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Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021

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2019-2020-2021

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by authority of the

Treasurer, the Hon Josh Frydenberg MP)

 

 



Table of contents

Glossary............................................................................................................. 1

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

Chapter 1 ........... Removing the monthly minimum threshold for salary or wages to count towards the superannuation guarantee.......................... 7

Chapter 2 ........... First home super saver scheme maximum releasable amount      11

Chapter 3 ........... Reduced eligibility age for downsizer contributions.... 13

Chapter 4 ........... Repealing the work test for superannuation contributions  17

Chapter 5 ........... Segregated current pension assets............................... 23

Chapter 6 ........... Extension of temporary full expensing of depreciating assets        27

Chapter 7 ........... Statement of Compatibility with Human Rights........... 31

 

 



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

Abbreviation

Definition

ATO

Australian Taxation Office

Bill

Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021

Commissioner

Commissioner for Taxation

ITAA 1997

Income Tax Assessment Act 1997

ITTP Act

Income Tax (Transitional Provisions) Act 1997

RSA Regulations

Retirement Savings Account Regulations 1997

SGAA

Superannuation Guarantee (Administration) Act 1992

SIS Regulations

Superannuation Industry (Supervision) Regulations 1994

TAA 1953

Taxation Administration Act 1953

2020 budget time

7.30 pm, by legal time in the Australian Capital Territory, on 6 October 2020

 

 



Schedule 1 - Removing the monthly minimum threshold for salary or wages to count towards the superannuation guarantee

Schedule 1 to the Bill amends the SGAAto remove the $450-a-month threshold before an employee’s salary or wages count towards the Superannuation Guarantee.

Removing the $450-a-month threshold will expand the coverage of the Superannuation Guarantee to eligible employees earning salary or wages less than $450 in a calendar month from a single employer.

Date of effect :  Schedule 1 to the Bill commences the day after Royal Assent and applies from 1 July 2022, however if Royal Assent is received after 1 July 2022 then the Schedule applies from the beginning of the next quarter after Royal Assent.

Proposal announced Schedule 1 to the Bill fully implements the measure ‘Removing the $450 per month threshold for superannuation guarantee eligibility’ from the 2021-22 Budget.

Financial impact Schedule 1 to the Bill is estimated to have the following impact on the underlying cash balance over the forward estimates period ($m):

2020-21

2021-22

2022-23

2023-24

2024-25

-

-

-

-10.0

-10.0

Human rights implications :  Schedule 1 to the Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact Schedule 1 to the Bill is estimated to have a negligible impact on compliance cost.

Regulation impact statement: This measure has a minor regulatory impact.

Schedule 2 - First home super saver scheme maximum releasable amount

Schedule 2 to the Bill amends the TAA 1953 to increase the limit on the maximum amount of voluntary contributions made over multiple financial years that are eligible to be released under the First Home Super Saver Scheme from $30,000 to $50,000.

This amendment ensures that the First Home Super Saver Scheme continues to help first home buyers save more quickly for the purpose of purchasing or constructing their first home.

Date of effect The amendments in Schedule 2 to the Bill apply to requests made on or after 1 July 2022 for the Commissioner to make a First Home Super Saver determination.

Proposal announced Schedule 2 to the Bill implements the measure ‘First Home Super Saver Scheme - increasing the maximum releasable amount to $50,000’ announced on 8 May 2021 as part of the 2021-22 Budget.

Financial impact :  As part of the 2021-22 Budget, Schedule 2 to the Bill is estimated to result in a decrease in receipts of $25.0 million over the forward estimates period.

2020-21

2021-22

2022-23

2023-24

2024-25

-

-6.0

-6.0

-6.0

-7.0

Human rights implications : Schedule 2 to the Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 7.

Compliance cost impact: Low.

Schedule 3 - Reduced eligibility age for downsizer contributions

Schedule 3 to the Bill amends the ITAA 1997 to allow individuals aged 60 and above to make downsizer contributions to their superannuation plan from the proceeds of selling their home.

Date of effect 1 July 2022.

Proposal announced Schedule 3 to the Bill partially implements the measure Flexible Super - reducing the eligibility age for downsizer contributions from the 2021-22 Budget. Separate regulation amendments are also required to implement the measure.

Financial impact : Schedule 3 to the Bill is estimated to result in a negligible decrease in receipts over the forward estimates period.

2020-21

2021-22

2022-23

2023-24

2024-25

-

-

..

..

..

.. negligible (close to zero but not zero impact)

Human rights implications :  Schedule 3 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact :  Low.

Schedule 4 - Work test reforms for superannuation contributions

Schedule 4 to the Bill amends the ITAA 1997 to apply the work test to individuals aged between 67 to 75 years who claim a deduction for personal superannuation contributions. This change facilitates the repeal of existing work test that applies to non-concessional and salary sacrifice contributions. Schedule 4 to the Bill also amends the ITAA 1997 to allow such individuals to make or receive non-concessional superannuation contributions under the bring forward rule.

Date of effect 1 July 2022

Proposal announced Schedule 4 to the Bill partially implements the measure Flexible Super - repealing the work test for voluntary superannuation contributions from the 2021-22 Budget.

