. This is important given the long-term horizon of superannuation
savings. This is important as members who are complying with the purpose of
superannuation have a right to know how the earnings on their superannuation
will be treated for tax purposes while it is compulsorily preserved…
Thresholds in the superannuation system that related to an
individual’s balance or their contributions are indexed. This includes the
transfer balance cap, the concessional contributions cap and the
non-concessional contributions cap.[17]
Acknowledging that the Transfer Balance Cap (TBC)[18]
was indexed, Mercer stated:
It is therefore recommended that the definition of a large
superannuation balance threshold be amended so that the threshold is the
greater of:
- $3 million; and
- 1.5 times the Transfer Balance
Cap.[19]
Robert Carling calculated that the Transfer Balance Cap
could reach $3 million ‘in 16 years – if not sooner’.[20]
Taxation of
unrealised capital gains
The second contentious issue is that the proposal amounts
to a tax on unrealised capital gains, that is, it violates the principle
of the Australian tax system that capital gains are normally taxed on
realisation not accrual. Accrual taxation of gains creates
valuation and liquidity problems. According to the Australia
Institute:
Problems with accrual taxation include the fact that
taxpayers with gains may not have liquid resources to pay tax. Obviously, this
is less of an issue where shares, bonds and managed investments are concerned
because these are highly liquid, although people might resent being forced to
sell. One option for dealing with the liquidity issue allows asset holders to
carry over their tax owing, with interest, until the asset is sold ... This is
not concessional if the interest applied is at least equal to the long-term
bond rate. (p. 13)
In this respect, the taxation of unrealised gains could be
seen as particularly unfair to taxpayers who have placed large illiquid assets (such
as a farm or business premises) into their superannuation fund under existing
laws and now may lack sufficient funds to pay the tax. In its submission, the Law
Council of Australia observed that:
… personal long-term choices have been made between
superannuation and other options, those monies that have been directed into
superannuation savings have been subject to preservation and other
superannuation regulatory restrictions over the longer term on the reasonable
expectation of the investor that those restrictions represented the cost or
trade-off for long term tax concessions. Now, a change to the taxation rules
would retrospectively affect that “trade-off” because the tax concessions upon
which the decision was based are to be impacted.[21]
This seems to apply particularly to farms. In its
submission to the Treasury consultation on the Exposure Draft of the Bill the National
Farmers’ Federation (NFF) gave examples of how the proposed new tax would
affect members who had placed family farms into a self-managed superannuation
fund (SMSF) and who used lease payments from the next generation as their
retirement income. The value of agricultural land can fluctuate wildly,
sometimes as much as 20 – 30% in one year, but lease value does not
change at the same rate.[22]
The NFF strongly recommended excluding agricultural land
assets from the calculation of the total superannuation balance and suggested
using the Australian Taxation Office (ATO) definition of primary production
assets.[23]
Valuation
of defined benefit schemes
The Better Targeted Superannuation Concessions
consultation paper sought submitters’ views on valuing defined benefit
interests at 16 times the annual payments available under the scheme.[24]
The amendments in Schedule 1 of the Bill refer to a
defined benefit interest value. Stakeholders have pointed out that valuing a
defined benefit interest in the way described above is a blunt instrument which
does not take into account the age of the recipient. Given that individuals
with defined benefit interests could quite possibly vary in age from
approximately 50 to close to 100, this presents a significant equity issue.
Robert Carling suggested that:
The capital value of defined benefit pensions to be included
in the superannuation balance should be recalculated each year under
actuarially determined rules to recognise the impact of age on capital value.[25]
Consultation
The Bill has been the subject of consultation.
Stakeholders have provided submissions and significant changes have been made
in response. Treasury has summarised the consultation process in the Explanatory
Memorandum at pages 225–232.
In the consultation on the draft legislation, which was
held in October 2023, Treasury received 70 submissions,
including 9 confidential submissions.
In relation to some major design features, the Government
did not accept stakeholders’ suggestions. Many stakeholders did not support either
non-indexation of the threshold or the taxation of unrealised gains.
Policy
position of non-government parties/independents
The Coalition opposes the measure. On 5 March 2023, on the
ABC’s Insiders
program, the Shadow Treasurer, Angus Taylor MP, criticised the Government’s
proposal for not indexing the $3 million cap and for taxing unrealised capital
gains.
On 1 September 2023, the
Greens said their support for the measure will be contingent on passage of
legislation to pay superannuation on Paid Parental Leave (PPL).
In February 2023, Independent
MPs including Kylea Tink, Zoe Daniel and Zali Steggall said that capping
superannuation tax concessions at $3 million may undermine the confidence of
people saving for retirement.
