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2002-2003
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAXATION LAWS AMENDMENT (SUPERANNUATION CONTRIBUTIONS SPLITTING) BILL 2003
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Treasurer, the Hon Peter
Costello, MP)
Table of contents
The following abbreviations and acronyms are used throughout this explanatory memorandum.
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Abbreviation
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Definition
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ETP
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eligible termination payment
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ITAA 1936
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Income Tax Assessment Act 1936
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General outline and financial impact
The Taxation Laws Amendment (Superannuation Contributions Splitting) Bill 2003 amends the ITAA 1936 and the Superannuation Contributions Tax (Assessment and Collection) Act 1997.
The amendments provide for the tax consequences of the Government’s election commitment to allow members to split their superannuation contributions with their spouse.
The splitting of superannuation contributions will assist families to maximise the benefits available in superannuation and provide an avenue for spouses to share in superannuation benefits. It will be of particular benefit to low income or non-working spouses by allowing them to have superannuation assets under their own control and have their own income in retirement.
It will provide single income couples, including those not able to make voluntary contributions, with access to two ETP low-rate thresholds and two reasonable benefit limits in the same way as dual income families.
The Government is proposing an ‘annual split’ model for the splitting of contributions. That is, after the end of the financial year the member could request that contributions made in the previous year be split with their spouse.
The exact details of how this will operate will be specified in amendments to the Superannuation Industry (Supervision) regulations, Retirement Savings Account regulations and taxation regulations. Where a split of contributions is made in accordance with those regulations then the tax consequences will be as set out in this bill. The basic principles of the taxation treatment of contributions splitting will be:
• contributions of a member (the splitting spouse) that are split in favour of their spouse (the receiving spouse) will be paid to another fund or transferred to an account within the existing fund for the receiving spouse. This payment or transfer will be considered an ETP roll-over for the receiving spouse; and
• any surcharge liability that attaches to any contributions that have been split will remain in respect of the splitting spouse (and generally be payable in respect of the splitting spouse by the superannuation provider to which those contributions were originally made).
Date of effect: The amendments will apply from Royal Assent but will not take practical effect until the regulations are made specifying the detail of how and from when contributions splitting will operate. These regulations are expected to take effect from 1 July 2004.
Proposal announced: The measure was announced in the
Government’s policy statement A Better Superannuation System on
5 November 2001.
Financial impact: The revenue cost of this measure is expected to be $6 million over three years from commencement .
Compliance cost impact: Superannuation providers may incur additional administrative costs in providing for splitting.
Impact: The measure will assist families to maximise the benefits available in superannuation and provide an avenue for spouses to share superannuation benefits. This is particularly important for families with one spouse working in the home or receiving a low income.
There is no impact on employers and employers’ Superannuation Guarantee obligations will not change as a result of this measure.
However, superannuation providers may incur administration and system development costs.
Main points:
• Members of accumulation funds will be able to split both personal and employer contributions with their spouse, including compulsory Superannuation Guarantee contributions.
• For participating members, contributions made on behalf of one spouse (the splitting spouse) would be transferred to a separate interest in the fund or to another superannuation provider for the benefit of the other spouse (the receiving spouse). Existing superannuation benefits will not be eligible for splitting.
Chapter
1
Splitting of
superannuation contributions
1.1 Schedule 1 to this bill will amend the ITAA 1936 and the Superannuation Contributions Tax (Assessment and Collection) Act 1997 to provide for the tax consequences of the Government’s election commitment to allow members to split their superannuation contributions with their spouse. The amendments will provide for:
• a new payment called a ‘contributions-splitting ETP’ which will arise when a member’s contributions are split in accordance with regulations. Regulations under the Superannuation Industry (Supervision) Act 1993 and the ITAA 1936 will provide the detail of when a payment or transfer of an amount to a member’s spouse will be considered a contributions-splitting ETP. Broadly it is intended that the regulations will provide that if an eligible member (the splitting spouse) requests that part of their contributions be split in favour of their spouse (the receiving spouse) and the split is in accordance with any rules on contributions splitting specified in the regulations then the payment or transfer to give effect to the split will be considered a contributions-splitting ETP for the spouse;
• a contributions-splitting ETP to be a qualifying ETP;
• the making of a contributions-splitting ETP to be an ETP roll-over.