Financial impact : As at the 2021-22 Budget, the measure Flexible Super - repealing the work test for voluntary superannuation contributions is estimated to result in a decrease in receipts of $30.0 million over the forward estimates period.

2020-21

2021-22

2022-23

2023-24

2024-25

-

-

..

-$10.0

-$20.0

.. negligible (close to zero but not zero impact)

Human rights implications :  Schedule 4 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact :  Low

Schedule 5 - Segregated current pension assets

Schedule 5 to the Bill amends the ITAA 1997 to allow superannuation trustees to choose their preferred method of calculating exempt current pension income when they have member interests in both accumulation and retirement phases for part, but not all, of the income year.

Date of effect :  The amendments in Schedule 5 to the Bill commence on the first 1 January, 1 April, 1 July or 1 October to occur after this Bill receives Royal Assent.

Proposal announced :  Schedule 5 to the Bill partially implements the measure Superannuation - reducing red tape for superannuation funds from the 2019-20 Budget.

Financial impact :  Nil

Human rights implications :  Schedule 5 to the Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact :  There will be a minor saving for affected funds due to funds being able to choose a simpler method of calculating exempt current pension income.

Schedule 6 - Extension of temporary full expensing of depreciating assets

Schedule 6 to the Bill amends the income tax law to extend the temporary full expensing regime by 12 months, until 30 June 2023. The 12-month extension will provide eligible businesses with additional time to access the tax incentive.

Date of effect :  The amendments in S chedule 6 to the Bill apply to depreciating assets that are first held, and first used or installed ready for use for a taxable purpose at or after the 2020 budget time.

Proposal announced Schedule 6 to the Bill fully implements the measure Temporary full expensing extension from the 2021-22 Budget.

Financial impact This measure is estimated to have the following receipts impacts over the forward estimates period ($m):

2021-22

2022-23

2023-24

2024-25

-

-600.0

-10,900.0

-6,400.0

Human rights implications :  Schedule 6 to the Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 7.

Compliance cost impact An exemption from the Regulation Impact Statement requirements applies because this measure is covered by the Prime Minister’s exemption for COVID-19 related measures.

 



Outline of chapter

1.1                    Schedule 1 to the Bill amends the SGAA to remove the $450-a-month threshold before an employee’s salary or wages count towards the Superannuation Guarantee.

1.2                    Removing the $450-a-month threshold will expand the coverage of the Superannuation Guarantee to eligible employees earning salary or wages less than $450 in a calendar month from a single employer.

Context of amendments

1.3                    The SGAA establishes the ‘Superannuation Guarantee’ scheme, which ensures that employers pay a minimum level of superannuation contributions on behalf of their employees. The Superannuation Guarantee is the minimum amount of money an employer must contribute on respect of an employee under this scheme. Generally, an employee must meet the $450-a-month threshold before the Superannuation Guarantee is payable.

1.4                    The Superannuation Guarantee has wide coverage, however some employees are excluded. The main cohort of excluded employees are persons who earn less than $450 before tax in a calendar month with an individual employer, affecting an estimated 300,000 people, or 3 per cent of employees. [1] These affected employees are mainly young, lower-income, part-time workers — around 63 per cent are female. [2]

1.5                    The original rationale for the $450 threshold was to minimise the administrative burden on employers administering small amounts of superannuation contributions. Technological advances and the digitalisation of payroll systems, for example Single Touch Payroll, diminishes the rationale for a minimal threshold which adversely impacts low-income workers and women.

1.6                    The $450 threshold also helped prevent the creation of low-balance accounts that could get eroded by fees and insurance premiums. However, recent Government changes have reduced the impact of these risks. The Treasury Laws Amendment (Protecting Your Superannuation Package) 2018 capped administration and investment fees at 3 per cent of a member’s balance for low-balance accounts and insurance for inactive accounts may no longer be offered without a direction from the member. Further, the Treasury Laws Amendment (Putting Members’ Interests First) Act 2019 made insurance opt-in for members aged under 25 and for members with a balance less than $6,000. 

1.7                    On 27 September 2019, the Government commissioned an independent panel to review the retirement income system (the Retirement Income Review). As part of the review, the panel concluded the removal of the $450-a-month threshold would improve Superannuation Guarantee coverage and equity across the system. [3]

1.8                    On 11 May 2021, as part of the 2021-22 Budget, the Government announced it will remove the $450 per month threshold to expand coverage of the Superannuation Guarantee to eligible employees earning salary or wages less than $450 in a calendar month from a single employer.

Summary of new law

1.9                    A minimum $450-a-month threshold will no longer exclude employees from the Superannuation Guarantee. The salary or wages of eligible employees will count toward their employer paying the Superannuation Guarantee.

Comparison of key features of new law and current law

New law

Current law

The Superannuation Guarantee applies to an employee whose salary or wages are less than $450-a-month.

The Superannuation Guarantee does not apply to an employee whose salary or wages are less than $450-a-month.

