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Wednesday, 9 November 2016
Page: 3389


Mr MORRISON (CookTreasurer) (16:52): I move:

That this bill be now read a second time.

I thank the House for its patience. This bill imposes a tax on the notional earnings of capital moved into a retirement phase superannuation account that is in excess of the $1.6 million transfer balance cap.

The foundation of our sustainability measures in the superannuation reform package is the transfer balance cap—a $1.6 million cap on the total amount of superannuation a person can transfer into the retirement phase where earnings are tax free.

The cap will index in $100,000 increments in line with the consumer price index.

In practice, in 2017-18 the transfer balance cap will affect less than an estimated one per cent of people with superannuation.

This bill imposes the tax liability on the notional earnings of capital where an individual exceeds the $1.6 million cap. The Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 details the operation of the cap.

Importantly, the tax is only applied on the notional earnings of the excess capital.

It is not intended to be punitive. Instead, it is intended to neutralise any advantage an individual receives from breaching their transfer balance cap. It reflects that, if it was not for the individual's breach, the excess amount on which notional earnings are calculated would have been in the accumulation phase and taxed at 15 per cent.

The 15 per cent tax rate applies to any breach in 2017-18.

After 2017-18, the tax rate will differentiate between first breaches and second and subsequent breaches. This differentiated tax rate is intended to provide a deterrent against ongoing breaches of the transfer balance cap.

From 2018-19, any first breach will attract a 15 per cent tax on the notional earnings of the excess capital.

For any second or subsequent breaches of the cap, individuals will be required to pay tax equal to 30 per cent of the notional earnings on the excess capital.

Notional earnings will be calculated from the date of the breach to the date it is rectified.

Individuals will have objection rights if they consider that the Commissioner of Taxation has not accurately assessed their circumstances.

There will also be transitional arrangements to assist individuals who may be in breach of the transfer balance cap on commencement of the law.

Individuals with retirement phase accounts at or below $1.7 million on 30 July 2017 that rectify the breach within six months will not be subject to the tax. This allows a margin of error for individuals who attempt to bring their balance within the cap during this transitional period.

The excess transfer balance tax, imposed through this bill contributes to a system that is more equitable and sustainable.

Full details of the bill are contained in the explanatory memorandum.

Debate adjourned.