• the number of days in the eligible service period of the contributions-splitting ETP to be deemed to be zero;
• any surcharge liability in respect of any contributions that are split to remain in respect of the splitting spouse (and generally be payable in respect of the member by the superannuation provider who made the contributions-splitting ETP); and
• the Commissioner will have the authority to collect information regarding contributions-splitting ETPs.
1.2 Superannuation has traditionally been seen as a means to encourage savings for the purposes of replacing employment income following retirement. Therefore, historically, superannuation contributions have generally only been allowed in respect of individuals in the workforce.
1.3 The Government’s proposal to allow splitting of superannuation contributions will further build on the Government’s achievements in increasing the accessibility of superannuation. In particular, the ability to split employer superannuation contributions will assist couples that cannot afford to make voluntary contributions. It will also assist spouses that stay home to care for a family to accumulate their own superannuation. This measure is expected to benefit women in particular.
1.4 Superannuation contributions splitting will provide:
• single income couples, including those not able to make voluntary contributions, with better access to two ETP low-rate thresholds and two reasonable benefit limits in the same way as dual income families; and
• low income or non-working spouses with their own superannuation assets under their own control and their own income in retirement.
1.5 The exact details of how splitting of contributions will operate will be specified in regulations under the Superannuation Industry (Supervision) Act 1993 and the ITAA 1936.
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New law
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Current law
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Eligible members will be able, in circumstances to be specified in
regulations, to split both personal and employer superannuation contributions
with their spouse, including compulsory Superannuation Guarantee
contributions.
This bill provides for the taxation consequences of such a split occurring.
In particular a contributions split in favour of a spouse will be treated
as an ETP roll-over for that spouse. The eligible service period attaching to
that ETP will be zero.
Any surcharge liability in respect of any contributions that are split will
remain in respect of the splitting spouse (and generally be payable in respect
of the splitting spouse by the superannuation provider who made the
contributions-splitting ETP).
The Commissioner will have the ability to collect information regarding
contribution-splitting ETPs.
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Members are unable to split personal or employer superannuation
contributions with their spouse, including compulsory Superannuation Guarantee
contributions.
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1.6 A new definition, ‘contributions-splitting ETP’, is inserted into the ITAA 1936. A contributions-splitting ETP is an amount paid to a superannuation fund, a life assurance company (for the purposes of paying into a ‘deferred annuity’) or approved deposit fund, or transferred within a superannuation fund for the benefit of the taxpayer (the spouse of the member whose contributions are being split) where the payment or transfer occurs in accordance with the circumstances specified in the regulations. [Schedule 1, item 1]
1.7 The definition of eligible service period in subsection 27A(1) is amended to provide that unless the number of days in the period is specified elsewhere in the definition of eligible service period for specific cases then the number of days will be zero. This means that the number of eligible service period days attached to a contributions-splitting ETP is deemed to be zero. Consequently, the contributions-splitting ETP will not have any pre-July 1983 component. [Schedule 1, item 2]
1.8 Items 3 and 4 of Schedule 1 make technical drafting amendments to improve the wording of the ETP definition. [Schedule 1, items 3 and 4]
1.9 A further amendment is required to paragraph (b) of the definition of an ETP in subsection 27A(1) to make it clear that the contributions split ETP for the receiving spouse will not be considered an ETP under this paragraph but will be an ETP under new paragraph (bb). [Schedule 1, items 5 and 6]
1.10 A ‘contributions-splitting ETP’ will be treated as an ETP. [Schedule 1, item 7]
1.11 An amendment is made to subsection 27A(12) to make it clear that a contribution split ETP will always be a qualifying ETP. [Schedule 1, item 8]
1.12 Classifying the contribution split ETP as a qualifying ETP will facilitate the rolling over of the ETP. Taxpayer’s can only elect to roll-over qualifying ETPs.