Detailed explanation of new law

1.10                The SGAA establishes the ‘Superannuation Guarantee’ scheme, which ensures that employers pay a minimum level of superannuation contributions on behalf of their employees and sets out the means for calculating the amount an employer contributes to the retirement savings account or superannuation fund for the benefit of eligible employees.

1.11                The formula for calculating the amount an employer is to pay the Superannuation Guarantee on a quarterly basis is set out in section 19 of the SGAA .

1.12                Section 27 of the SGAA sets out the salary or wages that are excluded for the purposes of an employer making a calculation under section 19 of the SGAA.

1.13                The main exclusion is provided under subsection 27(2) of the SGAA. The subsection sets out that if an employer pays an employee salary or wages in a calendar month, and the portion of the salary or wages, after applying other exclusions prescribed in section 27 of the SGAA, is less than $450, then the portion of those salary or wages are not to be taken into account (that is, excluded) when calculation an employer’s obligation to pay the Superannuation Guarantee.

1.14                In effect, this exclusion establishes the $450-a-month eligibility threshold before an employer must pay the Superannuation Guarantee. If an employee’s salary or wage is less than $450 in a calendar month, then the employees earning are excluded from the calculations used by employers to work out their obligation to pay the Superannuation Guarantee on a quarterly basis. If an employee’s salary or wage is excluded from the calculations to work out an employer’s contribution, then the Superannuation Guarantee amount an employer is liable to pay is $0.

1.15                This amendment repeals subsection 27(2) of the SGAA. In effect, the amendment removes the $450-a-month eligibility threshold established by the exclusion set out in subsection 27(2). [Schedule 1, item 1, subsection 27(2) of Act being amended]

1.16                Removing the minimal $450-a-month eligibility threshold in relation to the Superannuation Guarantee will ensure the salary or wages of all eligible employees earned in a calendar month will count towards an employer paying the Superannuation Guarantee for the benefit of their employees.  

1.17                The repeal of subsection 27(2) will improve the equity of the superannuation system, particularly for low-income, part-time workers and for women.

Application provision

1.18                The Superannuation Guarantee is calculated on a quarterly basis in relation to an eligible employee’s salary or wages in each calendar month for the quarter. If Royal Assent is received before 1 July 2022, the application provision provides that the amendment will apply to each calendar month in a quarter beginning 1 July 2022. In effect, the amendment made by Schedule 1 to the Bill will apply from the start of the 2022-23 financial year. From 1 July 2022 the salary or wages of all eligible employees earned in a calendar month will count towards an employer paying the Superannuation Guarantee.

1.19                However, in the event Royal Assent is received after 1 July 2022, then the amendment made by Schedule 1 to the Bill will apply from the beginning of the quarter after Royal Assent is received. This reflects that the Superannuation Guarantee is calculated on a quarterly basis. For example, if Royal Assent is received 14 July 2022, then the amendment will apply to each calendar month in a quarter beginning on the next quarter from 1 October 2022.



Outline of chapter

2.1                    Schedule 2 to the Bill amends the TAA 1953 to increase the limit on the maximum amount of voluntary contributions made over multiple financial years that are eligible to be released under the First Home Super Saver Scheme from $30,000 to $50,000.

2.2                    The amendment ensures that the First Home Super Saver Scheme continues to help first home buyers save more quickly for the purpose of purchasing or constructing their first home.

Context of amendments

2.3                    The First Home Super Saver Scheme is one of several measures announced in the 2017-18 Budget as part of the Government’s package of reforms to reduce pressure on housing affordability.

2.4                    The First Home Super Saver Scheme helps Australians boost their savings for their first home by allowing them to make voluntary concessional and non-concessional contributions into the superannuation system and withdraw those eligible contributions and an amount of associated earnings for the purpose of purchasing or constructing their first home. Concessional tax treatment applies to the amount that is withdrawn and used for this purpose.

2.5                    As part of the 2021-22 Budget measures, the Government announced on 8 May 2021 that it would increase the limit on the maximum amount of voluntary contributions made over multiple financial years from 1 July 2017 that are eligible to be released under the First Home Super Saver Scheme from $30,000 to $50,000.

2.6                    This change will help first home buyers save more quickly compared to other forms of savings for their first home with the concessional tax treatment of superannuation.

 

Summary of new law

2.7                    Schedule 2 to the Bill amends the TAA 1953 to increase the limit on the maximum amount of voluntary contributions made over multiple financial years that are eligible to be released under the First Home Super Saver Scheme from $30,000 to $50,000.

Detailed explanation of new law

2.8                    Schedule 2 to the Bill amends the TAA 1953 to increase the total limit on the maximum amount of voluntary concessional and non- concessional contributions made from 1 July 2017 that are eligible to be released and used under the First Home Super Saver Scheme from $30,000 to $50,000. [Schedule 2, item 1, paragraph 138-35(1)(a) of Schedule 1 to the TAA 1953]

2.9                    This amendment does not alter the limit on the amount of voluntary contributions from any one financial year that are eligible to be released (being $15,000).

2.10                The maximum amount of voluntary contributions that are eligible to be released are $15,000 per financial year and $50,000 in total. Contributions that exceed those limits are not eligible to be released. Eligible concessional contributions are discounted by 15 per cent to account for the tax that is paid by a superannuation provider as a result of receiving the contribution [Section 138-35 of Schedule 1 to the TAA 1953].

