Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
Tax laws amendment (2009 budget measures no. 1) bill 2009
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 5
General outline and financial impact 7
Chapter 1 Exemption of income earned in overseas employment 9
Chapter 2 Temporary reduction in the Government co-contribution 21
Chapter 3 Reduction in the concessional contributions cap 27
Index 33
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|APS |Australian Public Service |
|AusAID |Australian Agency for |
| |International Development |
|AWOTE |average weekly ordinary time |
| |earnings |
|Co-contribution Act |Superannuation (Government |
| |Co-contribution for Low |
| |Income Earners) Act 2003 |
|FBT |fringe benefits tax |
|FITO |foreign income tax offset |
|ITAA 1936 |Income Tax Assessment Act |
| |1936 |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
|ODA |official development |
| |assistance |
|PAYG |pay as you go |
General outline and financial impact
Exemption of income earned in overseas employment
Schedule 1 amends section 23AG of the Income Tax Assessment Act
1936, to limit its scope to foreign employment income derived by
Australian resident individuals only in specific circumstances.
Date of effect: This measure will take effect from 1 July 2009.
Proposal announced: This measure was announced in the Treasurer's
Media Release No. 066 of 12 May 2009.
Financial impact: This measure is expected to provide an
additional $675 million over the forward estimates period.
Compliance cost impact: Low.
Summary of regulation impact statement
Regulation impact on business
Impact: Low.
Main points:
. Employers of individuals whose foreign employment income
is not exempt will be required to comply with the pay as
you go withholding rules.
. Employers of individuals whose foreign employment income
is not exempt will be required to comply with the Fringe
Benefits Tax Assessment Act 1986 in relation to any fringe
benefits provided to those employees.
Temporary reduction in the Government co-contribution
Schedule 2 to this Bill will temporarily reduce the matching rate
and maximum co-contribution that is payable on an individual's
eligible personal superannuation contributions.
Date of effect: This measure will take effect for the 2009-10 and
later income years.
Proposal announced: This measure was announced in the 2009-
10 Budget.
Financial impact: This measure is expected to result in a $1.395
billion fiscal saving over the forward estimates period.
|2008-09 |2009-10 |2010-11 |2011-12 |2012-13 |
|Nil |$385m |$395m |$410m |$205m |
Compliance cost impact: Low.
Reduction in the concessional contributions cap
Schedule 3 to this Bill will reduce the concessional contributions
cap to $25,000 per annum (indexed) from the 2009-10 financial year.
The reduced cap will apply to all concessional superannuation
contributions made in the 2009-10 and later financial years.
Schedule 3 to this Bill will also reduce the transitional
concessional contributions cap (applicable to individuals aged 50
and over) to $50,000 per annum (not indexed) for the 2009-10, 2010-
11 and 2011-12 financial years.
Date of effect: This measure will take effect from 1 July 2009.
Proposal announced: This measure was announced in the 2009-
10 Budget.
Financial impact: This measure is expected to result in a $2.81
billion revenue saving over the forward estimates period.
|2008-09 |2009-10 |2010-11 |2011-12 |2012-13 |
|Nil |$625m |$640m |$720m |$825m |
Compliance cost impact: Low.
Chapter 1
Exemption of income earned in overseas employment
Outline of chapter
1. Schedule 1 to this Bill inserts subsection 23AG(1AA) into the
Income Tax Assessment Act 1936 (ITAA 1936). All legislative
references are to the ITAA 1936 unless otherwise stated.
Context of amendments
2. The taxation of income in Australia is principally determined on
the basis of whether the entity is an Australian resident or a
foreign resident. Generally, Australian residents are taxed on
their worldwide income whereas foreign residents are taxed only on
income sourced in Australia.
3. The definition of 'resident of Australia' for taxation purposes is
contained in subsection 6(1). In the case of an individual, a
person's nationality or citizenship is not necessarily a
determinative factor when considering whether or not the person is
a resident of Australia for tax purposes.
4. Section 23AG provides an exception to the general rule that
Australian residents are taxed on their worldwide income. It
provides an exemption from Australian income tax for income earned
in overseas employment by an Australian resident individual engaged
in continuous foreign service for a period of not less than 91
days. The provision has broad application, in that it is not
restricted to foreign employment income derived from specific
activities.
5. Section 23AG provides a mechanism for the relief of double taxation
but it does not contain a requirement that foreign tax is paid in
order for the exemption to apply. This can produce non-neutral tax
outcomes between individuals working in different countries, with
different tax rates, and between individuals working overseas and
individuals working in Australia.
6. This Schedule will improve the targeting of this exemption while
avoiding double taxation.
7. Existing rules that can operate to deny the exemption will continue
to apply under the new rules.
Summary of new law
8. This Schedule amends section 23AG, to limit its scope to foreign
employment income derived by Australian resident individuals only
in specific circumstances.
9. Foreign earnings derived by an Australian resident individual
engaged in continuous foreign service for not less than 91 days
will only be eligible for exemption from income tax if the foreign
service is directly attributable to any of the following:
. the delivery of Australia's overseas aid program by the
individual's employer;
. the activities of the individual's employer in operating a
developing country relief fund or a public disaster relief
fund;
. the activities of the individual's employer being a
prescribed institution that is exempt from Australian
income tax;
. the individual's deployment outside Australia by an
Australian government (or an authority thereof) as a
member of a disciplined force; or
. an activity of a kind specified in the regulations.