1.13 The relevant concessional tax rate for an ETP depends on whether or not the ETP was paid from a taxed source or an untaxed source. Generally a payment from a taxed superannuation fund will contain a taxed element. Therefore the table in subsection 27AB(1) is amended to include an amount that is a contributions-splitting ETP as having a taxed element to the extent that it is paid from a taxed superannuation fund. [Schedule 1, item 9]
1.14 An amendment is made to the ETP roll-over provisions in section 27D. This allows for regulations to be made to specify that a contributions-splitting ETP will be considered a roll-over and to require other details (such as the taxation components of the contributions-splitting ETP) relevant to that roll-over to be prescribed. [Schedule 1, item 10]
1.15 The fund which makes a contributions-splitting ETP must provide the Commissioner with a statement setting out the details of the payment if required by regulations. [Schedule 1, item 11]
1.16 The Subdivision concerning the payment of contributions to superannuation funds by eligible persons is amended to include the definition of a contributions-splitting ETP. [Schedule 1, item 12]
1.17 Only an eligible person (normally the self-employed) is entitled to deductions for personal superannuation contributions. An eligible person is basically a person who is not receiving superannuation support from another person or a person receiving only small amounts of employer support relative to the income earned by that person.
1.18 A new paragraph is inserted into subsection 82AAT(1B) and subsection 82AAT(1CC) to ensure that notices of intention to claim deductions can not be lodged, revoked or amended in any way in respect of a contribution after it has been split. It would be administratively complex to do otherwise. [Schedule 1, items 13 and 14]
1.19 The effect of items 13 and 14 is that if the taxpayer (the splitting spouse) wishes to both claim a tax deduction under section 82AAT and split those contributions with their spouse then they must first lodge the necessary notice to claim the deduction before requesting the contributions be split. Once a split has occurred a taxpayer cannot change the deductibility status of those contributions transferred or paid as a contributions-splitting ETP.
1.20 The superannuation surcharge is imposed in respect of the ‘surchargeable contributions’ of superannuation fund members who have high taxable incomes.
1.21 The normal rule that the holder of the surchargeable contributions at the time an assessment is received is liable to pay the surcharge applies, except in cases where no provider holds surchargeable contributions for the member (because they have been transferred as part of a contributions-splitting ETP to another fund or within the fund for a spouse) in which case the original fund will generally be the holder and liable to pay the surcharge.
1.22 It should be noted that the Federal Government foreshadowed in its July 2002 consultation paper on splitting that there should be a limit on the percentage of contributions that are allowed to be split. While details of the limit will be set out in the regulations, the limit will ensure there are sufficient contributions in the original fund to meet any surcharge liability. In certain limited cases the member may be liable to pay the surcharge but in such cases would be able to direct a superannuation provider to pay it on their behalf.
1.23 Where a surcharge assessment is issued after a contributions split and surchargeable contributions have been transferred to a fund for the benefit of the member’s spouse, then the transferor fund will generally be liable to pay the surcharge on those contributions.
1.24 Also where the transferor fund stops holding surchargeable contributions for the member and starts holding them for the benefit of the member’s spouse because of the split, then the transferor fund will generally continue to be liable to pay the surcharge on those contributions in respect of the member.
1.25 This means that in these circumstances no surcharge liability applies to the spouse in respect of their share of surchargeable contributions transferred. [Schedule 1, items 15 to 17]
1.26 A superannuation provider that transfers an amount to another fund as a contributions-splitting ETP will not be required to report to the other provider for surcharge purposes. Nor will the receiving fund be required to report to the original provider in such circumstances. This reporting is not necessary as the surcharge liability will not transfer with the contributions-splitting ETP. [Schedule 1, items 18 and 19]
1.27 Currently an assessment of surcharge is taken not to have been made if, after the assessment was made, the provider ceased to be the holder of the contributions.