Position of
major interest groups
At the time of writing, submissions to the Senate
Economics Legislation Committee inquiry into the Bill were not publicly
available. As such, the positions of major interest groups regarding Schedules
1 to 3 of the Bill are based on submissions to the Treasury consultations on
the relevant Exposure Drafts of the Schedules, where the provisions are
identical or substantially the same.
While the Association
of Superannuation Funds of Australia (ASFA) and AustralianSuper
were broadly supportive of the measure, many other submissions on the Exposure
Draft were critical of the main design features of the tax. Some stakeholders
have maintained these views. For example, on 1 December 2023, it was reported
that both the Chartered
Accountants Australia & New Zealand (CA ANZ) and the SMSF
Association opposed the legislation.
Mr Tony Negline of CA ANZ was quoted
as saying:
These changes will
unfairly impact on people who are in or approaching retirement who followed the
rules, and are also a tax trap for young players.
Mr Peter Burgess of the SMSF Association stated:
Taxing unrealised capital gains is a tax on market movements
and changes in asset values, not income – an alarming precedent as it
represents a fundamental change in how tax policy is implemented in Australia.
Overview of
Schedules 1 to 3 of the Bill
Under these Schedules to the Bill, the headline rate of
tax on earnings from balances of $3 million and below remains at 15 per cent.
However, the Bill imposes up to an overall 30 per cent tax on earnings equal to
the percentage of the person’s total superannuation balance (TSB) above $3 million
(the ‘large superannuation balance threshold’ or LSBT).
Earnings are calculated with reference to the difference
in the total superannuation balance (TSB) at the start and end of the income
year, adjusting for withdrawals and contributions. Negative earnings can be
carried forward and offset against this tax in future years’ tax liabilities.
It is clear from paragraph 1.12 of the Explanatory
Memorandum that the Commissioner of Taxation will calculate the tax
liability and notify individuals of their liability for a given income year.
Individuals will have the choice of either paying the tax
out-of-pocket (from outside their superannuation funds) or from their funds by
requesting a release of superannuation money.[26]
If an individual holds multiple superannuation interests, they can choose which
interest(s) to release the money from.
Key issue:
non-indexation of the threshold
Item 18 in Schedule 1 to the Bill amends the
Dictionary in subsection 995-1(1) of the ITAA 1997
to insert several new definitions—including the definition of large
superannuation balance threshold being $3 million. There is no
provision in the Bill for the LSBT to be indexed.
Submissions
to the Treasury consultation by AustralianSuper, the Business Council of
Australia (BCA), CA ANZ, Deloitte, Ernst & Young (EY), Mercer, the SMSF
Association and the Tax Institute (TIA) were amongst those seeking for the
threshold to be indexed. ASFA suggested that the threshold be revisited in a
post‑implementation review. CPA Australia did not call for indexation but
considered the description of the tax as up to 30 per cent as misleading.
Key issue: superannuation
interests and total superannuation balance
Basic
concepts
‘Superannuation interest’ is defined in section 995-1 of
the ITAA 1997 as:
(a) an interest in a * superannuation fund;[27]
or
(b) an interest in
an * approved deposit fund; or
(c) an * RSA; or
(d) an interest in a * superannuation annuity.
Subsection 307-205(1) of ITAA 1997 defines ‘the
value of a superannuation interest’ at a particular time as:
(a) if the
regulations specify a method for determining the value of the superannuation
interest — that value; or
(b) otherwise
— the total amount of all the *superannuation lump sums that could be payable
from the interest at that time.
Relevant
provisions
The term total superannuation balance (TSB) is
currently defined in subsection 307-230(1) of the ITAA 1997. The TSB is derived
by adding the TSB values of any superannuation interest, death benefit
superannuation interest, rollover benefit and limited recourse borrowing
arrangement (LBRA)[28]
held by the individual. Item 3 in Schedule 2 to the Bill amends
subsection 307-230(1) to update references to superannuation interests in the definition.
According to ASFA,
the definition replaces the well-known concept of the ‘transfer balance account’
as defined in ITAA 1997 section 294-15. According to the Explanatory
Memorandum to the Bill:
The original intention underpinning the link to the transfer
balance account was to remove the requirement for certain income streams, such
as defined benefit income streams, to be valued on an annual basis for the TSB,
instead leveraging the existing transfer balance account value. The calculation
of earnings for the Division 296 tax requires these valuations to be applied on
an annual basis. The amendments to the TSB streamline the definition of TSB to
align with this annual valuation requirement (p. 14)
Item 5 of Schedule 2 to the Bill repeals
subsections 307-230(2) to (4) and inserts proposed subsections 307-230(2) to
(5) so that the TSB makes provision for family law splits and excludes ‘structured
settlement contributions’ (as defined in section
294-80 of the ITAA 1997).