10. However, the existing conditions for exemption will continue to
apply. In particular, the foreign earnings of individuals engaged
in foreign service that are directly attributable to one of the
activities referred to in subsection 23AG(1AA) will not be exempt
if one of the conditions for non-exemption contained in subsection
23AG(2) applies.
11. Subsection 23AG(2) applies, to deny an exemption, if the foreign
earnings are exempt from tax in the foreign country only because of
one or more of the following reasons:
. a double tax agreement with Australia or a law giving
effect to a double tax agreement;
. the foreign country does not impose income tax on
employment or personal services income, or similar income;
or
. a law of the foreign country or an international agreement
to which Australia is a party, which deals with diplomatic
or consular privileges and immunities, or privileges and
immunities for people connected with international
organisations (such as the United Nations).
For example, an exemption may be denied where the foreign earnings
are exempt from tax in the foreign country only because of the
operation of a double tax agreement.
12. However, subsection 23AG(2) does not apply to deny an exemption if
the foreign earnings are exempt from tax in the foreign country for
a reason other than, or in addition to, those listed above. For
example, the income may be exempt in the foreign country because of
the application of a double tax agreement and because of an
agreement between the government of that country and an
international aid organisation. These rules will continue to
apply.
13. Foreign employment income that is not exempt under the new rules
may be subject to Australian income tax. In such cases, taxpayers
will be eligible to claim a non-refundable foreign income tax
offset (FITO) for foreign income tax paid on that income. This
will relieve double taxation for those individuals.
14. The FITO rules apply to income years beginning on or after 1 July
2008 and are contained in Division 770 of the Income Tax Assessment
Act 1997 (ITAA 1997). The FITO rules replaced the former foreign
tax credit system and were designed to provide taxpayers with a
simplified way of claiming relief for foreign income taxes paid on
amounts included in their assessable income in Australia.
15. The new rules do not change the definitions of 'foreign earnings'
and 'foreign service' contained in subsection 23AG(7).
Other obligations
16. From 1 July 2009, employers of individuals who derive non-exempt
foreign employment income will be required to withhold amounts from
salaries, wages, allowances, bonuses and commissions paid to their
foreign-based employees under the pay as you go (PAYG) withholding
rules. Where the income is currently exempt this would not occur
because no amount is required to be withheld from payments of
exempt income. The PAYG withholding rules are contained in
Division 12 of the Taxation Administration Act 1953.
17. In addition, fringe benefits tax (FBT) obligations may arise in
respect of benefits provided by employers to their foreign-based
employees, pursuant to the Fringe Benefits Tax Assessment Act 1986.
For FBT purposes, a person is regarded as an employee if the
person receives salary and wages, which is in turn defined to
include a payment from which an amount is withheld under the PAYG
withholding rules. Thus, fringe benefits provided to employees
whose foreign employment income is exempt under section 23AG are
not subject to FBT, but fringe benefits provided to employees whose
foreign employment income is not exempt under section 23AG may be
subject to FBT.
Comparison of key features of new law and current law
|New law |Current law |
|Subject to certain |Subject to certain |
|existing conditions, |conditions, foreign |
|foreign employment income|employment income derived|
|derived by an Australian |by an Australian resident|
|resident individual will |individual is exempt from|
|only be exempt from |Australian income tax. |
|income tax if it is |This exemption is not |
|derived in the person's |limited to foreign |
|capacity as: |employment income derived|
|an aid worker employed in|from specific employment |
|the delivery of |activities. |
|Australian official | |
|development assistance; | |
|an aid or charitable | |
|worker employed by an | |
|organization in providing| |
|overseas aid relief; | |
|a specified government | |
|employee deployed | |
|overseas as a member of a| |
|disciplined force; or | |
|an employee undertaking | |
|an activity of a kind | |
|specified in the | |
|regulations. | |
Detailed explanation of new law
Eligibility for exemption
18. Foreign earnings derived by an Australian resident individual from
continuous foreign service of not less than 91 days will only be
exempt from income tax if the foreign service is directly
attributable to any of the following:
. the delivery of Australian official development assistance
by the person's employer;
. the activities of the person's employer in operating a
public fund declared by the Treasurer to be a developing
country relief fund; or a public fund established and
maintained to provide monetary relief to people in a
developing country that has experienced a disaster;
. the activities of the person's employer, being a
prescribed institution that is exempt from Australian
income tax;
. the person's deployment outside Australia as a member of a
disciplined force by the Commonwealth, a State or
Territory (or an authority of the Commonwealth, a State or
a Territory); or
. an activity of a kind specified in the regulations.
[Schedule 1, item 1, subsection 23(1AA)]
Australian official development assistance
19. Australian official development assistance (ODA) is assistance
delivered through the Australian Government's overseas aid program,
as administered by the Department of Foreign Affairs and Trade
and/or the Australian Agency for International Development
(AusAID). Australian ODA aims to reduce poverty and achieve
sustainable development in developing countries, in line with
Australia's national interest.
20. In addition to providing Australian ODA directly, AusAID also
competitively contracts aid work to Australian and international
entities. Thus, in practice, individuals involved in the delivery
of Australian ODA can include both Australian Public Service (APS)
employees and non-APS employees.
21. For the purposes of subsection 23AG(1AA) the delivery of Australian
ODA must be undertaken by the person's employer, which includes
AusAID and an entity contracted by AusAID to assist in the delivery
of Australian ODA.
1.
Colin is an APS employee employed by AusAID. He is posted
to the Cook Islands, for 120 continuous days, as a project
advisor on an Australian ODA project aimed at improving the
quality of early childhood education.
