Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2010-2011-2012-2013
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SUPERANNUATION LAWS AMENDMENT (MYSUPER CAPITAL GAINS TAX
RELIEF AND OTHER MEASURES) BILL 2013
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Minister for Financial Services and Superannuation, the Hon Bill Shorten)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Loss relief and asset roll-over for transfer of
amounts to a MySuper product ..................................... 5
Chapter 2 Sustaining the superannuation contribution
concession -- consequential amendments:
Defence force superannuation .................................... 21
Index ..................................................................................................... 27
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
CGT capital gains tax
CSC Commonwealth Superannuation Corporation
DFRDB Defence Force Retirement and Death Benefit
DFRDB Act Defence Force Retirement and Death
Benefits Act 1973
FHSA First Home Saver Account
ITAA 1997 Income Tax Assessment Act 1997
PST pooled superannuation trust
SIS Act 1993 Superannuation Industry (Supervision)
Act 1993
TAA 1953 Taxation Administration Act 1953
Review the Super System Review
1
General outline and financial impact
Loss relief and asset roll-over for transfer of amounts to a
MySuper product
Schedule1 to this Bill amends the Income Tax Assessment Act 1997 to
facilitate the Government's MySuper reforms by providing income tax
relief to superannuation funds where there is a mandatory transfer of
default members' account balances to a MySuper product in another
superannuation fund.
Date of effect: These amendments apply to the income year of the
superannuation fund that includes 1 July 2013 and the following income
years if the accrued default amounts of members are transferred between
1 July 2013 and 1 July 2017. These dates are consistent with the date of
introduction of MySuper and the deadline for the transfer of default
members' accrued default amounts to a MySuper product.
Proposal announced: This measure was announced in the Minister for
Financial Services and Superannuation's Media Release No. 020 of
24 April 2012. Extensions to this measure were announced in the
Minister's Media Release No. 046 of 3 August 2012.
Financial impact: These amendments have a small unquantifiable cost to
revenue over the forward estimates, estimated to be less than $10 million
per annum.
Human rights implications: This Schedule does not raise any human
rights issue. See Statement of Compatibility with Human Rights --
Chapter 1, paragraphs 1.67 to 1.77.
Compliance cost impact: Low overall, comprising a low implementation
impact and no change in ongoing compliance costs for the affected group.
Sustaining the superannuation contribution concession --
consequential amendments: Defence force superannuation
Schedule 2 to this Bill amends the Defence Force Retirement and Death
Benefits Act 1973 to make consequential changes to enable the
Commonwealth Superannuation Corporation to pay amounts and to adjust
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Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
the benefits under the Defence Force Retirement and Death Benefits
scheme to reflect those payments.
Date of effect: This measure applies from the later of Royal Assent of
this Bill and Royal Assent of the Tax and Superannuation Laws
Amendment (Increased Concessional Contributions Cap and Other
Measures) Bill 2013. This measure does not apply if the Tax and
Superannuation Laws Amendment (Increased Concessional Contributions
Cap and Other Measures) Bill 2013 does not receive Royal Assent.
Proposal announced: Not previously announced.
Financial impact: These amendments are part of the sustaining the
superannuation contribution concession and were included in the financial
impact of that measure. There is no additional financial impact.
Human rights implications: This Schedule does not raise any human
rights issue. See Statement of Compatibility with Human Rights --
Chapter 2, paragraphs 2.22 to 2.26.
Compliance cost impact: These amendments are part of the sustaining
the superannuation contribution concession and were included in
assessing the compliance cost impact of that measure. There is no
additional compliance cost impact.
4
Loss relief and asset roll-over for transfer
of amounts to a MySuper product
Outline of chapter
1.1 Schedule 1 to this Bill amends the Income Tax Assessment
Act 1997 (ITAA 1997) to facilitate the Government's MySuper reforms
by providing income tax relief to superannuation funds where there is a
mandatory transfer of default members' account balances to a MySuper
product in another superannuation fund.
1.2 References throughout this chapter are to the ITAA 1997 unless
otherwise specified.
Context of amendments
1.3 On 29 May 2009, the Government announced the establishment
of the Super System Review (Review) to comprehensively examine and
analyse the governance, efficiency, structure and operation of Australia's
superannuation system.
1.4 The Review focused on maximising the retirement incomes for
Australians and improving regulation of the superannuation system.