ASFA
(at pages 4‑5) and AustralianSuper
suggested that an exclusion should be equally extended to total permanent
disability (TPD) insurance proceeds from a policy paid into a member’s account
that is held within superannuation, with ASFA
also proposing payments in respect of a terminal medical condition (TMC) be
excluded. This suggestion has not been taken up in the Bill.
Total superannuation balance value is
defined in proposed section 307-230A (inserted by item 6 of
Schedule 2 to the Bill) as being determined either by a method or value
prescribed in regulations or, if there is no prescribed method or value, by
using what is colloquially known as the ‘withdrawal benefit’ for the interest
(which is not applicable to defined benefit interests). This is the total amount
of superannuation benefits that would become payable if the individual had the
right to cause the interest to cease at that time and had caused the interest
to cease at that time.
Proposed subsection 307-230A(2) sets out several matters
that the regulations may take into account in specifying a value or method. Under
proposed paragraph 307-230A(2)(c), this extends to a defined benefit
interest. Proposed subsection 307-203A(3) allows the relevant Minister to
approve a legislative instrument for the methods or factors used to determine
the TSB value.
Key issue: liability
for the tax
Item 15 in Schedule 1 to the Bill inserts proposed
Division 296–Better targeted superannuation concessions into the ITAA
1997. Within new Division 296, proposed sections 296-20 to 296-30
create exceptions to liability for child recipients, persons who receive
structured settlement contributions and persons who die before 30 June in an
income year. Otherwise, an individual will be liable to pay the tax if they
have taxable superannuation earnings.
To determine whether a person has taxable superannuation
earnings as set out in proposed section 296‑35, it is first
necessary to subtract the LSBT from the TSB at the end of the year, divide by
the TSB at the end of the year and multiply by 100. This percentage is then
multiplied by the amount of superannuation earnings for the income year to
provide the amount of taxable superannuation earnings.
Under proposed section 296-40, superannuation
earnings are defined as either the amount of ‘basic superannuation
earnings’ for the year or an amount worked out under section 296-110. Basic
superannuation earnings are determined by subtracting the previous TSB from
the current ‘adjusted TSB’: proposed subsection 296-40(2).
The adjusted TSB is the sum of the TSB for
the year and withdrawals, minus contributions: proposed section 296-45.
Omitting withdrawals and contributions would distort the TSB.
The terms your withdrawals total and your
contributions total are defined in proposed sections 296-50 and 296-55.
Death benefit income streams are excluded as a contribution: proposed subsection
296-55(3). These terms are subject to modifications prescribed by
regulations: proposed section 296-60. According to ASFA
and Financial
Services Council (FSC) these are
significant elements of the legislative design. Their ability to be modified by
subordinate legislation could be seen as creating uncertainty.
Key issue:
taxation of unrealised (notional) gains and losses
According
to Treasury:
The calculation of earnings includes all notional
(unrealised) gains and losses, similar to the way superannuation funds
currently calculate members’ interests.
In their submissions to
Treasury, several stakeholders criticised the taxation of unrealised gains,
including the BCA, CA ANZ, CPA Australia, Deloitte, EY, the FSC, the SMSF
Association and the TIA. The TIA
stated that the taxation of unrealised gains has historically only been used in
Australia in the context of anti-avoidance provisions.
EY
has summarised (at p. 4) concerns that the taxation of unrealised gains will
result in:
- volatility
issues – where fluctuations in the value of assets may not be able to be
predicted as reliably as income from those assets
- liquidity
issues – individuals may be forced to dispose of illiquid assets to cover the
tax on earnings with transaction costs incurred
- poor
fund outcomes - the timing of the disposal to realise assets in time to meet
the tax due may adversely impact the value of the fund
- increased
tax calculated on a year-by-year basis compared to taxing the ultimate gain on
disposal.
EY also noted that the proposed changes do not recognise
potential eligibility for any CGT discounts.
Carrying
forward negative superannuation earnings to future years
If an individual makes an earnings loss in a financial
year (referred to as transferrable negative superannuation earnings),
this can be carried forward to reduce the tax liability in future years. Superannuation
earnings can be a positive or negative amount.
Under proposed subsection 296-105(1), an individual
has transferrable negative superannuation earnings if superannuation earnings
for the year are less than nil and either or both of the following apply:
- the
TSB at the end of the year is above the $3 million cap
- the
TSB just before the start of the year is greater than the $3 million cap.
Under proposed subsection 296-105(2), an individual
has unapplied transferrable negative superannuation earnings for
an income year equal to the amount of their superannuation earnings for a
previous income year in which the individual had transferrable negative
superannuation earnings.
If a person has unapplied transferrable negative
superannuation earnings and a TSB above the threshold for an income year, their
superannuation earnings will be reduced by applying their unapplied
transferrable negative superannuation earnings.