Colin's foreign service is directly attributable to the
delivery of Australian ODA by his employer and his foreign
earnings are therefore eligible for exemption pursuant to
section 23AG, subject to the conditions contained in
subsection 23AG(2).
2.
Robert is an APS employee employed by the Commonwealth
Department of Climate Change. He is posted to Tokelau for
150 continuous days, to work on a project aimed at
minimising the impacts of rising sea levels in Tokelau.
Robert is not an AusAID employee but the project is
classified as Australian ODA by AusAID. Robert's foreign
service is directly attributable to the delivery of
Australian ODA by his employer and his foreign earnings are
therefore eligible for exemption pursuant to section 23AG,
subject to the conditions contained in subsection 23AG(2).
3.
Eli is a motor mechanic employed by Emu Engineering Pty Ltd,
a private company contracted by AusAID to provide vocational
training in Vanuatu. He is posted to Vanuatu for 180
continuous days.
Eli's foreign service is directly attributable to the
delivery of Australian ODA by his employer and his foreign
earnings are therefore eligible for exemption pursuant to
section 23AG, subject to the conditions contained in
subsection 23AG(2).
22. Foreign service directly attributable to the delivery of Australian
ODA does not include diplomatic or consular duties carried out by
Australian residents.
Employer operating a public fund
23. A person's foreign earnings will be eligible for exemption if they
are directly attributable to their employer's activities in
operating a public fund covered by item 9.1.1 or 9.1.2 of the table
in subsection 30-80(1) of the ITAA 1997. [Schedule 1, item 1,
paragraph 23AG(1AA)(b)]
24. Item 9.1.1 of subsection 30-80(1) of the ITAA 1997 applies to a
public fund declared by the Treasurer to be a developing country
relief fund. Item 9.1.2 of subsection 30-80(1) applies to a public
fund operated by a public benevolent institution solely to provide
relief to people of a developing country who are in distress as a
result of a disaster (a public disaster relief fund). Gifts or
donations made to these public funds are tax deductible for income
tax purposes to the donor.
25. A developing country relief fund is a fund established by an
organisation solely for the purpose of providing relief to people
of a developing country. The organisation must be an approved
organisation as declared by the Minister for Foreign Affairs and
the country must be a developing country as declared by the
Minister for Foreign Affairs. These conditions are contained in
paragraphs 30-85(2)(a) and (b) of the ITAA 1997 respectively.
26. A public disaster relief fund is a fund established and operated by
a public benevolent institution in response to an event recognised
as a disaster by the Minister for Foreign Affairs. The recognition
requirement is contained in section 30-86 of the ITAA 1997.
27. Paragraph 23AG(1AA)(b) ensures that employees of recognised
organisations that undertake aid or charitable activities, that do
not form part of Australian ODA, are eligible for exemption on
their relevant foreign employment income.
1.
Kate is a social worker employed by a charitable
organisation that operates a fund approved as a developing
country relief fund by the Treasurer.
Kate is posted to Nigeria for 120 days to help provide
relief to people in distress.
Kate's foreign earnings are eligible for exemption pursuant
to section 23AG, subject to the conditions contained in
subsection 23AG(2).
Employer is an exempt institution for income tax purposes
28. A person's foreign earnings will be eligible for exemption if the
foreign service is directly attributable to their employer's
activities as an institution covered by paragraph (c) or (d) of
section 50-50 of the ITAA 1997. [Schedule 1, item 1, paragraph
23AG(1AA)(c)]
29. These paragraphs apply to a prescribed charitable or religious
institution that is exempt from Australian income tax pursuant to
item 1.1 or 1.2 of section 50-5 of the ITAA 1997. Such
organisations are either located outside Australia or have a
physical presence in Australia but incur their expenditure and
pursue their objectives principally outside Australia.
30. Paragraph 23AG(1AA)(c) ensures that employees of recognised
organisations that undertake aid or charitable activities, that do
not form part of Australian ODA, are eligible for exemption on
their relevant foreign employment income.
Foreign deployment as a member of a disciplined force
31. A person's foreign earnings will be eligible for exemption if the
foreign service is directly attributable to that person's
deployment outside Australia as a member of a disciplined force by
an Australian government, or an authority thereof. A disciplined
force is intended to refer to a defence force, including a
peacekeeping force, and a police force.
32. In a defence force context, the exemption would apply to a person's
deployment outside Australia as part of a non-warlike operation.
In a police force context, the exemption would apply to Australian
Federal Police employees deployed on an International Deployment
Group mission who are subject to Commanders Orders to achieve
operational policing outcomes. [Schedule 1, item 1, paragraph
23AG(1AA)(d)]
Other specified activities
33. The new rules will permit the making of regulations to include
other specified activities within the scope of subsection
23AG(1AA). [Schedule 1, item 1, paragraph 23AG(1AA)(e)]
34. This will enable the scope of the exemption to be broadened, if
necessary, beyond the specific categories listed.
Continuous period of foreign service must be directly attributable
to certain activities
35. Subsection 23AG(1AA) will apply where an individual undertakes a
continuous period of foreign service of 91 days or more and the
foreign service relates to more than one of the activities listed
in paragraphs (a) to (e).
1.
Lisa is an APS employee employed by AusAID. On 1 July 2009
Lisa is posted to Tonga for 45 days, as a project advisor on
an Australian ODA project.
At the end of the 45 day posting, Lisa resigns from AusAID
and takes up a position as an aid worker in Tonga, employed
by a prescribed charitable institution covered by paragraph
23AG(1AA)(c). Lisa remains in her new position for another
100 days.
