Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Superannuation Budget Measures Bill 2004

Bill home page  


Download WordDownload Word


Download PDFDownload PDF

 

2002-2003-2004

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

SUPERANNUATION BUDGET MEASURES BILL 2004

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Treasurer, the Hon Peter Costello, MP)

 



T able of contents

Glossary                                                                                                               1

General outline and financial impact............................................................ 3

Chapter 1            Extension of the Government’s superannuation co-contribution  5

Chapter 2            Reduction in the surcharge rates...................................... 9

Index                                                                                                                  15



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

Co-contribution Act

Superannuation (Government Co-contribution for Low Income Earners) Act 2003

CPF

constitutionally protected fund

CPF Act 1997

Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997

CPF Imposition Act 1997

Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997

CSS

Commonwealth Superannuation Scheme

CSS Board

Commonwealth Superannuation Scheme Board

Cth Reduction Act 1997

Superannuation Contributions Tax (Application to the

Commonwealth - Reduction of Benefits) Act 1997

DFRDB Act 1973

Defence Force Retirement and Death Benefits Act 1973

Parliamentary Contributory Act 1948

Parliamentary Contributory Superannuation Act 1948

SA 1976

Superannuation Act 1976

SCT Imposition Act 1997

Superannuation Contributions Tax Imposition Act 1997

TPT Imposition Act 1997

Termination Payments Tax Imposition Act 1997

 



Extension of the Government’s superannuation co-contribution

Schedule 1 to this bill will:

·          increase the level of Government matching of personal superannuation contributions to 150%;

·          increase the maximum amount of Government contribution available to $1,500;

·          increase the income level up to which the maximum co-contribution applies to $28,000; and

·          reduce the rate by which the maximum co-contribution phases out to 5 cents for each additional dollar of income. Consequently, the co-contribution will phase out completely at $58,000.

Date of effect :  This measure will take effect from 1 July 2004.

Proposal announced :  This measure was announced in the 2004-2005 Budget.

Financial impact :  This measure is expected to result in a budgetary cost of $595 million in 2005-2006, $730 million in 2006-2007, and $790 million in 2007-2008.

Compliance cost impact :  There is expected to be a negligible increase in compliance costs. Some superannuation schemes may incur minor additional costs in processing/allocating a higher volume of co-contributions.

Reduction in the surcharge rates

This measure will reduce the maximum surcharge rates from their current levels to 12.5% for 2004-2005, 10.0% for 2005-2006, and 7.5% for 2006-2007 and subsequent years.

Date of effect :  This measure will take effect from 1 July 2004.

Proposal announced :  This measure was announced in the 2004-2005 Budget.

Financial impact :  This measure is expected to result in a revenue cost of $55 million in 2005-2006, $170 million in 2006-2007, and $385 million in 2007-2008.

Compliance cost impact :  Some public sector superannuation schemes may have additional reporting obligations as a result of the surcharge rate reduction.



C hapter 1  

Extension of the Government’s 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 (Co-contribution Act) to:

·          increase the level of Government matching of personal superannuation contributions;

·          increase the maximum amount of co-contribution available;

·          increase the income level up to which the maximum co-contribution applies; and

·          reduce the rate by which the maximum co-contribution phases out.

Context of amendments

1.2         The Government announced in the 2004-2005 Budget that it will enhance the superannuation co-contribution scheme by increasing both the level of matching and the maximum co-contribution, and by raising the income thresholds so that more employees will qualify under the scheme. This will increase the incentives for low to middle income employees to save for their retirement through the superannuation system.

Summary of new law

1.3         The level of matching of personal superannuation contributions under the co-contribution arrangements will be increased to $1.50 for every dollar contributed. The maximum Government contribution under the arrangements will also be increased to $1,500.

1.4         The income level up to which the maximum co-contribution applies will be increased to $28,000, while for incomes above that amount the maximum co-contribution will reduce at a lower rate of 5 cents for each dollar of income, to phase out completely at an income of $58,000.

Comparison of key features of new law and current law

New law

Current law

The Government will increase the level of matching to $1.50 for each dollar of personal superannuation contributions made by qualifying employees, up to a maximum Government contribution of $1,500.

The Government matches personal superannuation contributions made by qualifying employees on a dollar for dollar basis up to a maximum Government contribution of $1,000.

The maximum Government contribution of $1,500 will be available for qualifying employees on incomes (for co-contribution purposes) up to $28,000.

The maximum Government contribution of $1,000 is available for qualifying employees on incomes (for co-contribution purposes) up to $27,500.

The maximum Government contribution will phase out at a rate of 5 cents for every dollar of income above $28,000. It will phase out completely at $58,000.

The maximum Government contribution phases out at a rate of 8 cents for every dollar of income above $27,500. It phases out completely at $40,000.

Detailed explanation of new law

1.5         Subsection 9(1) of the Co-contribution Act sets out the basic rule governing the Government’s matching of personal superannuation contributions. This subsection will be amended to provide that for the 2004-2005 or later income years, the Government co-contribution will be equal to 150% of the eligible personal superannuation contributions made by a person during that year. [Schedule 1, item 1]

1.6         Section 10 of the Co-contribution Act sets out the maximum amount of Government contribution payable for a person for any one income year, and the rate at which this amount reduces for incomes above the lower income threshold.