Where a person has a TSB at the end of the year lower than
$3 million, a TSB immediately before the start of the year greater than $3 million
and unapplied transferrable negative superannuation earnings, then their
superannuation earnings will be determined under proposed subsections
296-110(1) and (2). This is calculated by subtracting unapplied
transferrable negative superannuation earnings for the year from basic
superannuation earnings for the year.
The TIA
pointed out that, as these losses are quarantined to the Division 296 tax,
there will be situations where the losses are never utilised (p. 6). To improve
fairness, EY
(p. 7) and the TIA
(p. 7) recommended including an option to carry back negative earnings at a
proportional rate for prior years and to receive a refund of the tax paid in
respect of that earlier year. CA
ANZ (p. 12) recommended a refund for unrealised losses.
Key issue:
payment of tax
The time allowed for payment of the tax is 84 days: proposed
subsection 296-205. The FSC
considered that more time should be allowed to pay, particularly if an illiquid
asset is involved (e.g., the sale of a rural or commercial property).
Temporary residents who receive a departing Australia
superannuation payment are entitled to a refund of tax: proposed section
296-405.
Interest
charges
As with other tax debts, under amendments to the Taxation
Administration Act 1953, (item 15 in Schedule 1)
there will be interest charges relating to Division 296 tax. There will be a
general interest charge (in relation to outstanding liabilities that remain
unpaid by the due date) and a shortfall interest charge (where an amount of tax
becomes due and payable because of an amended assessment): proposed section 296-215.
The Division 296 general interest charge is lower than for
other tax debts. The Explanatory
Memorandum states at paragraph 1.74 that this is so that taxpayers are
subject to a rate of interest that is broadly like market rates.
Key issue:
interests in defined benefit schemes
Under a defined
benefit scheme, the retirement benefit is determined by a formula instead
of being based on investment return. Most defined benefit funds are corporate
or public sector funds. Many are now closed to new members.
The Treasury states
(p. 2) that ’the Government’s intent is to ensure broadly commensurate
treatment for defined benefit interests compared to other superannuation
interests. Treasury will consult further on the appropriate treatment for
defined benefit interests.’ The BCA
states (p. 4) it is difficult for defined benefit schemes to be treated
similarly to accumulation schemes because defined benefit schemes have ‘no
contributions or earnings’ and (because they come from an untaxed source) ‘are
taxed in the hands of the beneficiaries at full marginal rates subject to an
offset’.
Individuals who have interests in defined benefit schemes
will have their tax determined by the formula set out in proposed Division
134—Division 296 tax which is inserted into Schedule 1 to the Taxation
Administration Act 1953 (TAA) by item 58 in Schedule 1 to
the Bill. Under proposed section 134-15, the formula multiplies the taxpayer’s
Division 296 tax for the year by the taxpayer’s defined benefit interest value
divided by the taxpayer’s TSB at the end of the year. Defined benefit
interest value means either the sum of the TSB values of the taxpayer’s
defined benefit interests at the end of the year, or nil.
Under proposed section 307-230A of the ITAA 1997
(inserted by item 6 in Schedule 2 to the Bill) there is a
regulation-making power to specify a value or a method to determine the TSB
value. Under proposed paragraph 307-230A(2)(c), this extends to a DB
interest. As no regulation has been publicly released, this creates some
uncertainty.
Members of defined benefit schemes in the accumulation
phase do not have a pension or lump sum they can use to pay a tax debt.
Consequently, once the Commissioner of Taxation has determined the amount of
tax payable for an income year, their tax liability is deferred to a Division
296 debt account.
Key issue: release
of benefits
Items 1 to 12 of Schedule 1 to the Bill make
consequential amendments to the Defence Force Retirement
and Death Benefits Act 1973 and the Governor-General
Act 1974 to provide that persons covered by those Acts can seek a
release of benefits from their superannuation funds to meet any deferred tax liability
under ITAA 1997 Division 293 (which imposes tax on taxable contributions
by an individual whose income for surcharge purposes exceeds $250,000) and
Division 296.
Key issue:
excluded superannuation earnings
Item 15 inserts proposed Subdivision 296-E, into
the ITAA 1997 under which certain earnings are excluded from taxable
superannuation earnings and are known as ‘Division 296 excluded interests’.
These relate to State higher level office holders and Commonwealth justices and
judges.
Under two High Court rulings,[29]
the Commonwealth cannot impose tax on an interest in a ‘constitutionally
protected fund’. These are funds which hold superannuation contributions on
behalf of State government high-level office holders.
The Commonwealth is also unable to impose tax in respect
of an interest in a superannuation fund established under the Judges’
Pensions Act 1968 (Cth). This is by virtue of section 72(iii) of
the Commonwealth
Constitution.