Lisa's continuous period of foreign service for the purpose
of subsection 23AG(1AA) is 145 days and her foreign earnings
are eligible for exemption pursuant to section 23AG, subject
to the conditions contained in subsection 23AG(2).
2.
As in the above example, Lisa resigns from AusAID at the end
of her 45 day posting. However, rather than commencing work
as an aid worker, Lisa takes up permanent employment with a
bank in Tonga.
Lisa's continuous period of foreign service in Tonga exceeds
91 days but none of her foreign earnings are eligible for
exemption because she did not attain 91 days of continuous
foreign service in relation to an activity covered by
subsection 23AG(1AA).
Application and transitional provisions
36. The new rules apply to foreign earnings derived on or after 1 July
2009 from foreign service performed on or after 1 July 2009.
Foreign earnings derived on or before 30 June 2009 will remain
eligible for exemption under the existing rules and foreign service
performed on or after 1 July 2009 will be included in the
calculation of the period of continuous foreign service, even where
the foreign earnings derived on or after 1 July 2009 are no longer
exempt. [Schedule 1, item 2, paragraphs 2(a) and (b) and subitem
3]
1.
Wallace is an Australian resident employed by a Thai company
to work in Bangkok from 1 June 2009 to 30 September 2009.
His foreign earnings are not directly attributable to any of
the activities covered by new subsection 23AG(1AA).
Wallace's foreign earnings derived after 1 July 2009 will
not be eligible for exemption under the new rules. However,
Wallace's foreign earnings in respect of foreign service
performed before 1 July 2009 will remain eligible for
exemption because his total foreign service from 1 June to
30 September exceeded 91 consecutive days.
37. Foreign earnings paid to an individual on or after 1 July 2009 in
respect of foreign service performed before 1 July 2009 will remain
eligible for exemption under the existing rules.
1.
Jennelle has been engaged in continuous foreign service
since 1 February 2009. Her foreign earnings are not
directly attributable to any of the activities covered by
new subsection 23AG(1AA).
On 1 July 2009 Jennelle is paid in respect of foreign
service performed during the month of June 2009. Her
foreign earnings for the month of June 2009 remain eligible
for exemption notwithstanding the fact that they were paid
on 1 July 2009.
However, Jennelle's foreign earnings derived in respect of
foreign service performed on or after 1 July 2009 are not
eligible for exemption because they are not directly
attributable to any of the activities covered by new
subsection 23AG(1AA).
Consequential amendments
38. There are no consequential amendments arising from Schedule 1.
Regulation impact statement
Policy objective
39. The objective of the proposed amendment to section 23AG is to
minimise the potential for inequity between individuals working in
different countries, with different tax rates, and between
individuals working overseas and individuals working in Australia.
40. This is consistent with the general principle that individuals who
are Australian residents for tax purposes should pay tax on their
worldwide income.
Implementation options
41. Only one option was examined in detail - to limit the scope of the
current tax exemption to only apply to individuals engaged in a
narrow range of employment activities, namely any of the following:
. the delivery of Australia's overseas aid program by the
individual's employer;
. the activities of the individual's employer in operating a
developing country relief fund or a public disaster relief
fund;
. the activities of the individual's employer being a
prescribed tax-exempt institution;
. the individual's deployment outside Australia by an
Australian government (or an authority thereof) as a
member of a disciplined force; or
. an activity of a kind specified in the regulations.
Assessment of impacts
Impact group identification
42. The proposed amendments will affect Australian resident individuals
who derive foreign employment income, which will no longer be
exempt under the new rules. They may also impose withholding and
reporting obligations on the Australian employers of those
individuals.
Analysis of costs/benefits
Individuals
43. Some Australian resident individuals will no longer be entitled to
an exemption in respect of their foreign employment income. Such
income will be taxable in Australia in accordance with the
principle that Australian residents should pay Australian tax on
their worldwide income.
Employers
44. Employers of those individuals who will no longer be exempt from 1
July 2009 will be required to comply with the PAYG withholding
rules. That is, those employers, as payers, will be required to
withhold amounts from the payments they make to their employees, in
accordance with Division 12 of the Taxation Administration Act
1953, and remit those amounts to the Commissioner of Taxation. No
PAYG withholding obligations exist in relation to payments of
exempt income.
45. Employers of those individuals who are no longer exempt from 1 July
2009 will be required to comply with the Fringe Benefits Tax
Assessment Act 1986 in relation to any fringe benefits provided to
those employees. No FBT liability arises in relation to payments
of exempt income.
46. These obligations would arise as a direct consequence of the loss
of the tax exemption for the employees.
Australian Taxation Office
47. The proposed amendments are expected to lower administrative costs
for the Australian Taxation Office in the long term.
48. The Australian Taxation Office currently devotes significant
resources to providing interpretive advice on the operation of
section 23AG. While this is likely to continue upon implementation
of the new rules, the number of individuals who will be eligible
for an exemption from 1 July 2009 will decrease over time, thereby
resulting in fewer requests for interpretive advice.
Consultation
49. The proposed amendments were announced by the Treasurer on 12 May
2009, as part of the 2009-10 Budget. Public consultation was
undertaken but the consultation period was necessarily short so as
to facilitate the introduction of this Bill into Parliament in the
2009 Winter Parliamentary sitting.
Conclusion and recommended option
50. Limiting the scope of the tax exemption provided by section 23AG,
as proposed, will help maintain the integrity of the tax system by
ensuring that most Australian resident individuals face the same
tax burden in relation to their worldwide income.