1.5 On 16 December 2010, as part of its response to the Review, the
Government announced reforms to the superannuation system called
`Stronger Super'. A key element was the introduction of MySuper from
1 July 2013, a simple and cost-effective superannuation product to replace
existing default products.
1.6 MySuper products must have the same simple set of product
features, irrespective of who provides them. This enables members,
employers and market analysts to compare funds more easily based on a
few key differences. It also ensures that members do not pay for any
features they do not need or use.
1.7 The introduction of MySuper imposes heightened duties on
trustees to act in the best financial interests of their members. Trustees
have a duty to actively consider whether their investments are of a
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Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
sufficient scale (in terms of assets and members) to competitively provide
a MySuper product.
1.8 For some superannuation funds, this is expected to encourage, or
necessitate, the transfer of default members' account balances to other
funds. Funds not wishing to offer MySuper products are required under
the MySuper rules to transfer existing default members' account balances
to a superannuation fund offering a MySuper product by 1 July 2017.
1.9 If such transfers create an income tax liability from the
realisation of fund assets, or if relevant losses remain with the transferring
entity, the members whose balances are transferred would be adversely
impacted.
1.10 This is particularly so as superannuation funds typically credit
the value of unutilised losses to the account balances of their members.
Without allowing a transferring entity to transfer losses to another fund,
members' account balances would have to be reduced by the value of
those losses.
Summary of new law
1.11 These amendments provide income tax relief to ensure default
members of superannuation funds are not adversely affected if their
superannuation benefits are mandatorily transferred to another fund as a
result of the MySuper reforms.
1.12 In particular, these amendments ensure that a complying
superannuation fund that mandatorily transfers account balances of default
members to other funds under the MySuper reforms can:
· transfer losses to other entities; and
· defer an income tax liability for assets transferred to other
entities so that a liability will not arise until an ultimate
disposal of the asset by the other entity.
1.13 Where the superannuation fund invests in a life insurance
company or a pooled superannuation trust (PST) to support its default
members, the same relief is also provided to those entities.
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Loss relief and asset roll-over for transfer of amounts to a MySuper product
Comparison of key features of new law and current law
New law Current law
Realised capital and tax losses can be Realised capital and tax losses cannot
transferred from a complying be transferred from a complying
superannuation fund, a life insurance superannuation fund, a life insurance
company or a PST to another entity company or a PST to another entity
where members' account balances where members' account balances
have been mandatorily transferred to have been mandatorily transferred to
a MySuper product in another a MySuper product in another
superannuation fund. superannuation fund.
Income tax consequences may be Income tax consequences may arise
deferred where an asset is transferred where an asset is transferred from a
from a complying superannuation complying superannuation fund, a life
fund, a life insurance company or a insurance company or a PST to
PST to another entity where another entity where members'
members' account balances have account balances have been
been mandatorily transferred to a mandatorily transferred to a MySuper
MySuper product in another product in another superannuation
superannuation fund. fund.
Detailed explanation of new law
1.14 The introduction of MySuper from 1 July 2013 will see the
introduction of a new, simple and cost-effective superannuation product
that will replace existing default products.
1.15 As part of the transition to MySuper, some funds may decide,
for example, that they do not have sufficient investment scale to offer a
MySuper product. Under the MySuper provisions, these funds are
required to transfer their default members' account balances to a fund
offering a MySuper product by 1 July 2017.
1.16 These amendments provide income tax relief to ensure that
members are not adversely affected if their superannuation benefits are
mandatorily transferred under the MySuper reforms.
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Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
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What relief is available under these amendments?
1.17 These amendments ensure that a complying superannuation fund
can:
· transfer a loss to another entity (see paragraphs 1.27 to 1.35);
and
· defer an income tax liability for assets transferred to other
entities so that a liability will not arise until an ultimate
disposal of the asset by the other entity (see paragraphs 1.36
to 1.48).
[Schedule 1, item 1, sections 311-1 and 311-5 and subsection 311-10(1)]
1.18 Where the superannuation fund invests in a life insurance
company or a PST to support its default members, the same relief is also
provided to those entities. [Schedule 1, item 1, subsection 311-10(1)]
1.19 Where a transferring entity is eligible for relief under these
amendments and under the Division 310 merger relief provisions, the
entity is able to choose which amendments apply to its particular
transaction. However, regardless of the provisions the transferring entity
chooses, it has access to the same income tax relief.