Application and transitional provisions

2.11                The amendment commences on the day after it receives Royal Assent. [Clause 2]

2.12                The amendment applies to requests made on or after 1 July 2022 for the Commissioner to make a First Home Super Saver Scheme determination. [Schedule 2, item 2, sections 138-35(1) of Schedule 1 to the TAA 1953]



Outline of chapter

3.1                    Schedule 3 to the Bill amends the ITAA 1997 to allow individuals aged 60 and above to make downsizer contributions to their superannuation plan from the proceeds of selling their home.

3.2                    All legislative references in this chapter are to the ITAA 1997 unless otherwise indicated.

Context of amendments

3.3                    The amendments in Schedule 3 to the Bill form part of the Flexible Super package, which was announced by the Government on 11 May 2021 in the 2021-22 Budget. This package improves the flexibility for older Australians to contribute to their superannuation.

3.4                    Downsizer contributions allow individuals who may otherwise be prevented from making contributions into their superannuation, for example, due to their age or contribution cap restrictions to sell their home and make a superannuation contribution based on the proceeds of the sale.

3.5                    Prior to the amendments, section 292-102(1)(a) provided that a downsizer contribution can only be made by individuals aged 65 and above.

3.6                    This measure reduces the eligibility age for downsizer contributions from 65 to 60 years of age. This provides greater flexibility for older Australians to contribute to their superannuation and may encourage individuals to downsize sooner to a home that better suits their needs, thereby freeing up the stock of larger homes for younger families.

Summary of new law

3.7                    The amendments in this Schedule reduce the age limit below 65 years of age to allow an individual aged 60 or more to make downsizer contributions to a complying superannuation plan from the proceeds of selling their home.

 

 

Related changes to the contribution acceptance rules

3.8                    In conjunction with amendments contained in this Schedule, changes to the contribution acceptance rules in the SIS Regulations and RSA Regulations are required. These changes will ensure that downsizer contributions will be accepted by regulated superannuation funds and RSA institutions for individuals aged 60 and above.

3.9                    However, as the changes to the contribution acceptance rules require amendments to regulations, they are being progressed separately to the amendments in this Schedule.

3.10                The details of the related changes to the contribution acceptance rules will be covered by the explanatory statement that accompanies the amending regulations.

Comparison of key features of new law and current law

New law

Current law

Individuals aged 60 or over may make downsizer contributions from the proceeds of the sale of their home.

Individuals aged 65 or over may make downsizer contributions from the proceeds of the sale of their home.

Detailed explanation of new law

3.11                Prior to the amendments, section 292-102(1)(a) provides that only an individual aged 65 years or over may be eligible to make a downsizer contribution.

3.12                This Schedule reduces the eligibility age for making downsizer contributions from 65 to 60 years. [Schedule 3, item 1, section 292-102(1)(a), ITAA 1997]

3.13                This means that individuals aged 60 to 64 years who were not previously eligible to make downsizer contributions due to their age are eligible to make downsizer contributions.

3.14                Contributions should otherwise meet all other criteria that currently apply to downsizer contributions.

Application and transitional provisions

3.15                The amendments provided by this Schedule commence from the first day of the first quarter after the day the Bill receives Royal Assent [Clause 2].

3.16                The amendments apply to downsizer contributions made on or after 1 July 2022. [Schedule 3, item 2]

3.17                This means that individuals aged 60 to 64 years who were not previously eligible to make downsizer contributions due to their age may now qualify to have sale proceeds from the sale of their home applied as downsizer contributions if made on or after 1 July 2022. Accordingly the concessional treatment is available on and after 1 July 2022, if an individual is 60 years of age or more at the time a downsizer contribution is made and the other existing conditions are met.



Outline of chapter

4.1                    Schedule 4 to the Bill amends the ITAA 1997 to apply the work test to individuals aged between 67 and 75 years who claim a deduction for personal superannuation contributions. This change facilitates the repeal of the existing work test that applies to non-concessional and salary sacrifice contributions.

4.2                    Schedule 4 to the Bill also amends the ITAA 1997 to allow such individuals to make or receive non-concessional superannuation contributions under the bring forward rule.

4.3                    All legislative references in this chapter are to the ITAA 1997 unless otherwise indicated.

Context of amendments

4.4                    In the 2021-22 Budget, the Government announced that all individuals aged younger than 75 years will be allowed to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.

4.5                    In practice this means that individuals aged between 67 and 75 years will still have to meet the work test to make personal deductible contributions.

4.6                    In conjunction with amendments contained in this Schedule, the SIS Regulations and the RSA Regulations will be amended to implement the removal of the work test for non-concessional and salary sacrificed contributions.

4.7                    These changes build on the Government’s previous reforms to the age rules on superannuation contributions, including the reforms in the Treasury Laws Amendment (More Flexible Superannuation) Act 2021 , further improving the flexibility for older Australians to make contributions to their superannuation.

Comparison of key features of new law and current law

New law

Current law

Individuals aged between 67 and 75 years can only claim a deduction for personal superannuation contributions if they meet the work test.