1.7         As a result of the Government’s announcement, a new subsection 10(1A) will be inserted to provide, for the 2004-2005 and later income years, for a maximum Government contribution of $1,500, and a reduced phase out rate of 5 cents for each dollar of income above the lower income threshold. For example, a qualifying person whose total income is $40,000 will have a maximum available Government co-contribution of $900. [Schedule 1, items 2 to 4]

1.8         Section 10A of the Co-contribution Act provides for the indexation of the lower income threshold, and for related increases in the higher income threshold. The increase in the higher income threshold is equal to the dollar growth in the lower income threshold to maintain the taper range in dollar terms.

1.9         As a result of the increase in the lower income threshold, subsection 10A(2) will be amended to provide for the new lower threshold amount of $28,000. Subsection 10A(3) will also be amended to reflect this new lower threshold and the reduced phase out rate of 5 cents in the dollar. The amendments will increase the taper range to $30,000, and provide for a higher income threshold of $58,000 (for the 2004-2005, 2005-2006 and 2006-2007 income years). [Schedule 1, item 5]

Application and transitional provisions

1.10       The amendments made in respect of the Co-contribution Act are to apply to the 2004-2005 and later income years. [Schedule 1, item 6]



C hapter 2  

Reduction in the surcharge rates

Outline of chapter

2.1         Part 1 of Schedule 2 to this bill will amend the Superannuation Contributions Tax Imposition Act 1997 (SCT Imposition Act 1997), the  Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (CPF Imposition Act 1997) and the Termination Payments Tax Imposition Act 1997 (TPT Imposition Act 1997) to reduce the maximum superannuation contributions and termination payments surcharge rates to 12.5% for 2004-2005, 10.0% for 2005-2006, and 7.5% for 2006-2007 and later financial years.

2.2         Part 2 of Schedule 2 to this bill will amend the provisions which impose a limit on the maximum amount of surcharge payable by members of constitutionally protected funds (CPFs) and the maximum reduction of benefits of members of certain unfunded defined benefits superannuation schemes. These limits reflect the current maximum surcharge rates, which will be reduced under this measure.

2.3         Part 3 of Schedule 2 to this bill sets out the application of the amendments in Parts 1 and 2.

Context of amendments

2.4         The Government announced in the 2004-2005 Budget that it will reduce the maximum superannuation and termination payments surcharge rates in three stages to 7.5% for 2006-2007 and subsequent years.

Summary of new law

2.5         The maximum surcharge rates will be reduced to 12.5% for 2004-2005, 10.0% for 2005-2006, and 7.5% for 2006-2007 and subsequent years.

2.6         Where a limit applies in relation to the surcharge liability of members of CPFs and the reduction in benefits of members of certain unfunded defined benefits superannuation schemes, the limit will be amended to reflect the reducing maximum surcharge rates.

Comparison of key features of new law and current law

New law

Current law

The maximum surcharge rates will be reduced to 12.5% for 2004-2005, 10.0% for 2005-2006, and 7.5% for 2006-2007 and subsequent years.

Where a limit applies in relation to the surcharge liability of members of CPFs and the reduction of benefits of members of certain unfunded defined benefits superannuation schemes, the limit will be amended to reflect the reducing maximum surcharge rates.

The maximum surcharge rates are 14.5% for 2003-2004, 13.5% for 2004-2005, and 12.5% for 2005-2006 and subsequent years.

A limit applies in relation to the surcharge liability of members of CPFs and the reduction of benefits of members of certain unfunded defined benefits superannuation schemes. The limit reflects the current maximum surcharge rates.

Detailed explanation of new law

2.7         The superannuation contributions surcharge is determined under the SCT Imposition Act 1997 in relation to superannuation contributions other than contributions to CPFs. Superannuation contributions surcharge in relation to contributions to CPFs is determined under the CPF Imposition Act 1997. The termination payments surcharge is determined under the TPT Imposition Act 1997.

2.8         Subsection 5(1AA) of the SCT Imposition Act 1997, subsection 5(1A) of the CPF Imposition Act 1997 and subsection 5(1AA) of the TPT Imposition Act 1997 provide definitions of ‘maximum surcharge percentage’. Under these definitions, the maximum surcharge percentage is 13.5% for the 2004-2005 financial year, and 12.5% for 2005-2006 and later financial years.

2.9         The definition of maximum surcharge percentage in the SCT Imposition Act 1997, the CPF Imposition Act 1997 and the TPT Imposition Act 1997 will be amended to provide for the following rates:

·          for the 2004-2005 financial year - 12.5%;

·          for the 2005-2006 financial year - 10.0%; and

·          for the 2006-2007 financial year and later financial

years - 7.5%.