Item 15 in Schedule 1 to the Bill inserts proposed
Subdivision 296-G—Other provisions into the ITAA 1997. Proposed
section 296-510 makes it clear that earnings from the interests of ACT
Supreme Court judges are within the scope of the tax and such earnings are not
excluded.
Also, an interest in a non-complying superannuation fund
is not subject to Division 296 tax. This is because such funds are already
taxed at the highest marginal rate and do not receive earnings tax concessions.
Such interests will still need to be counted as part of
the person’s TSB. This is to ensure that earnings on any other superannuation
interest that the person holds outside of their constitutionally protected fund
is within the scope of the tax.[30]
Financial
implications
The 2023–24 Budget measure Better Targeted
Superannuation Concessions is estimated to increase receipts by $950
million and increase payments by $47.6 million over the 5 years from 2022–23. [31]
In 2027–28, the first full year of receipts collection, the measure is expected
to increase receipts by $2.3 billion.
All figures in this table represent amounts in $m.
Table 1
| |
2022-23 |
2023-24 |
2024-25 |
2025-26 |
2026-27 |
| Receipts |
0.0 |
0.0 |
0.0 |
325.0 |
625.0 |
| Payments |
0.0 |
5.6 |
15.2 |
16.0 |
10.8 |
According to the 2023–24
MYEFO at page 197, the following exclusions are estimated to result in a
small, unquantifiable decrease in receipts:
- earnings
from the constitutionally protected funds of State higher level office holders,
including State Judges, both while sitting and after ceasing their office
- earnings
from the Judges Pension Scheme interests of sitting Federal judges who are
appointed prior to 1 July 2025, whilst they hold that office.
Imposition
Bill
Key issues
and provisions
Under clauses 4 and 5, the Imposition Bill imposes the
additional tax of 15% on superannuation earnings that correspond to the
percentage of a person’s total superannuation balance that exceeds $3 million
for a year of income.
Clause 6 is a severability provision. This is
required so that the tax does not apply if its imposition on a person exceeds
the legislative power of the Commonwealth – for example to ensure the tax does
not apply to Commonwealth justices and judges and state level office holders.
Schedule 8: Payment Systems Regulation
Background
Nature of the payment systems
According to the RBA:
The ‘payments
system’ refers to arrangements which allow consumers, businesses and other
organisations to transfer funds usually held in an account at a financial
institution to one another. It includes the payment instruments – cash, cards,
cheques and electronic funds transfers – which customers use to make payments
and the usually unseen arrangements that ensure that funds move from accounts
at one financial institution to another.
According to the recent payment
system review (p. 2):
Payment systems can be broadly categorised as cash or
non-cash payment systems. Cash payment systems involve a range of rules,
arrangements and physical infrastructure for the printing, manufacture,
monitoring, transfer, distribution and storage of money in its physical form of
coins and notes. A defining feature of cash payment systems is the role of
logistics and security in enabling the safe and efficient distribution of cash
across the economy.
In contrast, non-cash payment systems involve the electronic
movement of funds rather than the physical exchange of money. The movement of
monetary value occurs through the exchange of payment instructions and
adjustments of account records. The arrangements supporting these transfers –
the messaging standards, security protocols and technological infrastructure –
all form part of non-cash payment systems.
The way that people make payments is
changing.[32]
The research discussion paper entitled The
Evolution of Consumer Payments in Australia: Results from the 2022 Consumer
Payments Survey which was prepared by the RBA in November 2023 notes
that ‘consumers are using cards more frequently for payments of all sizes and
the adoption of contactless functionality has facilitated particularly strong
growth in the use of cards for low-value transactions in recent years’ (p. 3).
The table below, which is sourced from that research discussion paper
demonstrates the trend away from cash to other types of payment.
Table 2: Percentage share of total payments
|
|
2007 |
2010 |
2013 |
2016 |
2019 |
2022 |
| Number of payments |
|
|
|
|
|
|
| Cash |
69 |
62 |
47 |
37 |
27 |
13 |
| Cards |
26 |
31 |
43 |
52 |
63 |
76 |
| Debit cards |
15 |
22 |
24 |
30 |
44 |
51 |
| Credit and charge cards |
11 |
9 |
19 |
22 |
19 |
26 |
| BPAY |
2 |
3 |
3 |
2 |
2 |
2 |
| Internet/phone banking (a) |
na |
2 |
2 |
1 |
3 |
3 |
| PayPal |
na |
1 |
3 |
3 |
2 |
2 |
| Cheque |
1 |
1 |
0.4 |
0.2 |
0.2 |
0.1 |
| Other (b) |
1 |
1 |
2 |
4 |
2 |
2 |
| Value of payments |
|
|
|
|
|
|
| Cash |
38 |
29 |
18 |
18 |
11 |
8 |
| Cards |
43 |
43 |
53 |
54 |
61 |
65 |
| Debit cards |
21 |
27 |
22 |
26 |
36 |
39 |
| Credit and charge cards |
23 |
16 |
31 |
28 |
25 |
26 |
| BPAY |
10 |
10 |
11 |
8 |
9 |
8 |
| Internet/phone banking (a) |
na |
12 |
10 |
10 |
14 |
14 |
| PayPal |
na |
1 |
2 |
4 |
2 |
3 |
| Cheque |
6 |
3 |
2 |
2 |
2 |
0.05 |
| Other (b) |
3 |
3 |
5 |
3 |
2 |
3 |
Notes: Excludes payments over $9,999, transfers
(payments to family and friends), transport cards and automatic payments.