Do not remove section break.
Outline of chapter
51. Schedule 2 to this Bill amends the Superannuation (Government Co-
contribution for Low Income Earners) Act 2003 (Co-contribution Act)
to reduce the matching rate and maximum co-contribution for
eligible personal superannuation contributions made in the 2009-10,
2010-11, 2011-12, 2012-13 and 2013-14 income years.
Context of amendments
52. The co-contribution matches eligible personal superannuation
contributions made by low to middle income earners. Since 1 July
2004, the matching rate and maximum co-contribution payable have
been 150 per cent and $1,500, reduced by 5 cents for each dollar by
which the individual's total income for the income year exceeds the
lower co-contribution income threshold in the relevant year. The
lower income threshold is $31,920 for 2009-10.
53. In the 2009-10 Budget, the Government announced a temporary
reduction in the matching rate and maximum Government co-
contribution payable for eligible personal superannuation
contributions. The matching rate and maximum co-contribution will
revert back to the levels of the 2008-09 income year in the 2014-15
income year and for later income years.
Summary of new law
54. The Government will reduce the matching rate and maximum co-
contribution that is payable on an individual's eligible personal
superannuation contributions made in the 2009-10, 2010-11, 2011-12,
2012-13 and 2013-14 income years.
Comparison of key features of new law and current law
|New law |Current law |
|For the 2009-10, 2010-11, |Eligible personal |
|2011-12 income years, |superannuation contributions |
|eligible personal |made since the 2004-05 income|
|superannuation contributions |year are matched by the |
|will be matched at one dollar|Government at $1.50 for each |
|for every dollar contributed |dollar contributed up to a |
|up to the maximum |maximum Government |
|co-contribution of $1,000 for|contribution of $1,500. |
|individuals on incomes at or |The maximum co-contribution |
|below the lower income |is payable for individuals on|
|threshold. The maximum |incomes at or below the lower|
|co-contribution will be |income threshold. |
|reduced by 3.333 cents for |For the 2004-05 and later |
|each dollar by which an |income years, the maximum |
|individual's total income for|co-contribution ($1,500) is |
|the income year exceeds the |reduced by 5 cents for each |
|lower income threshold. |dollar by which the |
|For the 2012-13 and 2013-14 |individual's total income for|
|income years, eligible |the income year exceeds the |
|personal superannuation |lower income threshold. |
|contributions will be matched| |
|at $1.25 for every dollar | |
|contributed up to a maximum | |
|co-contribution of $1,250 for| |
|individuals at or below the | |
|lower income threshold. The | |
|maximum co-contribution will | |
|be reduced by 4.167 cents for| |
|each dollar by which the | |
|individual's total income for| |
|the income year exceeds the | |
|lower income threshold. | |
|For the 2014-15 and later | |
|income years, eligible | |
|personal superannuation | |
|contributions will be matched| |
|at $1.50 for each dollar | |
|contributed up to a maximum | |
|Government co-contribution of| |
|$1,500 for individuals on | |
|incomes at or below the lower| |
|income threshold. The | |
|maximum co-contribution will | |
|be reduced by 5 cents for | |
|each dollar by which the | |
|individual's total income for| |
|the income year exceeds the | |
|lower income threshold. | |
|There will be no change to |In 2009-10 the lower and |
|the indexation provisions. |higher income thresholds are |
| |$31,920 and $61,920 |
| |respectively. |
| |The lower income threshold is|
| |indexed annually to average |
| |weekly ordinary time earnings|
| |and the higher income |
| |threshold is increased by the|
| |indexation increase in the |
| |lower income threshold for |
| |that year. |
Detailed explanation of new law
55. The co-contribution is payable for eligible individuals who make
personal undeducted contributions into superannuation. The maximum
co-contribution is payable for individuals whose income is at or
below the lower income threshold. The co-contribution phases out
for individuals whose income is up to the upper income threshold
($61,920 in 2009-10).
56. Subsection 9(1) of the Co-contribution Act sets out the basic rule
for the matching of eligible personal superannuation contributions
by the Government co-contribution.
57. Section 10 of the Co-contribution Act sets out the maximum amount
of the Government co-contribution payable for an individual for an
income year, and the rate at which this amount reduces where an
individual's income is above the lower income threshold.
58. Subsection 9(1) and section 10 will be amended to provide for a
temporary reduction in the co-contribution matching rate and
maximum co-contribution. A corresponding amendment will provide
for the rate at which the maximum co-contribution is reduced where
an individual's income is above the lower income threshold.
59. For the 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 income
years, the Government co-contribution will continue to be equal to
150 per cent of the eligible personal superannuation contributions
made by an individual during those years. [Schedule 2, item 1,
paragraph 9(1)(b)]
60. The maximum Government co-contribution remains at $1,500 for
eligible personal superannuation contributions made in the 2004-05,
2005-06, 2006-07, 2007-08 and 2008-09 income years by individuals
with incomes under the lower income threshold. The maximum co-
contribution in those years will continue to be reduced by 5 cents
for each dollar by which the individual's total income exceeds the
lower income threshold in the relevant year. [Schedule 2, item 4,
subsection 10(1A)]
1.
Kristen and her sister Elicia work for their mother Robyn's
company.
In 2008-09 Kristen makes a $1,000 personal contribution to
superannuation and does not claim a deduction for this
contribution. Her assessable income for that year is less
than the lower income co-contribution threshold. The
Commissioner of Taxation determines that Kristen is eligible
for a Government co-contribution and pays $1,500 into
Kristen's superannuation account.