What conditions must be satisfied to access this relief?
1.20 For a transferring entity to access the loss transfer or asset
roll-over, it must satisfy four key conditions.
Condition one -- certain entities can access relief
1.21 The transferring entity accessing the relief must be a complying
superannuation fund, a life insurance company or a PST. This entity must
be either the fund that holds the default members' account balances, or be
a life insurance company or a PST that the fund invests in to support its
default members. [Schedule 1, item 1, subsection 311-10(2)]
1.22 Allowing a life insurance company or a PST to access this relief
recognises the commercial reality that a significant amount of
superannuation is invested by acquiring units in PSTs and insurance
policies in life insurance companies rather than being directly invested by
the fund.
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Loss relief and asset roll-over for transfer of amounts to a MySuper product
Condition two -- superannuation fund must transfer an accrued default
amount and default members
Accrued default amount must be transferred
1.23 In order for the transferring entity to access income tax relief
under these amendments, an accrued default balance must be
compulsorily transferred to another fund that offers a MySuper product.
Specifically, the relief covers cases where:
· a complying superannuation fund does not offer a MySuper
product, and as such it is required to transfer accrued default
amounts to another fund offering a MySuper product (see
subparagraph 29SAA(1)(b)(ii) and section 388 of the
Superannuation Industry (Supervision) Act 1993
(SIS Act 1993); or
· default members of a fund are not eligible to hold a MySuper
product in that fund and, as a consequence, the accrued
default amounts are transferred to another fund offering a
MySuper product. This could happen, for example, where
the fund offers a tailored MySuper product for a particular
workplace and the members are not part of that workplace
(see subparagraph 29SAA(1)(b)(i) of the SIS Act 1993).
[Schedule 1, item 1, paragraphs 311-10(3)(a) and (b)]
1.24 The concept of an `accrued default amount' was introduced to
the SIS Act 1993 by the MySuper reforms. This concept defines an
amount which must be moved to a MySuper product by 1 July 2017.
Broadly, this amount is the entire balance of a member's account where
an investment choice has not been exercised or if it is held in a default
investment option of the fund. [Schedule 1, item 12, subsection 995-1(1)
(definition of `accrued default amount')]
Default members must become members of a receiving entity
1.25 The default members must become members of a complying
superannuation fund when the accrued default amounts are transferred to
that fund. However, this does not mean the losses and assets that are the
subject of this relief must be transferred to the same entity to which the
members are transferred. The losses and assets may instead be transferred
to a life insurance company or a PST that the fund invests in to support its
default members. [Schedule 1, item 1, paragraph 311-10(3)(c), section 311-15, and
paragraph 311-40(1)(b)]
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Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
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Condition three -- account balances must be transferred by certain time
1.26 The accrued default amounts and the default members must have
been transferred between 1 July 2013 and 1 July 2017. These dates are
consistent with the date of introduction of MySuper and the deadline for
the transfer of a default member's accrued default amount to a MySuper
product. [Schedule 1, item 1, subsection 311-10(4)]
Choosing the loss transfer
1.27 A transferring entity that is eligible for, and chooses to access,
the loss transfer may transfer capital losses and tax losses to a receiving
entity to the extent they are reasonably attributable to the default
member's accrued default amounts. The transfer of these losses prevents
the value of the losses remaining with the transferring fund and protects
the value of the accrued default amounts of affected members. [Schedule 1,
item 1, section 311-20]
1.28 As the transferring entity will hold assets that support its default
members, these amendments permit an entity to liquidate its assets and
then transfer cash and realised losses to the receiving entity. [Schedule 1,
item 1, sections 311-20 and 311-35]
What losses can be transferred?
1.29 Where the loss transfer is chosen by a transferring entity, the
capital and tax losses that can be transferred are determined by reference
to whether the losses (and the underlying assets that generate the losses)
are reasonably attributable to the accrued default amount of the default
members. In addition, where the entity accessing the relief is a life
insurance company or a PST, the losses must be reflected in the value of
the fund's interest in the life insurance policy or the units in the PST.