1.28 This will not apply where the provider transfers an amount as a contributions-splitting ETP. That is, the liability for surcharge will generally remain with the transferring fund in respect of the member. [Schedule 1, item 20]
1.29 Self-assessing superannuation providers lodge member contribution statements and pay surcharge liability at the same time. The amendment will ensure that such providers do not have to take into account amounts held because of contribution split ETPs. This is because the liability for the surcharge will generally remain with the transferring fund in respect of the member. [Schedule 1, item 21]
1.30 A definition of a contributions-splitting ETP is inserted into the surcharge legislation. The definition of a holder is amended to reflect the new section 10B as inserted by item 15. [Schedule 1, items 22 and 23]
Chapter
2
Regulation impact
statement
2.1 The Government reaffirmed in the 2002-2003 Federal Budget its election commitment to introduce superannuation contributions splitting.
2.2 Contributions splitting is a key element of the Government’s superannuation reforms. It will assist families to maximise the benefits available in superannuation and provide an avenue for spouses to share their superannuation benefits. This is particularly important for families with one spouse working in the home or receiving a low income.
2.3 Under the Government’s proposal, members of superannuation funds (with some exceptions) will be able to split both personal and employer contributions with their spouse, including compulsory Superannuation Guarantee contributions.
2.4 Contributions made on behalf of one spouse (the splitting spouse) could be transferred to a separate account in the name of the other spouse (the receiving spouse), with each spouse having access to their own ETP low-rate threshold and reasonable benefit limit.
2.5 Superannuation has traditionally been seen as a means to encourage savings for the purposes of replacing employment income following retirement. Therefore, historically, superannuation contributions have generally only been allowed in respect of individuals in the workforce.
2.6 However, to accommodate changing workforce patterns, social change and a growing appreciation of the need for all Australians to prepare financially for their retirement, eligibility to make superannuation contributions has been eased. While the general link between paid employment and the ability to contribute to superannuation will be maintained, the Government wishes to encourage more people to contribute to superannuation and provide for higher incomes in retirement.
2.7 This Government has introduced a number of measures that have broadened the accessibility of superannuation to individuals who are outside of the workforce. For example, individuals are now permitted to make voluntary superannuation contributions on behalf of their spouse, even if that spouse has never worked. In particular, since 1997, spouses have been eligible for a tax rebate for contributions to superannuation made on behalf of a low-income spouse.
2.8 The Government’s proposal to allow splitting of superannuation contributions will further build on the Government’s achievements in increasing the accessibility of superannuation. In particular, the ability to split employer superannuation contributions will assist couples that cannot afford to make voluntary contributions. It will also assist spouses that stay home to care for a family to accumulate their own superannuation. This measure is expected to benefit women in particular.
2.9 Superannuation contributions splitting will provide:
• single income couples, including those not able to make voluntary contributions, with access to two ETP low-rate thresholds and two reasonable benefit limits in the same way as dual income families; and
• low income or non-working spouses with their own superannuation assets under their own control and their own income in retirement.
2.10 Under the Government’s proposal, deducted and undeducted contributions will be eligible for splitting. Both married and ‘de facto’ couples will be eligible to participate in contributions splitting, consistent with the definition of spouse in the Superannuation Industry (Supervision) Act 1993.
2.11 The options outlined in this paper reflect the Government’s commitment that the administrative burden of this measure will not fall on employers. Employers’ Superannuation Guarantee obligations will not change as a result of this measure.
2.12 Given the Government’s election commitment that the administrative burden will not fall on employers, this regulation impact statement does not examine options that involve splitting of superannuation contributions by the employer.
2.13 Four principal ways of implementing the Government’s superannuation contributions splitting proposal have been identified:
• prospective split – at the request of a member, the member’s superannuation provider would be required to split each future superannuation contribution received on behalf of the member;
• annual split – after the end of the financial year and at the request of a member, the member’s superannuation provider would be required to split contributions received during the previous year;
• joint accounts – couples could open a joint superannuation account or retirement savings account and each spouse would hold a 50% interest in contributions and investment returns credited to the account; and
• benefits split – members could split benefits accrued after 1 July 2003 at any time, including following retirement.