Elicia also makes a $1,000 personal contribution for which
she does not claim a deduction. Her assessable income
($55,342) in that year is $25,000 greater than the lower
income threshold. The Commissioner of Taxation determines
that Elicia is also eligible for a reduced co-contribution
of $250 and pays this amount into Elicia's superannuation
account.
61. For the 2009-10, 2010-11 or 2011-12 income years, the Government co-
contribution matching rate will be equal to 100 per cent of the
eligible personal superannuation contributions made by an
individual during those years. [Schedule 2, item 3, paragraph
9(1)(c)]
62. For eligible personal superannuation contributions made in the 2009-
10, 2010-11 or 2011-12 income years the maximum Government co-
contribution will be $1,000 for individuals with incomes below the
lower income threshold. The maximum co-contribution will be
reduced by 3.333 cents for each dollar by which the individual's
total income exceeds the lower income threshold in the relevant
year. [Schedule 2, item 5, subsection 10(1B)]
63. For the 2012-13 or 2013-14 income years, the Government co-
contribution matching rate will be equal to 125 per cent of the
eligible personal superannuation contributions made by an
individual during those years. [Schedule 2, item 3, paragraph
9(1)(d)]
64. For eligible personal superannuation contributions made in the 2012-
13 or 2013-14 income years the maximum Government co-contribution
will be $1,250 for individuals with incomes below the lower income
threshold. The maximum co-contribution will be reduced by 4.167
cents for each dollar by which the individual's total income
exceeds the lower income threshold in the relevant year.
[Schedule 2, item 5, subsection 10(1C)]
65. For the 2014-15 and later income years, the Government co-
contribution matching rate will be equal to 150 per cent of the
eligible personal superannuation contributions made by an
individual during those years. [Schedule 2, item 3, paragraph
9(1)(e)]
66. For eligible personal superannuation contributions made in the 2014-
15 and later income years the maximum Government co-contribution
will be $1,500 for individuals with incomes below the lower income
threshold. The maximum co-contribution payable will be reduced by
5 cents for each dollar by which the individual's total income
exceeds the lower income threshold in the relevant year.
[Schedule 2, item 5, subsection 10(1D)]
1.
Following on from Example 2.1, Kristen and Elicia continue
to make $1,000 personal contributions in subsequent years.
Assuming that Kristen's income is always less than or equal
to the lower income threshold and Elicia's income is always
$25,000 greater than the lower income threshold, the
following table sets out the co-contribution that will be
payable to Kristen and Elicia as a result of the amendments
in this Bill.
| |2008-0|2009-1|2010-1|2011-1|2012-1|2013-1|2014-1|
| |9 |0 |1 |2 |3 |4 |5 |
|Kristen's |$1,500|$1,000|$1,000|$1,000|$1,250|$1,250|$1,500|
|co-contribu| | | | | | | |
|tion | | | | | | | |
|Elicia's |$250 |$168 |$168 |$168 |$209 |$209 |$250 |
|co-contribu| | | | | | | |
|tion | | | | | | | |
67. Consistent with the current Co-contribution Act these new
provisions will have effect subject to :
. increases in the lower and higher income threshold
(existing section 10A);
. the payment of a minimum co-contribution (existing
section 11); and
. the treatment of late and under-paid co-contribution
payments (existing sections 12, 21, 22 and 23);
[Schedule 2, item 6, subsection 10(2)]
Application and transitional provisions
68. The amendments made by Schedule 1 will apply to contributions made
in the 2009-10 and later income years. [Schedule 2, item 7]
Chapter 3
Reduction in the concessional contributions cap
Outline of chapter
69. Schedule 3 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) and the Income Tax (Transitional Provisions) Act 1997
to reduce the cap on concessional superannuation contributions.
70. Schedule 3 also amends the ITAA 1997 to make consequential
amendments to the level of the non-concessional contributions cap.
Context of amendments
71. Since 1 July 2007, concessional and non-concessional superannuation
contributions have been subject to annual limits.
72. Concessional contributions are generally those which are included
in the assessable income of a superannuation fund and include
employer contributions (including superannuation guarantee and
salary sacrifice contributions) and tax deductible personal
contributions. Non-concessional contributions are generally those
for which a deduction is not claimed.
73. For contributions made in 2007-08 and 2008-09 financial years, the
concessional contributions cap was $50,000. In addition there is
currently a transitional cap in place for those aged 50 and over,
which allows them to make concessionally taxed contributions of up
to $100,000 annually until 30 June 2012.
74. The non-concessional contributions cap is currently set at three
times the concessional contributions cap.
75. In the 2009-10 Budget the Government announced that the
concessional contributions cap will be reduced to $25,000 (indexed)
for contributions made in 2009-10 and later financial years. The
transitional cap (not indexed) will also be reduced to $50,000 for
contributions made in the 2009-10, 2010-11 and 2011-12 financial
years. These new limits are designed to ensure that superannuation
taxation concessions are targeted appropriately.
76. The non-concessional contributions cap for the 2009-10 and later
financial years will be six times the concessional contributions
cap and will therefore be $150,000 in 2009-10. The non-
concessional contributions cap was also $150,000 in the 2007-08 and
2008-09 financial years.
Summary of new law
77. The ITAA 1997 will be amended to reduce the concessional
contributions cap from $50,000 to $25,000 (indexed) for
concessional contributions made in the 2009-10 and later financial
years.
78. This new contributions cap will be indexed annually to average
weekly ordinary time earnings (AWOTE), rounded down to the nearest
multiple of $5,000.