Superannuation funds can only accept a personal superannuation contribution from an individual aged between 67 and 75 years if the individual meets the work test.

Individuals under 75 years of age may access the bring forward non-concessional contributions rule in a particular financial year.

Individuals under 67 years of age may access the bring forward non-concessional contributions rule in a particular financial year

Detailed explanation of new law

Applying the work test to personal deductible contributions

4.8                    Subdivision 290-C sets out the conditions for an individual claiming a deduction for personal superannuation contributions (that is, contributions made by the individual into superannuation). These include ‘age related conditions’ such as the requirement that contributions are received on or before the day that is 28 days after the end of the month in which the member turns 75.

4.9                    Historically, the work test has applied as a condition on a superannuation fund accepting contributions rather than as a condition on an individual claiming a deduction for the contribution. This reflects that the work test applied irrespective of whether the individual claimed a deduction or not. However, given its reduced scope in respect of personal deductible contributions, the work test can now be applied to those contributions in a targeted manner.

4.10                As a result of these amendments, certain individuals can only claim a deduction for personal superannuation contributions if they meet the work test in the income year in which the contribution is made. [Schedule 4, item 2, section 290-165(1A)]

4.11                The individuals covered by this new work test are those who are aged between 67 years and 75 years. Individuals who are aged 75 and meet the work test can only claim a deduction in relation to a contribution that is made on or before the day that is 28 days after the end of the month in which they turn 75. [Schedule 4, item 2, section 290-165(1A)]

4.12                This additional period is consistent with the existing work test and age-related condition for claiming a deduction. It allows individuals a final period in which to make contributions after they turn 75.

4.13                These changes effectively relocate the existing work test from the SIS Regulations and the RSA Regulations. It is intended that amendments to those regulations be made to remove the work test as a general condition for funds to accept personal contributions.

4.14                The combined effect of these changes implements the measure announced in the 2021-22 Budget. As a result, individuals will no longer be required to meet the work test in respect of contributions that are non-concessional contributions or salary sacrificed contributions. The work test will continue to apply to personal deductible superannuation contributions through the changes introduced by these amendments.

4.15                This approach effectively maintains the existing arrangements for personal deductible contributions. Applying the work test in respect of deductions also addresses potential timing and information issues with funds being required to determine the character of a particular personal contribution at the time it is made.

4.16                A requirement to determine the character of a particular personal contribution at the time it is made would be problematic for funds because individuals are not required to provide a notice of intention to deduct a contribution to a fund at the time a contribution is made. Such notices can be provided at a later time, reflecting that individuals can wait until the end of an income year before deciding the amount of personal contributions for which they wish claim a deduction (for example, to ensure they do not breach their concessional contribution cap because of employer contributions made over the year). The same issue does not arise under the existing work test for accepting personal contributions because funds are required to apply that test to all personal contributions, irrespective of whether a deduction is ultimately claimed by the individual.

4.17                Equivalent changes are not required to the age-related conditions for an employer claiming a deduction for a contribution they make in respect of an employee. This reflects the intention that all individuals under 75 are able to have salary sacrificed contributions made in respect of them by their employers.

4.18                While the existing work tests in the SIS Regulations and the RSA Regulations apply on a financial year basis, the new test applies on an income year basis. This reflects the different accounting periods that are used under those regulations relative to the contribution rules in the ITAA 1997. However, there is no material difference as the periods are aligned for the overwhelming majority of individuals who make personal deductible superannuation contributions (being Australian residents with standard income years).

4.19                Consistent with the existing work test in the SIS Regulations, an individual must be ‘gainfully employed’ for at least 40 hours in any consecutive 30-day period in the income year in which the contributions are made. [Schedule 4, item 2, section 290-165(1A)(a)]

4.20                Individuals are also able to access the limited exception to the work test that applies on a ‘one-off’ basis under the existing work tests in the SIS Regulations or the RSA Regulations.

4.21                As such, an individual who does not meet the work test in the year in which a contribution is made can still claim a deduction for the contribution if they:

•        met the work test in the previous income year;

•        have a total superannuation balance of less than $300,000 in that previous income year;

•        have not already relied on the ‘one off’ rule in respect of any contribution; and

•        have not made a contribution that was accepted under a prescribed provision of the SIS Regulations or RSA Regulations.

[Schedule 4, item 2, section 290-165(1A)(b)]

4.22                The reference to a contribution accepted under a prescribed provision allows the regulations to specify the equivalent ‘one off’ exceptions that apply to the existing work tests in the SIS Regulations and RSA Regulations. Specifying the provision through regulations ensures there are no issues with cross-referencing the equivalent provisions correctly in the event that they are amended, relocated or repealed (either through the related regulation changes for this measure or a subsequent process).

4.23                If an individual makes a contribution to a fund and is unable to meet the work test or access the ‘one-off’ exception, then the contribution will remain a non-concessional contribution on the basis that no deduction can be claimed for it.