(a) Payments
made using banks’ internet or telephone facilities; does not include other
payments made using the internet.
(b) ‘Other’
methods include prepaid, gift and welfare cards, bank cheques, money orders,
‘buy now, pay later’ and Cabcharge.
Payments system review
In October 2020 the Review
of Australia’s Payments System (the Review), conducted by Scott Farrell
commenced. The purpose of the Review was to ensure Australia’s payments system was
fit for purpose and capable of supporting continued innovation for the benefit
of both businesses and consumers. Mr Farrell was to report on the review by May
2021.
The terms
of reference for the Review included that it should ‘take into account
international best practice and seek views from the industry and consumers on
the regulatory architecture that would be conducive to greater innovation and
technology take up’.
Treasury
circulated an issues paper for consultation during the period 20 November 2020
to 31 December 2020. Forty-five submissions were received in response to the
issues paper.
In August
2021, the government released the final
report of the Payments System Review noting that the payments ecosystem is
in the midst of rapid change. Whilst this provides increased convenience and
opportunities it also gives ‘rise to greater complexity and new risks’.[33]
The final report of the Review made 15 recommendations.
Other reviews
Two other
relevant reviews have been carried out:
- the Senate Select Committee on Australia
as a Technology and Financial Centre[34] and
- the Parliamentary Joint Committee on Corporations
and Financial Services Report
on Mobile Payment and Digital Wallet Financial Services.[35]
Government response
On 8 December 2021,
the Government released its formal response to
the Review of the Australian Payments System, the Senate Select Committee on Australia as
a Technology and Financial Centre Final Report, and the Parliamentary Joint Committee
Corporations and Financial Services Report on Mobile Payment and Digital
Wallet Financial Services.
The amendments in Schedule 8 to the Bill respond to
recommendations 6 and 7 of the Review
(pp. xi-xv).
Policy position of non-government parties/independents
At the time of writing this Bills Digest no comments about
the amendments in Schedule 8 to the Bill have been made by non-government
parties or independents.
Position of major interest groups
Many submitters such as the ANZ
Bank (p. 2) welcomed the Review acknowledging:
It comes after a period of sustained change, development and
innovation in the payments system. The origins of today’s regulatory regime
date back to 1998 in response to the Wallis Financial System Inquiry. It is
appropriate that, more than 20 years later, the Government take stock of the
regulatory architecture of the payments system to ensure it remains fit for
purpose and can support new developments and innovations to the benefit of
end-users, industry and the economy.
The Commonwealth
Bank and Eftpos
Australia similarly welcomed the Review.
Key issues: Updated definition
of payments system and participant
Item 5 in Schedule 8 to the Bill inserts proposed
section 7A into the PSRA to set out the definitions of payment
system and participant.
Under proposed subsection 7A(1) a payments system
is a system under which either or both of the following occur:
- the
making of payments or the transfer of funds and/or
- the
transmission or receipt of messages that effect, enable, facilitate or sequence
the making of payments or the transfer of funds.
The payments system includes any instruments
or procedures that relate to that system.
A participant in a payment system is a
constitutional corporation[36]
that operates, administers or participates in the payment system or provides
services that enable or facilitate one or more of the following:
- the
operation or administration of, or participation in, the payment system
- the
making of payments, or the transfer of funds, under the payment system
- the
transmission or receipt of messages under the payment system that effect,
enable, facilitate or sequence the making of payments or the transfer of funds.
This definition is broader than the current definition in
the PSRA. According to the Explanatory
Memorandum (p. 135):
The current definition of payment system limits a payment
system to a system that facilitates the circulation of money. This means
that systems that facilitate payments in non-monetary digital assets or that
provide services which facilitate a payment being made, but do not action the
payment itself, cannot be considered a payment system under the PSRA. The
amendments ensure such arrangements are covered by the definition of ‘payment
system’ which is focused on the payment or transfer of funds, instead of
the circulation of money. [emphasis added]
Together the new definitions will capture entities providing
buy now, pay later products, digital wallet passthrough services such as
ApplePay and Google Wallet, and services that facilitate payment in crypto
assets.