79. The transitional cap will be reduced from $100,000 to $50,000 and
no indexation will apply. (The transitional cap is not currently
indexed).
80. The non-concessional contributions cap will be six times the new
concessional contributions cap.
Comparison of key features of new law and current law
|New law |Current law |
|The cap for concessional |The cap for concessional |
|contributions to |contributions to |
|superannuation will be |superannuation is $50,000|
|$25,000 per annum for the|per annum indexed to |
|2009-10 and later |AWOTE, and rounded down |
|financial years, indexed |to the nearest multiple |
|to AWOTE, and rounded |of $5,000. |
|down to the nearest | |
|multiple of $5,000. | |
|The transitional cap that|A $100,000 transitional |
|applies to concessional |cap applies annually to |
|contributions made by |concessional |
|individuals aged 50 and |contributions made by |
|over will be $50,000 per |individuals aged 50 and |
|annum, for contributions |over before 1 July 2012. |
|made in the 2009-10, | |
|2010-11 and 2011-12 | |
|financial years. | |
|The annual |The annual |
|non-concessional |non-concessional |
|contributions cap will be|contributions cap is set |
|six times the |as three times the |
|concessional |concessional |
|contributions cap for |contributions cap. It is|
|contributions made in the|$150,000 in 2008-09. |
|2009-10 and future | |
|financial years. It will| |
|be $150,000 in 2009-10. | |
Detailed explanation of new law
81. Since 1 July 2007 superannuation contributions have been subject to
annual caps. Contributions in excess of the relevant caps are
subject to an additional tax. This tax is imposed on the
individual.
Concessional contributions cap
82. For the 2007-08 and 2008-09 financial years a cap of $50,000 per
person per year continues to apply to concessional contributions
made in those years. [Schedule 3, item 1, paragraphs 292-20(2)(a)
and (b) of the ITAA 1997]
83. For the 2009-10 financial year the cap will be $25,000.
[Schedule 3, item 1, paragraph 292-20(2)(c) of the ITAA 1997]
84. For the 2010-11 financial year or later financial years the cap
will be worked out by annually indexing the 2009-10 financial year
cap (that is, $25,000). [Schedule 3, item 1, paragraph 292-
20(2)(d) of the ITAA 1997]
85. The indexation factor will be the proportional change in AWOTE from
the middle month of the December 2008 quarter to the middle month
of the December quarter just before the relevant financial year.
[Schedule 3, item 7, subsection 960-285(3A) of the ITAA 1997]
86. The index number for a quarter will continue to be AWOTE.
Thresholds will continue to be rounded down to the nearest multiple
of $5,000 to ensure the thresholds remain in round figures.
Transitional arrangements for concessional contributions
87. A transitional concessional contributions cap currently applies to
contributions made by individuals aged 50 or over any time between
the financial years 2007-08 and 2011-12.
88. For the 2007-08 and 2008-09 financial years the cap will continue
to be $100,000. [Schedule 3, item 11, paragraphs 292-20(2)(a) and
(b) of the Income Tax (Transitional Provisions) Act 1997]
89. The Income Tax (Transitional Provisions) Act 1997 will be amended
so that for the 2009-10, 2010-11 and 2011-2012 financial years the
transitional concessional contributions cap will be $50,000
[Schedule 3, item 11, paragraphs 292-20(2)(c) to (e) of the Income
Tax (Transitional Provisions) Act 1997]. This amount is not
indexed.
1.
Garry is 55. His ordinary time earnings in the 2007-08 and
2008-09 financial years are $250,000. His employer makes
superannuation guarantee contributions of $13,745 in 2008-09
(the maximum superannuation guarantee payable in 2008-09).
In preparation for retirement Garry has been topping up his
employer's compulsory superannuation guarantee contributions
with additional salary sacrifice amounts up to the
transitional concessional contributions cap which in the
2007-08 and 2008-09 financial years is $100,000.
In 2008-09 Garry's salary sacrifice contributions are
$86,255.
2.
Using the information from Example 3.1, in the 2009-10
financial year Garry will be subject to the reduced
transitional concessional contributions cap of $50,000.
During this year, his employer makes superannuation
guarantee contributions of $14,461 (the maximum
superannuation guarantee payable in 2009-10). To avoid an
excess contributions tax liability, Garry will need to
reduce his salary sacrifice contribution by approximately
$51,000.
3.
In 2009-10 Lola earns $55,000, all of which is ordinary time
earnings. Lola is 42. Her employer makes $4,950 of
compulsory superannuation contributions to a complying fund.
Lola's concessional contributions cap in 2009-10 is $25,000.
If Lola was to enter into an effective salary sacrifice
agreement with her employer, Lola could make additional
contributions of $20,050 into her superannuation fund and
not breach the concessional contributions cap.
Concessional contributions to a defined benefit interest
90. There is a separate arrangement for calculating concessional
contributions in relation to defined benefit interests. This is
because employer contributions into these interests are not always
attributable to individual members.
91. The amounts that are counted towards the concessional contributions
cap in relation to a defined benefit interest are referred to as
notional taxed contributions.
92. Special arrangements will apply to certain members with a defined
benefit interest on 12 May 2009 where notional taxed contributions
for that interest exceed the concessional contributions cap in the
2009-10 or later financial years. In this case, the notional taxed
contributions for that interest will be taken to be at the maximum
level of the person's cap. [Schedule 3, item 4, subsection 292-
170(8) of the ITAA 1997]
93. Similar arrangements for defined benefit members applied when the
caps were first introduced in 2007.