[Schedule 1, item 1, subsections 311-20(2) to (4)]
1.30 Where a transferring entity generates losses from the realisation
of assets after the default members have been transferred to another fund,
these amendments allow these losses to also be transferred to a receiving
entity to the extent that the losses are attributable to the accrued default
amounts of the default members who have already been transferred. This
ensures the amendments do not restrict when a transferring entity must
realise its assets to fund the transfer of its members to another fund.
[Schedule 1, item 1, section 311-35]
What is the effect of transferring a capital loss?
1.31 If the transferring entity transfers realised capital losses to a
receiving entity, it effectively reduces its capital losses by the transferred
10
Loss relief and asset roll-over for transfer of amounts to a MySuper product
amount. A corresponding capital loss is taken to have been made by the
receiving entity on the day the default members' accrued default amounts
are transferred. This ensures that the receiving entity can utilise the
transferred loss against capital gains in that, or a future, income year.
[Schedule 1, item 1, section 311-25]
1.32 Life insurance companies are required to segregate assets that
support complying superannuation/First Home Saver Account (FHSA)
policies under Division 320. Therefore, if the receiving entity is a life
insurance company, the transferred capital loss is taken to be a loss from
its complying superannuation/FHSA assets. This provides integrity by
ensuring that losses from superannuation assets cannot be used to offset
gains made from the ordinary asset class of a life insurance company.
[Schedule 1, item 1, paragraph 311-25(c)]
Example 1.1: Superannuation fund transfers capital losses
As a result of the MySuper reforms, Small Super has decided not to
offer a MySuper product, as it would not have sufficient investment
scale to competitively provide such products to its default members.
On 10 August 2013, Small Super transfers the accrued default amounts
of its members to a MySuper product offered by Big Super. It has
agreed to pay $4 million in cash by realising assets that are attributable
to its default members. As part of this transaction, it also transfers
$220,000 in capital losses comprising of $200,000 of earlier year net
capital losses and $20,000 of transfer year capital losses.
Under these amendments, Small Super is taken to not have made those
losses and Big Super will recognise $220,000 of capital losses in
determining its net capital gain or net capital loss for the 2013-14
income year. It will carry forward any unutilised losses to future
income years.
What is the effect of transferring a tax loss?
1.33 If the transferring entity transfers realised tax losses to a
receiving entity, it effectively reduces its tax losses by the transferred
amount. A corresponding tax loss is taken to have been incurred by the
receiving entity on the day the default members accrued default amounts
are transferred. [Schedule 1, item 1, paragraphs 311-30(a),(b) and (d)]
1.34 If a taxpayer has more deductions for an income year than
assessable income, the excess is a tax loss which may be deducted in a
later income year (see sections 36-15 and 36-17). Therefore, to enable the
receiving entity to deduct losses in the year of the account transfer, these
amendments ensure that, for the purpose of sections 36-15 and 36-17, the
amount of the loss transferred is taken to have been incurred by the
11
Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
receiving entity for the income year immediately prior to the transfer year.
[Schedule 1, item 1, paragraph 311-30(c)].
1.35 Similar to capital losses, if the receiving entity is a life insurance
company, the transferred tax loss is taken to be a loss from its complying
superannuation/FHSA assets. Again, this ensures that losses from
superannuation assets cannot be used to offset gains made from the
ordinary asset class of a life insurance company. [Schedule 1, item 1,
subparagraphs 311-30(c)(i) and (d)(i)]
Example 1.2: Superannuation fund transfers tax losses
Following on from the previous example, Small Super transfers
realised tax losses of $25,000, comprising a loss of $20,000 from a
previous income year and $5,000 from the income year that members'
accrued default amounts are transferred.
Under these amendments, Small Super is taken to not have made those
losses. For the purposes of the tax loss provisions, the losses are
instead taken to have been made by Big Super for the income year
immediately prior to the transfer year (that is, in the 2012-13 income
year). This ensures that Big Super takes into account the loss of
$25,000 in working out its taxable income for the 2013-14 income
year.
Choosing the asset roll-over
1.36 Complying superannuation funds, life insurance companies and
PSTs may choose an optional capital gains tax (CGT), depreciating asset
and revenue asset roll-over for each asset that is transferred to another
entity, provided they meet the gateway conditions discussed in
paragraphs 1.20 to 1.26. [Schedule 1, item 1, section 311-10]
1.37 Where an asset roll-over is not chosen by the transferring entity,
the entity may be able to transfer losses in respect of that asset if a loss
arises as part of the realisation of the asset.