2.14 The following paragraphs describe each of the four options including their impact on stakeholders. References to superannuation providers include both superannuation funds and retirement savings accounts providers.
2.15 A prospective split would involve members notifying their superannuation provider of an intention to split each future contribution received by the provider. The superannuation provider would then split each contribution received on behalf of that member.
2.16 Couples gain the tax advantages and other benefits that flow from splitting superannuation contributions, including:
• access to two ETP low-rate thresholds and two reasonable benefit limits;
• providing the low income or non-working spouse with their own superannuation assets under their own control (thereby allowing them to take an interest in their retirement savings by, for example, choosing their own superannuation fund or investment strategy) and their own income in retirement; and
• for members of some superannuation funds, splitting may provide the low income or non-working spouse with improved access to cost-effective death and disability insurance.
2.17 The ability to split superannuation contributions may encourage new or increased contributions, hence potentially increasing funds under management.
2.18 This option does not impose additional requirements on employers in making superannuation contributions.
2.19 This option furthers the Government’s superannuation and retirement policy objectives.
2.20 As couples would require at least two superannuation accounts under this option, couples may incur separate account management fees on each spouse’s account (while these vary significantly, a typical amount might be around $150 per annum, excluding investment management fees. Note however, some funds specify fees as a dollar amount while other’s specify a percentage of assets, so fees could be higher or lower). However, in many cases, the receiving spouse would already have an existing superannuation account into which the split contributions could be made. The splitting spouse may also be levied with service fees by the provider effecting the split.
2.21 The splitting spouse would need to provide their superannuation provider with details of their spouse’s superannuation account.
2.22 This option would impose administration and systems development costs on superannuation providers, especially where the receiving spouse’s account is with a different provider or if the member is in receipt of frequent contributions (e.g., fortnightly). These costs may be significant, although they have not been able to be quantified.
2.23 Under a regime of quarterly Superannuation Guarantee contributions, there would be at least four contributions per annum and therefore at least four times of the year when contributions would be split for participating members.
2.24 Superannuation providers may also need to take steps to establish that the spouse is bona fide and check account details.
2.25 This option does not impose additional requirements on employers in making superannuation contributions.
2.26 This option has an estimated cost to taxation revenue of $11 million over three years from the commencement date, consistent with the funding allocated in the 2002-2003 Federal Budget.
2.27 Following the end of the financial year and at the request of a member, a superannuation provider would split contributions received during the previous year. This option simplifies option 1 by requiring superannuation providers to effect a split only once per year and by allowing members to notify their provider of their intention to split contributions after those contributions had been made.
2.28 Couples gain the tax advantages and other benefits that flow from splitting superannuation contributions, including:
• access to two ETP low-rate thresholds and two reasonable benefit limits;
• providing the low income or non-working spouse with their own superannuation assets under their own control (thereby allowing them to take an interest in their retirement savings by, for example, choosing their own superannuation fund or investment strategy) and their own income in retirement; and
• for members of some superannuation funds, splitting may provide the low income or non-working spouse with improved access to cost-effective death and disability insurance.
2.29 The ability to split superannuation contributions may encourage new or increased contributions, hence potentially increasing funds under management.
2.30 This option does not impose additional requirements on employers in making superannuation contributions.
2.31 This option furthers the Government’s superannuation and retirement policy objectives.
2.32 As couples would require at least two superannuation accounts under this option, couples may incur separate account management fees on each spouse’s account (while these vary significantly, a typical amount might be around $150 per annum, excluding investment management fees. Note however, some funds specify fees as a dollar amount while other’s specify a percentage of assets, so fees could be higher or lower). However, in many cases, the receiving spouse would already have an existing superannuation account into which the split contributions could be made. The splitting spouse may also be levied with service fees by the provider effecting the split. The cost may be lower if the receiving spouse’s account was in the same fund.