94. This arrangement will be subject to the conditions (if any) set out
in the regulations and will only apply to notional taxed
contributions reported for the 2009-10 or later financial years.
[Schedule 3, item 4, paragraph 292-170(8)(d) of the ITAA 1997]
95. The arrangement will continue to apply if the defined benefit
interest is transferred to a successor superannuation fund that
retains equivalent rights for members. [Schedule 3, item 4,
subsection 292-170(9) of the ITAA 1997]
1.
Donna is 45 and has had an interest in a defined benefit
fund since 1 July 2006. In the 2007-08 and 2008-09
financial years Donna had notional taxed contributions of
$30,000. The grandfathering provisions in these years did
not need to be activated as Donna's notional contributions
were below the concessional contributions cap of $50,000.
During these financial years Donna also made salary
sacrificed contributions of $20,000 (the difference between
the concessional contributions cap and her notional taxed
contributions).
In the 2009-10 financial year Donna's notional taxed
contributions are $30,000 and therefore in excess of the
concessional contributions cap. However, as Donna was a
member of the fund on 12 May 2009 the grandfathering
provisions will provide that her notional taxed
contributions will be taken to be equal to the cap in that
year and future financial years provided that the defined
benefit interest meets and continues to meet the necessary
conditions set out in the regulations. If this is the case,
Donna's notional taxed contributions ($30,000 in 2009-10)
will be taken to equal $25,000 meaning that Donna will not
breach the concessional contributions cap as a result of
these contributions.
However, Donna will no longer be able to make salary
sacrifice contributions without exceeding the cap.
Non-concessional contributions cap
96. For the 2007-08 and 2008-09 financial years the non-concessional
contributions cap will continue to be three times the concessional
contributions cap for the year. [Schedule 3, item 2,
paragraphs 292-85(2)(a) and (b) of the ITAA 1997]
97. For the 2009-10 and later financial years the non-concessional
contributions cap will be set at six times the new (indexed)
concessional contributions cap [Schedule 3, item 2, paragraph 292-
85(2)(b) of the ITAA 1997]. This will mean the non-concessional
cap for the 2009-10 financial year will be $150,000, the same as
the current level for the 2007-08 and 2008-09 financial years.
98. The existing provisions which allow an individual to bring forward
two years worth of non-concessional contributions will remain
unchanged.
99. Together with no change to the non-concessional contributions cap
for the 2007-08 and 2008-09 financial years, this means that where
an individual has triggered the bring-forward provisions in a
financial year prior to the 2009-10 financial year, the non-
concessional cap as determined in the first year will continue to
apply even where the bring-forward period includes the 2009-10 or
2010-11 financial years.
1.
Rebecca aged 55, makes non-concessional contributions
totalling $200,000 in the 2008-09 financial year. Having
not already triggered the bring-forward in the previous two
years, a bring-forward is triggered.
Rebecca can make additional non-concessional contributions
of $250,000 over the following two financial years (2009-10
and 2010-11) without having excess contributions.
Index
Schedule 1: Exemption of income derived from foreign service
|Bill reference |Paragraph |
| |number |
|Item 1, subsection 23(1AA) |1.18 |
|Item 1, paragraph 23AG(1AA)(b) |1.23 |
|Item 1, paragraph 23AG(1AA)(c) |1.28 |
|Item 1, paragraph 23AG(1AA)(d) |1.32 |
|Item 1, paragraph 23AG(1AA)(e) |1.33 |
|Item 2, paragraphs 2(a) and (b) and subitem |1.36 |
|3 | |
Schedule 2: Government Co-contribution for Low Income Earners
|Bill reference |Paragraph |
| |number |
|Item 1, paragraph 9(1)(b) |2.9 |
|Item 3, paragraph 9(1)(c) |2.11 |
|Item 3, paragraph 9(1)(d) |2.13 |
|Item 3, paragraph 9(1)(e) |2.15 |
|Item 4, subsection 10(1A) |2.10 |
|Item 5, subsection 10(1B) |2.12 |
|Item 5, subsection 10(1C) |2.14 |
|Item 5, subsection 10(1D) |2.16 |
|Item 6, subsection 10(2) |2.17 |
|Item 7 |2.18 |
Schedule 3: Excess contributions tax
|Bill reference |Paragraph |
| |number |
|Item 1, paragraphs 292-20(2)(a) and (b) of |3.14 |
|the ITAA 1997 | |
|Item 1, paragraph 292-20(2)(c) of the ITAA |3.15 |
|1997 | |
|Item 1, paragraph 292-20(2)(d) of the |3.16 |
|ITAA 1997 | |
|Item 2, paragraphs 292-85(2)(a) and (b) of |3.28 |
|the ITAA 1997 | |
|Item 2, paragraph 292-85(2)(b) of the ITAA |3.29 |
|1997 | |
|Item 4, subsection 292-170(8) of the ITAA |3.24 |
|1997 | |
|Item 4, paragraph 292-170(8)(d) of the ITAA |3.26 |
|1997 | |
|Item 4, subsection 292-170(9) of the ITAA |3.27 |
|1997 | |
|Item 7, subsection 960-285(3A) of the |3.17 |
|ITAA 1997 | |
|Item 11, paragraphs 292-20(2)(a) and (b) of |3.20 |
|the Income Tax (Transitional Provisions) Act| |
|1997 | |
|Item 11, paragraphs 292-20(2)(c) to (e) of |3.21 |
|the Income Tax (Transitional Provisions) | |
|Act 1997 | |
Do not remove section break.