What assets are eligible for an asset roll-over?
1.38 Where a transferring entity chooses to transfer assets to a
receiving fund, it can also choose a roll-over for those assets if they are
reasonably attributable to the accrued default amount of the default
members. In addition, where the entity accessing the relief is a life
insurance company or a PST, the assets must be reflected in the value of
the fund's interest in the life insurance policy or the units in the PST.
[Schedule 1, item 1, subsections 311-40(1) and (2)]
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Loss relief and asset roll-over for transfer of amounts to a MySuper product
Consequences of choosing asset roll-over for CGT assets
1.39 Section 295-85 makes the CGT regime the primary code for
determining the tax consequences of the gains or losses generated on the
realisation of certain assets owned by a complying superannuation fund or
a PST. Section 320-45 provides for the same rules to apply for the
complying superannuation/FHSA assets of life insurance companies.
1.40 If the asset roll-over is chosen by the transferring entity, it
disregards any CGT consequences associated with the asset transfer.
Also, the receiving entity is treated as having acquired the asset for the
transferring entity's cost base (and reduced cost base). This ensures that
any CGT consequences are deferred until a later dealing with that asset by
the receiving entity. [Schedule 1, item 1, section 311-45]
Asset's date of acquisition
1.41 For assets subject to the CGT roll-over, the general acquisition
rules in Subdivision 109-A apply -- that is, the receiving entity acquires
the asset when the asset is transferred to that entity.
1.42 However, for the purposes of the receiving entity satisfying the
12-month CGT discount ownership requirement (see subsection 115-25),
these amendments recognise the period of ownership when the asset was
owned by the transferring entity. [Schedule 1, item 5, table item 11 in
subsection 115-30(1)]
1.43 Section 295-90 treats the trustee of a complying superannuation
fund or a PST as having acquired on 30 June 1988 any assets it already
owned on that date. An equivalent rule applies to life insurance
companies in relation to complying superannuation/FHSA assets (see
section 320-45). Therefore, as these entities will not own assets that are
acquired before the introduction of the CGT regime on
20 September 1985, there is no need for the CGT roll-over to deal with
pre-CGT assets.
Example 1.3: Superannuation fund chooses CGT roll-over
Pencil Super has decided not to offer a MySuper product to its default
members. As part of an arrangement entered into with Pen Super,
Pencil has agreed to transfer all of its default members to Pen. All
assets that are reasonably attributable to the members' accrued default
amounts are also transferred to Pen.
Pencil owns a share in Sharpener Limited and its cost base (and
reduced cost base) is $10.
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Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
Under these amendments, any CGT consequences associated with the
transfer of the share from Pencil to Pen are disregarded for Pencil.
Furthermore, for Pen, the asset is treated as having a cost base (and
reduced cost base) of $10. This ensures that any CGT consequences
associated with the transfer are deferred until a later dealing with that
asset by Pen.
For the purposes of the CGT discount, Pen is treated as acquiring the
share at the time when Pencil acquired the share.
Consequences of choosing asset roll-over for depreciating assets
1.44 Superannuation funds may own depreciating assets. If such
assets are transferred to a receiving entity, this will cause a balancing
adjustment event to occur (see section 40-295).
1.45 Where there is a difference between the asset's termination
value (that is, the market value of the asset at the transfer date) and its
adjustable value (that is, the original cost less the decline in tax value
while it was held by the entity), a balancing adjustment event may result
in an amount being assessable or deductible through the operation of
section 40-285.
1.46 These amendments ensure that, if the asset roll-over is chosen by
the transferring entity, section 40-285 does not apply to the transfer of the
depreciating assets. In addition, the receiving entity can deduct the
decline in value of the asset using the same method and effective life that
the transferring entity was using. This ensures that any income tax
consequences associated with the depreciating asset are deferred until a
further balancing adjustment event happens to the asset in the hands of the
receiving entity. [Schedule 1, item 3, table item 7 in subsection 40-340(1)]
Consequences of choosing asset roll-over for revenue assets
1.47 A revenue asset is an asset for which a profit or loss on disposal
would be taken into account in calculating assessable income other than as
a capital gain or capital loss (see section 977-50). The asset must also be
neither trading stock nor a depreciating asset.