2.33 However, the ongoing administration costs incurred by superannuation providers are expected to be lower under this option than under option 1, and hence the fees paid by splitting members are also expected to be lower.
2.34 This option would impose administration and system development costs on superannuation providers. These costs have not been able to be quantified. However, because providers would effect a split only once per year, costs are expected to be lower under this option than under option 1.
2.35 Superannuation providers may also need to take steps to establish that the spouse is bona fide and to check account details.
2.36 This option does not impose additional requirements on employers in making superannuation contributions.
2.37 This option has an estimated cost to taxation revenue of $6 million over three years from commencement. This is less than the funding allocated in the 2002-2003 Federal Budget because contributions are split at the end of the financial year, which defers the revenue cost by one year.
2.38 A member who wished to split superannuation contributions would open a new account, with their existing superannuation provider, to be held jointly in their own and their spouse’s names. At the request of the splitting spouse, the superannuation provider would deposit all (or part) of the splitting spouse’s contributions into this account.
2.39 Each spouse would hold a 50% interest over contributions and investment returns credited to the account. Each spouse could transfer their accumulated share of the benefit from the joint account to an account in their name. Alternatively, payment of a superannuation benefit could be made directly to the relevant spouse, providing that spouse had satisfied a condition of release.
2.40 Couples gain the tax advantages and other benefits that flow from splitting superannuation contributions, including:
• access to two ETP low-rate thresholds and two reasonable benefit limits;
• providing the low income or non-working spouse with their own superannuation assets and their own income in retirement; and
• for members of some superannuation funds, splitting may provide the low income or non-working spouse with improved access to cost-effective death and disability insurance.
2.41 The ability to split superannuation contributions may encourage new or increased contributions, hence potentially increasing funds under management.
2.42 This option does not impose additional requirements on employers in making superannuation contributions.
2.43 This option furthers the Government’s superannuation and retirement policy objectives.
2.44 Couples would be required to open a new account under this option. If each spouse already had their own superannuation account then couples would be required to maintain at least three accounts between them – one in the name of each spouse, and the joint account.
2.45 Maintaining an additional superannuation account and paying an extra set of account keeping fees is expected to reduce the retirement income benefits of splitting, particularly for low income couples.
2.46 Furthermore, owing to joint control of the accounts, the low income or non-working spouse may have reduced control over their superannuation assets relative to options 1 and 2.
2.47 This option would impose significant system development costs on providers. The systems development costs are expected be significantly higher than the other options, as the superannuation system is currently built on the basis of the individual being the unit, rather than a couple. The costs to providers associated with this option have not been able to be quantified.
2.48 However, because providers would not be required to split regular contributions, ongoing costs may be lower than under options 1 and 2.
2.49 Superannuation providers may levy a fee at the time of the split to recoup administration costs incurred by the provider.
2.50 Superannuation providers may also need to take steps to establish that the spouse is bona fide.
2.51 This option does not impose additional requirements on employers in making superannuation contributions.
2.52 This option would result in complex changes to the tax and superannuation legislation and regulations.
2.53 This option has an estimated cost to taxation revenue of $11 million over three years, consistent with the funding allocated in the 2002-2003 Federal Budget.
2.54 Under this option, members would be able to split benefits accrued after commencement of the measure at any time, including at retirement.
2.55 To reduce the administration burden on providers (and eliminate the need for providers to track contributions and earnings accrued after commencement of the measure), a simplifying calculation of benefits eligible for splitting could be used. In principle, eligible splitting benefits could be the total benefit multiplied by the proportion of time spent in employment after 1 July 2003, relative to total time in employment (a member’s eligible service period could be used for this purpose).
2.56 If the receiving spouse was aged less than 65 and had not satisfied a condition of release at the time of retirement of the splitting spouse, the receiving spouse’s benefit would be rolled into their own account and preserved until they retire.
2.57 Couples gain the tax advantages and other benefits that flow from splitting superannuation contributions, including:
• access to two ETP low-rate thresholds and two reasonable benefit limits; and
• providing the low income or non-working spouse with their own income in retirement.