Stakeholder
comment
In its submission to the Review, Afterpay
argued strongly that it is not a payment system because of how its platform
operates stating:
Afterpay's business model positions it as a service that sits
above existing payment systems. Customers choose to use Afterpay as a platform
because its value proposition is not limited to being a mere payment system.
The payment component of the Afterpay transaction is a small component of the
overall services it provides and more relevantly the value it adds to consumers
and merchants alike (p. 4).
Key issue: Ministerial powers
Designated
payment systems
Item 20 in Schedule 8 to the Bill repeals and
replaces subsection 10(1) of the PSRA. The existing power of the RBA to
designate a payment system remains unchanged. Item 27 inserts proposed
subsection 11(1A) into the PSRA to put this beyond doubt.
Proposed paragraph 10(1)(b) empowers the Minister to
designate a payment system as a special designated payment system—provided
that the Minister considers that doing so is in the national interest. Item
19 inserts proposed section 8A into the PSRA so that the
national interest consideration by the Minister may include those
matters which the RBA would consider as a matter of public interest.[37]
The Minister must consider any other matters that are materially
relevant to determining the national interest.
In addition, the Minister is empowered to nominate special
regulators for special designated payment systems and to give directions to
them about the performance of their functions: proposed subsection 10(1A)
inserted by item 21.
Item 29 inserts proposed sections 11B to 11G
into the PSRA. Those sections operate as follows:
- the
Minister may make a notifiable instrument (that is, an instrument which is not
disallowable under section 7 of the Legislation
Act 2003 and does not automatically sunset) designating a special
designated payment system if it is in the national interest to do so: proposed
subsection 11B(1)
- before
doing so, however, the Minister must consult with the RBA and each special
regulator and consider whether there are any alternatives to such designation: proposed
subsection 11B(3)
- the
RBA and/or any entity prescribed as such by regulation will be a special
regulator: proposed subsection 11C(1)
- the
Minister may, subject to conditions, make a legislative instrument that
nominates one or more special regulators if it is considered to be in the
national interest: proposed subsection 11D(1)
- the
Minister may give the following directions by legislative instrument to a
nominated special regulator:
- a matters
direction specifying those matters that must be considered before
performing or exercising a function or power
- a purposes
direction specifying the purposes for which a function or power must,
or must not, be exercised: proposed section 11F.
Scrutiny of
Bills Committee
The Scrutiny of Bills Committee
commented on a number of the Minister’s powers which are authorised under Schedule
8 to the Bill including, but not limited to, the power in proposed subsection
11B(1) to designate a payment system as a special designated payment system by
notifiable instrument if the Minister considers doing so is in the national
interest.
Of concern to the Committee was that notifiable
instruments made under proposed subsection 11B(1), (in addition to other
instruments made under Schedule 8 to the Bill) would not be subject to Parliamentary
scrutiny due to their status as non-legislative instruments.
The Committee
stated (p. 27) that it:
… expects that any exemption of delegated legislation from
the usual disallowance process should be fully justified in the Explanatory Memorandum.
This justification should include an explanation of the exceptional
circumstances that are said to justify the exemption and how they apply to the
circumstances of the provision in question.
As the Committee does not accept that sufficient
justification has been given it has requested the Treasurer’s advice as to,
among other things, why it is necessary and appropriate for instruments made
under proposed subsection 11B(1) to be notifiable instruments which are exempt
from the full range of Parliamentary scrutiny. At the time of writing, the
Treasurer’s response had not been received by the Scrutiny Committee.[38]
About
access regimes
Where the RBA has designated a payment system, it may then
impose
an access regime or establish standards to be complied with
by participants in the system. By way of example, there is an access
regime for the ATM system which sets
a cap on the fee that an existing participant in the ATM system can charge
a new entrant to establish a direct connection and the elimination of interchange
fees.
Item 33 in Schedule 8 to the Bill inserts proposed
subsection 12(1A) into the PSRA so that a nominated special
regulator may, by legislative instrument, impose an access regime on participants
in a special designated payment system. However, it should be noted that item
26 in the table at section 10 of the Legislation
(Exemptions and Other Matters) Regulations 2015 provides that instruments
made under Subdivision A of Division 3 of Part 3 of the PSRA (which
includes the making of access regimes) are not subject to disallowance. According
to the Explanatory
Memorandum to the Bill (p. 146) ‘allowing instruments made under these
sections to be disallowable may cause significant commercial uncertainty and
delay’. The Scrutiny of Bills Committee sought
the Treasurer’s advice as to why it is necessary and appropriate for
instruments made under proposed subsection 12(1A) to be exempt from
disallowance, noting it ‘does not consider the fact that the Legislation
(Exemptions and Other Matters) Regulation 2015 authorises an exemption from
disallowance is sufficient to exclude legislation from parliamentary oversight’
(p. 28).