[Schedule 2, Part 1, items 1 to 3]

2.10       The Defence Force Retirement and Death Benefits Act 1973 (DFRDB Act 1973) generally provides for the payment of retirement benefits to certain defence force employees. The payment of the surcharge liability in respect of such employees’ superannuation contributions is deferred until a benefit is paid. When a benefit becomes payable the trustee of the fund is liable to pay the deferred surcharge liability plus accumulated interest.

2.11       Under the DFRDB Act 1973, the trustee may not reduce the benefits of a member by more than the amount of the employer financed component of the benefits that accrued after 20 August 1996, as determined by the trustee in accordance with subsection 6C(3). Subsection 6C(3) of the DFRDB Act 1973 will be amended to reflect the reduction in the maximum surcharge rates. [Schedule 2, Part 2, item 4]

2.12       The Parliamentary Contributory Superannuation Act 1948 (Parliamentary Contributory Act 1948) provides for an occupational superannuation scheme for Members of the Australian Parliament. The payment of the surcharge liability in respect of surchargeable contributions of Members of the Australian Parliament is deferred until a benefit is paid. When a benefit becomes payable the Parliamentary Retiring Allowances Trust is liable to pay the deferred surcharge liability plus accumulated interest.

2.13       Under the Parliamentary Contributory Act 1948, the Parliamentary Retiring Allowances Trust may not reduce the benefits of a member by more than the amount of the employer financed component of the benefits that accrued after 20 August 1996, as determined by the Trust in accordance with subsection 4E(3). Subsection 4E(3) of the Parliamentary Contributory Act 1948 will be amended to reflect the reduction in the maximum surcharge rates. [Schedule 2, Part 2, item 5]

2.14       The Superannuation Act 1976 (SA 1976) provides for an occupational superannuation scheme, known as the Commonwealth Superannuation Scheme (CSS), for people employed by the Australian Government and for certain other people. The payment of the surcharge liability in respect of CSS members’ surchargeable contributions is deferred until a benefit is paid. When a benefit becomes payable, the Commonwealth Superannuation Scheme Board (CSS Board) is liable to pay the deferred surcharge liability plus accumulated interest.

2.15       Under the SA 1976, the CSS Board may not reduce the benefits of a member by more than the amount of the employer financed component of the benefits that accrued after 20 August 1996, as determined by the Board in accordance with subsection 80A(3). Subsection 80A(3) of the SA 1976 will be amended to reflect the reduction in the maximum surcharge rates. [Schedule 2, Part 2, item 6]

2.16       The Superannuation Contributions Tax (Application to the Commonwealth - Reduction of Benefits) Act 1997 (Cth Reduction Act 1997) allows trustees of certain unfunded defined benefits superannuation schemes to reduce the benefits payable to members of such funds by no more than an amount of the employer financed component of that part of the benefits payable to the member that accrued after 20 August 1996, as determined under subsection 4(2A). Subsection 4(2A) of the Cth Reduction Act 1997 will be amended to reflect the reduction in the maximum surcharge rates. [Schedule 2, Part 2, item 7]

2.17       The Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (CPF Act 1997) imposes the superannuation contributions surcharge on certain members of CPFs. Surcharge assessed each year for each surchargeable CPF member, plus interest, accumulates in a ‘surcharge debt account’ maintained by the Commissioner of Taxation. Under subsections 15(6), 15(6AA) and 15(6A) of the CPF Act 1997, when a benefit becomes payable to a CPF member or when a CPF ceases to be a CPF, the CPF member is liable to pay the surcharge. Subsection 15(6AA) applies where a superannuation interest in a CPF has been split and subsequently becomes payable. CPF members’ surcharge liability is the lesser of the amount by which their surcharge debt account is in debit or the value of the employer-financed component of that part of the benefits payable to the member that accrued after 20 August 1996, as determined under either paragraph 15(6)(b), paragraph 15(6AA)(d) or paragraph 15(6A)(b), as relevant.

2.18       As a result of the proposal to reduce the surcharge rates, paragraphs 15(6)(b), 15(6AA)(d) and 15(6A)(b) will be amended to reflect the reduction in the maximum surcharge rates. [Schedule 2, Part 2, items 8 to 10]

Application and transitional provisions

2.19       The measure to reduce the surcharge rates will apply in relation to surcharge liability arising in respect of the 2004-2005 financial year and later financial years. The amendments to reduce the limit applying to CPF members (other than where a CPF ceases to be a CPF) and certain unfunded defined benefits superannuation schemes will apply to benefits that become payable on or after 1 July 2004. Where a CPF ceases to be a CPF and a member becomes liable to pay the surcharge, the amendments will apply where a CPF ceases to be a CPF on or after 1 July 2004. [Schedule 2, Part 3, item 11]



I ndex         

Schedule 1: Extension of the Government’s superannuation co-contribution

Bill reference

Paragraph number

Item 1

1.5

Items 2 to 4

1.7

Item 5

1.9

Item 6

1.10

Schedule 2: Superannuation surcharge

Bill reference

Paragraph number

Part 1, items 1 to 3

2.9

Part 2, item 4

2.11

Part 2, item 5

2.13

Part 2, item 6

2.15

Part 2, item 7

2.16

Part 2, items 8 to 10

2.18

Part 3, item 11

2.19