4.24                A consequential amendment is made to the existing age-condition for individuals aged 75 years and over to ensure there is no overlap between that rule and the new work test. To improve readability, consequential amendments are also made to include headings for the existing age-related conditions for claiming deductions for personal contributions. [Schedule 4, items 1 to 3, sections 290-165(1) and (2)]

Bring forward non-concessional contributions cap

4.25                Subdivision 292 caps the amount of non-concessional contributions made in each financial year. However, individuals can ‘bring forward’ their non-concessional contributions from two future years if they meet certain eligibility criteria.

4.26                These criteria include the requirement that an individual is under 67 years of age in the financial year in which they make the contribution.

4.27                The amendments in this Schedule increase that the cut-off age for accessing the bring forward rule from 67 to 75 years. [Schedule 4, item 4, section 292-85(3)(c)]

4.28                This means that individuals aged 67 to 74 years (inclusive) who were not previously able to bring forward non-concessional contributions due to their age may do so, starting in the 2022-23 financial year. [Schedule 4, item 4]

4.29                Noting that individuals aged 75 and over are generally precluded from making voluntary contributions to superannuation, the amendments provided by this Schedule are not intended to enable individuals approaching 75 years of age to bring forward non-concessional contributions from future years (i.e. during which they will be aged 75 years or over) where they will not have eligible cap space. Individuals will only be able to access the bring forward arrangements for years in which they have cap space.

Application and transitional provisions

4.30                The amendments provided by this Schedule commence from the first day of the first quarter after the day the Bill receives Royal Assent.

4.31                The amendments apply to contributions made on or after 1 July 2022. [Schedule 4, item 5]



Chapter 5         

Segregated current pension assets

Outline of chapter

5.1                    Schedule 5 to the Bill amends the ITAA 1997 to allow superannuation trustees to choose their preferred method of calculating exempt current pension income when they have member interests in both accumulation and retirement phases at one time, but only retirement phase interests at another time, during an income year.

5.2                    These amendments provide superannuation trustees with greater choice in how they calculate exempt current pension income and minimise the complexity and cost in a fund’s reporting.

5.3                    All legislative references in this Chapter are to the ITAA 1997 unless otherwise stated.

Context of amendments

Existing law

5.4                    Income that a superannuation fund derives from assets that is used to discharge its liabilities in respect of superannuation income stream benefits that are in retirement phase is exempt income. This type of income is known as exempt current pension income. Currently under the ITAA 1997, there are two methods for calculating exempt current pension income, the segregated method and the proportionate method.

Segregated method

5.5                    If a fund has segregated current pension assets, then the exempt current pension income must be calculated by the segregated method under section 295-385. Under subsection 295-385(3), assets of a superannuation fund are segregated current pension assets when assets are held separate from any other assets the fund holds and used for the sole purpose of discharging the liabilities of superannuation income stream benefits of retirement phase income streams. These assets are held separately from any assets the fund holds supporting accumulation phase interests.

5.6                    When using the segregated method, the fund’s exempt current pension income is equal to the value of the ordinary and statutory income derived from the funds segregated current pension assets. If all of a fund’s assets are supporting superannuation income streams that are in retirement phase (that is, the fund has no unallocated reserves and no amount of assets in excess of the amount actuarially determined to be necessary to discharge its liabilities in respect of any defined benefit pensions) at any point in an income year the fund is required to use the segregated method to calculate exempt current pension income for the period or periods of time that the fund was fully in retirement phase.

Proportionate method

5.7                    To the extent that a fund does not have segregated current pension assets, then the fund’s exempt current pension income must be calculated by the proportionate method under section 295-390.

5.8                    Under the proportionate method the fund’s exempt current pension income is calculated based on the proportion of the fund’s total liabilities (‘average value of superannuation liabilities’) that are current pension liabilities (‘average value of current pension liabilities’). If a fund has segregated current pension assets for any period of time in the income year then the liabilities in respect of which those segregated current pension assets are held cannot be included in a fund’s average value of current pension liabilities or the fund’s average value of superannuation liabilities.

5.9                    The formula to calculate exempt current pension income using the proportionate method is:

5.10                Where a superannuation fund discharges part of its current pension liabilities from current pension assets and part from other assets then under the current law the fund must use the segregated method to calculate part of its exempt current pension income and the proportionate method to calculate the remainder. Income that is exempted under the segregated method cannot be exempted using the proportionate method.

5.11                A fund using the proportionate method will be required to change its calculation method if the fund’s assets are held solely to discharge liabilities in relation to retirement phase interests for part of the income year. In this situation, the fund will calculate its exempt current pension income using the proportionate method for the first part of the income year and segregated for the other part.

Determining which method to use

5.12                A trustee is required to use the segregated method when a fund is fully in retirement phase at any time in an income year. A fund is fully in retirement phase when all of the fund’s assets are held solely to discharge liabilities in relation to retirement phase interests.  If a fund is fully in retirement phase at any time in the income year then the fund must calculate its exempt current pension income using the segregated method for that period.