Key issue: penalty regime
The amendments in Part 3 of Schedule 8 to the Bill repeal
existing offence provisions for failure to comply with a direction (section 21)
and failure to give the RBA information (section 26) and replaces them with new
provisions covering both criminal and civil penalties.
Tables 6.4 and 6.5 of the Explanatory
Memorandum (pp. 156, 157) set out the details of the increased penalties
for offences under section 21 of the PSRA and the new civil penalties
under sections 21 and 26 respectively.
Financial implications
According to the Explanatory
Memorandum (p. 6) the financial impact of Schedule 8 to the Bill is nil.
Other
provisions: certain technical amendments
Background
There are rules in the goods and services tax (GST) law
regarding when input tax credits are normally attributable to tax periods: A New Tax
System (Goods and Services Tax) Act 1999 (GST Act), subsections
29-10(1), (2) and (3). This is also the case for fuel tax credits: Fuel Tax Act
2006 (FT Act), subsections
65-5(1) to (3). Previously, the Commissioner of Taxation (the Commissioner)
had an administrative
practice of processing documents lodged by taxpayers purporting to be
amended or revised GST returns. However, the High Court decided in Commissioner
of Taxation v Travelex Limited [2021] HCA 8 that the Commissioner does
not have the authority to amend or revise a GST return. The amendments
effectively restore the historical practice.
Also, subsection 29-25(1) of the GST Act states
that the Commissioner may determine the tax periods to which input tax credits
are attributable. The Government has identified that the interactions between
subsection 29-25(1) and Division 93 of the GST Act (which places a
four-year time limit on claiming input tax credits on a creditable acquisition)
have not been properly addressed.
Finally, if a taxpayer has incurred GST as a business
cost, and an input tax credit cannot be claimed, the taxpayer should generally
be able to claim an income tax deduction. Subsection 27-15 of ITAA 1997
provides that, with some exceptions, a taxpayer cannot deduct a payment of GST
under Division 33 of the GST Act. Currently, GST payable by reverse
charge is not one of those exceptions. The reverse
charge makes the purchaser of the supply rather than the supplier
responsible for remitting GST.
Policy
position of non-government parties/independents
At the time of writing this Bills Digest no comments about
the contents of Part 2 of Schedule 6 to the Bill had been made by
non-government parties or independents.
Position of
major interest groups
CA ANZ has stated in a submission
that:
The proposed new sub-sections 29(4)-(6) will assist in making
‘lawful’ many past BAS (Business Activity Statement) amendments based on a
perceived unlawful administrative practice which is consistent with the
original policy intent of subsection 29-10(4).
Key issues
and provisions
Item 7 in Schedule 6 to the Bill repeals existing
subsection 29-10(4) of the GST Act and replaces it with proposed
subsections 29-10(4) to (6). The new subsections provide that where an
input tax credit has not been taken into account in a tax period, a taxpayer
can ask the Commissioner to attribute the input tax credit to a later specified
tax period. Item 10 in Schedule 6 to the Bill makes similar amendments
to the FT Act. The amendments apply in relation to input tax credits and
fuel tax credits that are ordinarily attributable to periods starting on or
after 1 July 2012.
To address the interactions between subsection 29-25(1)
and Division 93 of the GST Act, item 14 inserts proposed
subsections 93-10(1) and (2) into the GST Act. The subsections provide
that, if the Commissioner makes a subsection 29-25(1) determination, the
taxpayer only ceases to be entitled to the input tax credit to the extent that
the input tax credit has not been taken into account in an assessment during
the four-year period after the taxpayer was required to lodge a GST return for
the period to which the credit was attributable. Otherwise, the taxpayer will
be entitled to the input tax credit.
Item 22 in Schedule 6 to the Bill inserts proposed
subsection 27-15(4) into the ITAA 1997 so that a taxpayer can deduct
the amount of GST payable as a reverse charge, to the extent that the assessed
net amount includes GST that:
- exceeds
the input tax credit that the taxpayer is entitled to, and
- is
payable because of Divisions 83, 84 or 86 of the GST Act (which set out
the requirements for income tax deductions for reverse charged supplies).
Financial
implications
According to the Explanatory
Memorandum (p. 4) the amendments in Schedule 6 to the Bill are ‘estimated
to result in a small but unquantifiable impact on receipts, and a small but
unquantifiable impact on payments over the five years from 2022–23.