2.58 The ability to split eligible superannuation contributions at any time would encourage spouses to split after retirement when the splitting spouse could calculate the precise amount of superannuation to transfer to the receiving spouse to minimise the couple’s combined tax liability.
2.59 By splitting after retirement, couples could avoid the need to open a superannuation account in the name of the receiving spouse.
2.60 The implementation costs of this option are smaller than options 1 to 3.
2.61 This option does not impose additional requirements on employers in making superannuation contributions.
2.62 This option furthers the Government’s superannuation and retirement policy objectives.
2.63 This option provides reduced economic independence to the receiving spouse. The receiving spouse would not have superannuation assets under their direct control during the accumulation phase nor would they have any scope for improved access to cost-effective death and disability insurance. Furthermore, the receiving spouse may not have access to their benefit until after their spouse retires.
2.64 The splitting spouse may be levied with service fees by their provider at the time of the split.
2.65 This option would impose systems development and administration costs on superannuation providers. As providers would be splitting benefits rather than contributions, the systems development costs would likely be the lowest of all the options, although they have not been able to be quantified. Providers already have the operational means to split superannuation benefits reflecting recent amendments to the Family Law Act 1975.
2.66 It is expected that providers would only split balances once, probably following the retirement of the splitting spouse.
2.67 Providers may levy a fee at the time of the split to recoup administration costs incurred by the fund.
2.68 Superannuation providers may also need to take steps to establish that the spouse is bona fide.
2.69 This option does not impose additional requirements on employers in making superannuation contributions.
2.70 This option does not meet the Government’s objective of providing non-working spouses with superannuation assets under their control.
2.71 This option broadens the scope of the Government’s policy announcement and facilitates members to minimise their combined tax liability. Accordingly, the cost to revenue of this option would be significantly higher than for options 1 to 3.
2.72 In the long-term, the cost to revenue reflects the ETP tax benefits of splitting as well as lower income taxation in retirement. The increasing proportion of benefits that can be split over time is an important factor increasing long-term costs.
2.73 The Government issued a consultation paper for public comment, which outlined the policy proposal in detail, including the first three options included in this paper.
2.74 The inclusion of option 4 in this paper reflects the desire of some parts of industry to pursue benefits splitting rather than contributions splitting. There was very little support for option 3 (joint accounts).
2.75 There were mixed views on which of option 1 or 2 would impose the smaller costs on funds, although option 2 was more likely to be favoured than option 1. Of these two options, superannuation providers in favour of option 1 were possibly the more highly automated providers while providers that preferred batch processing were more likely to favour option 2.
2.76 Options 1 and 2 best meet the Government’s objectives and both are consistent with the amount of funding allocated in the 2002-2003 Federal Budget. However, these options do impose costs on funds. Option 2 is expected to impose smaller costs on superannuation providers than option 1, and therefore is the preferred option.
2.77 Option 3 is the least preferred option. Option 3 would require fundamental changes to the superannuation system, imposing costs on superannuation providers and the Government, and provide the lowest benefit to couples, because couples may be required to maintain three accounts.
2.78 Option 4 does not fully meet the Government’s objectives and comes
at a higher cost to Government revenue. While option 4 maximises the tax benefit
for couples, it does not provide the receiving spouse with their own
superannuation during the accumulation phase and does not provide the receiving
spouse with improved access to cost-effective death and disability
insurance.
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Bill reference
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Paragraph number
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Item 1
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1.6
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Items 2 and 3
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1.7
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Item 4
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1.8
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Item 5
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1.9
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Item 6
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1.10
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Item 7
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1.11
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Item 8
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1.13
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Item 9
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1.14
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Item 10
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1.15
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Item 11
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1.16
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Items 12 and 13
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1.18
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Items 14 to 16
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1.25
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Items 17 and 18
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1.26
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Item 19
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1.28
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Item 20
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1.29
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Items 21 and 22
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1.30
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