ATO Law Companion Ruling 2016/8

5.13                On 8 March 2017, the ATO finalised Law Companion Ruling 2016/8 Superannuation reform: transitional CGT relief for complying superannuation funds and pooled superannuation trusts (LCR 2016/8). In LCR 2016/8, the ATO set out the view that where a fund’s assets are held solely to discharge liabilities in relation to retirement phase interests for any part of the income year, those assets are segregated current pension assets for that period.  In accordance with that view, the fund must use the segregated method to calculate its exempt current pension income for that part of the income year. Assets of a fund will not be segregated current pension assets where they are held in an unallocated reserve or are used to support defined benefit pensions where the assets are in excess of the amount actuarially determined to be necessary to discharge its liabilities in respect of those pensions.

5.14                Currently, this leads to unnecessarily complicated compliance obligations.    Rather than being required to use different methods to calculate exempt current pension income for different periods in the same income year, it may simplify compliance obligations if, in such circumstances, trustees could choose to apply the proportionate method for the whole of the income year based on a single actuary’s certificate.

Summary of new law

5.15                The Bill amends section 295-385 so that superannuation trustees can choose to treat all of the funds assets as not being segregated current pension assets for an income year if all of the fund’s assets are held solely to discharge liabilities in relation to retirement phase interests for part of that income year.

Detailed explanation of new law

5.16                Schedule 5 to the Bill amends the definition of segregated current pension assets in section 295-385 of the ITAA 1997 so that trustees can choose to treat all of a funds assets as not being segregated current pension assets in certain circumstances. 

5.17                Specifically, a superannuation trustee can choose to treat all of the fund’s assets as not being segregated current pension assets if all of the fund’s assets are held solely to discharge liabilities in relation to retirement phase interests for part, but not all, of the income year. [Schedule 5, item 1, sections 295-385(8)-(10)].

5.18                By choosing to treat a fund’s assets as not being segregated current pension assets, a trustee can use the proportionate method when calculating all of the fund’s exempt current pension income for the year. It is expected that allowing this choice will minimise the complexity for trustees and reduce the associated reporting costs for funds.

5.19                In line with current industry practice trustees will choose which method to use and calculate its exempt current pension income before submitting the fund’s income tax return. This choice is not a formal election and does not have to be submitted to the ATO. However, it is expected that trustees will keep a record of any choice they make and the details of the calculation they use. The general rules for amending income tax returns will apply in relation to calculations of exempt current pension income meaning that if a fund makes an error they are able to amend their return after it has been lodged. 

5.20                If the trustee for an eligible fund does not make a choice then, consistent with the existing law, the fund’s ECPI will be calculated using the segregated method for any period of the income year where all of the interests in the fund are in retirement phase for some, but not all of the financial year.

5.21                In practice a trustee will only be able to exercise this choice if all of the interests in the fund are in retirement phase for some, but not all of the income year and all of the income derived from the fund’s assets is supporting retirement phase income stream benefits payable from an allocated pension, market linked pension or an account-based pension.

Application and transitional provisions

5.22                The Bill commences on the first 1 January, 1 April, 1 July or 1 October after the day this Act receives Royal Assent and the amendments will apply to the 2021-22 income year and later income years. [Schedule 5, item 2]



Outline of chapter

6.1                    Schedule 6 to the Bill amends the income tax law to extend the temporary full expensing regime by 12 months, until 30 June 2023.

Context of amendments

6.2                    In 2020, the Government introduced temporary tax incentives to support Australian businesses withstand the impacts of COVID-19, invest, grow and create more jobs. One of these temporary tax incentives was temporary full expensing.

6.3                    Temporary full expensing supports businesses that invest as it significantly reduces the after-tax cost of eligible assets, providing a cash flow benefit. Temporary full expensing also creates a strong incentive for businesses to bring forward investment to access the tax benefit before it expires.

6.4                    Under the current law the temporary full expensing regime will end on 30 June 2022.

6.5                    For most entities, temporary full expensing is contained in Subdivision 40-BB of the ITTP Act. However, for small business entities (with an aggregated turnover of less than $10 million) that choose to apply the simplified depreciation rules, temporary full expensing is contained in modifications to those rules made by sections 328-180 and 328-181 of the ITTP Act.

6.6                    The Government announced in the 2021-22 Budget that it will extend the temporary full expensing regime by 12 months. This means it will end on 30 June 2023.

6.7                    The 12-month extension will provide eligible businesses with more time to access the tax incentive, including projects that require longer planning times and those affected by COVID-19 related supply disruptions.

Summary of new law

6.8                    Schedule 6 to the Bill extends the temporary full expensing regime by 12 months, until 30 June 2023. 

Comparison of key features of new law and current law

New law

Current law

Temporary full expensing is available until 30 June 2023.

Temporary full expensing is available until 30 June 2022.

Detailed explanation of new law

6.9                    Schedule 6 to the Bill amends the income tax law to extend the temporary full expensing regime by 12 months. Other than the extension, the operation of the temporary full expensing regime remains the same.

6.10                After 30 June 2023, the amount that can be deducted for the decline in value of depreciating assets will generally be worked out under the uniform capital allowance rules, subject to any adjustments required under section 40-180 of the ITTP Act.

Entities (other than entities that apply the small business simplified depreciation rules)

6.11                As a result, businesses with aggregated turnover below $5 billion (and corporate tax entities that meet the alternative eligibility test) can deduct the full cost of eligible depreciating assets of any value that are first held, and first used or installed ready for use for a taxable purpose between the 2020 budget time and 30 June 2023. The cost of improvements to existing eligible depreciating assets made during this period can also be fully deducted. [Schedule 6, items 1 to 3, subsection 40-150(1), paragraphs 40-160(3)(a) and (b), and paragraph 40-175((b) of the ITTP Act]

Small business entities that apply the simplified depreciation rules

6.12                Under the current temporary full expensing regime small business entities (with an aggregated turnover of less than $10 million) that choose to apply the small business simplified depreciation rules, access temporary full expensing through modifications made to those rules. The ‘lock out’ rules that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out of the regime continue to be suspended for income years that include 30 June 2023.

6.13                As a result, small businesses deduct the full cost of eligible depreciating assets of any value that are first held, and first used or installed ready for use for a taxable purpose between the 2020 budget time and 30 June 2023. The cost of improvements to existing eligible depreciating assets made during this period can also be fully deducted. Small businesses will also deduct the balance of their general small business pool between the 2020 budget time and 30 June 2023. [Schedule 6, items 4 to 9, subsection 328-180(1), the headings to sections 328-180 and 328-181, subsections 328-181(2) and (3), and paragraph 328-181(5)(b) of the ITTP Act]

Application and transitional provisions

6.14                Schedule 6 to the Bill commences on the first day of the first quarter following Royal Assent.

 

 



Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Schedule 1 - Removing the monthly minimum threshold for salary or wages to count towards the superannuation guarantee

7.1                    Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.2                    Schedule 1 to the Bill amends the SGAA to remove the $450-a-month threshold before an employee’s salary or wages count towards the Superannuation Guarantee.

7.3                    Removing the $450-a-month threshold will expand the coverage of the Superannuation Guarantee to eligible employees earning salary or wages less than $450 in a calendar month from a single employer.

Human rights implications

7.4                    Schedule 1 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.5                    Schedule 1 to the Bill is compatible with human rights as it does not raise any human rights issue .

Schedule 2 - First home super saver scheme maximum releasable amount

7.6                    Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.7                    Schedule 2 to the Bill amends the TAA 1953 to increase the limit on the maximum amount of voluntary contributions made over multiple financial years that can be released under the First Home Super Saver Scheme from $30,000 to $50,000.

7.8                    This amendment ensures that the First Home Super Saver Scheme continues to help first home buyers save more quickly for the purpose of purchasing or constructing their first home.

Human rights implications

7.9                    Schedule 2 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.10                Schedule 2 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 3 - Reduced eligibility age for downsizer contributions

7.11                Schedule 3 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.12                Schedule 3 to the Bill amends the ITAA 1997 to extend access for individuals to make downsizer contributions to their superannuation plan from the proceeds of selling their home by reducing the eligibility age from 65 to 60 years.

Human rights implications

7.13                Schedule 3 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.14                Schedule 3 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 4 - Repealing the work test for superannuation contributions

7.15                Schedule 4 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.16                Schedule 4 to the Bill amends the ITAA 1997 to apply the work test to individuals aged between 67 to 75 years who claim a deduction for personal superannuation contributions.

7.17                Schedule 4 to the Bill also amends the ITAA 1997 to allow such individuals to make or receive non-concessional superannuation contributions under the bring forward rule.

Human rights implications

7.18                Schedule 4 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.19                Schedule 4 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 5 - Segregated current pension assets

7.20                Schedule 5 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.21                Schedule 5 to the Bill amends the ITAA 1997 to allow superannuation trustees to choose their preferred method of calculating exempt current pension income when they have interests in both accumulation and retirement phases during the income year.

7.22                These amendments will provide superannuation trustees with greater choice in how they calculate exempt current pension income and minimise the complexity and cost in a fund’s reporting.

Human rights implications

7.23                Schedule 5 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.24                Schedule 5 to the Bill is compatible with human rights as it does not raise any human rights issues.

Schedule 6 - Extension of temporary full expensing of depreciating assets 

7.25                Schedule 6 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

7.26                Schedule 6 to the Bill amends the temporary full expensing provisions in the income tax law to extend the tax incentive by 12 months. This allows businesses with an aggregated turnover of less than $5 billion (and corporate tax entities that meet the alternative eligibility test) to deduct the full cost of eligible depreciating assets that are first held, and first used or installed ready for use for a taxable purpose, between the 2020 budget time and 30 June 2023. Businesses are also able to deduct the full cost of improvements to these assets and to existing eligible depreciating assets made during this period.

Human rights implications

7.27                Schedule 6 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

7.28                Schedule 6 to the Bill is compatible with human rights as it does not raise any human rights issues.

 




[1]     Estimates based on ATO Single Touch Payroll data for July 2019, provided to the Retirement Income Review, published in the Retirement Income Review - Final Report. Canberra: Commonwealth of Australia, 2020, pp 298, 301.

[2]     Ibid, pp 45, 300-301.

[3] Retirement Income Review - Final Report. Canberra: Commonwealth of Australia, 2020, p 43.