1.48 For revenue assets subject to the asset roll-over, the transferring
entity is taken to have realised the asset for an amount that would result in
it not making a profit or loss on that realisation. Furthermore, the
receiving entity is taken to have acquired the revenue asset for that
amount. This ensures that any income tax consequences are deferred until
a later dealing with that asset by the receiving entity. [Schedule 1, item 1,
section 311-50]
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Loss relief and asset roll-over for transfer of amounts to a MySuper product
Example 1.4: Superannuation fund chooses revenue asset roll-over
Further to the previous example, as part of the transfer of assets from
Pencil to Pen, Pencil transfers all of its revenue assets to Pen, where
they are also treated as revenue assets of Pen.
In relation to one of Pencil's assets that it accounts for on revenue
account, the market value is $200,000 and the cost is $120,000.
Under these amendments, on the transfer of the asset, Pencil is treated
as if it has received $120,000 for that asset. In addition, Pen is treated
as having acquired that asset for $120,000. This ensures that any
income tax consequences associated with the transfer are deferred until
a later dealing with that asset by Pen.
Method for making the choice to transfer loss or roll over asset
1.49 The choice to access this relief will have specific consequences
for both the transferring and the receiving entity. Therefore, whilst only
the transferring entity is required to choose this relief, the consequences
associated with doing so would usually be considered by both parties
during the negotiation of the transfer of the accrued default amounts of
members.
1.50 The transferring entity's choice to access the relief will be
evidenced by the manner in which it completes its income tax return for
the income year in which the accrued default amounts are transferred.
This mechanism is based on section 103-25, which applies to choices
made under the CGT provisions. [Schedule 1, item 1, section 311-60]
Application provisions
1.51 These amendments apply to the income year of the entity
accessing the relief that includes 1 July 2013 and following income years
if the accrued default amounts of members are transferred between
1 July 2013 and 1 July 2017. These dates are consistent with the date of
introduction of MySuper and the deadline for the transfer of default
members' accrued default amounts to a MySuper product. [Schedule 1,
items 1, 2 and 13, subsection 311-10(4)]
Repeal provisions and related amendments
1.52 These amendments, including the consequential amendments
discussed below in paragraphs 1.56 to 1.66, will be automatically repealed
on 2 July 2019. This recognises the fact that the amendments cease to
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Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
apply at the end of 1 July 2017. [Schedule 1, items 14 to 20, 23 and 24, and
clause 2, table items 6 to 8]
Superannuation deduction provisions
1.53 The superannuation deduction provisions in
subsection 290-170(5) provide that a member can give a deduction notice
to a successor fund in relation to a contribution they made to an original
fund. To ensure consistency, these amendments ensure that a member
whose accrued default amount is mandatorily transferred under the
MySuper reforms can also receive the same treatment
(see paragraphs 1.59 to 1.62).
1.54 Whilst the deduction provisions relating to MySuper cases are
repealed on 2 July 2019, it is still possible after this date for there to be a
successor fund transfer, and as such, the provisions dealing with successor
fund transfers are reactivated, to the extent they were repealed with the
MySuper amendments. This reactivation, which applies to deduction
notices and variations from 2 July 2019, ensures the successor fund
deduction provisions continue to operate uninterrupted. [Schedule 1, items 21
and 22, and subitem 25(1)]
1.55 A taxpayer's claim for a deduction may be disallowed a number
of years following the taxpayer's contribution to a fund. In these cases,
the taxpayer is required to vary their deduction notice following this
outcome (see the requirements in subsection 290-180(4)). Therefore, this
may mean that the variation deduction provisions (described in
paragraph 1.60) may be utilised after the provisions are repealed. To cater
for this situation, these provisions in respect of variations of deduction
notices for MySuper members still have effect after their repeal.
Similarly, in this situation the fund can still claim a deduction under
subsection 295-490(1) for the amount of the variation after the repeal of
these provisions. [Schedule 1, subitem 25(2)]
Consequential amendments
Further consequences for a transferring entity or receiving entity that is a
life insurance company
1.56 Where a complying superannuation/FHSA asset is transferred to
or from a life insurance company, a deemed sale or deemed acquisition of
the asset for its market value may occur under section 320-200.
1.57 To ensure the CGT, depreciating asset and revenue asset
roll-overs provided by these amendments are not overridden by a deemed
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Loss relief and asset roll-over for transfer of amounts to a MySuper product
sale or acquisition of the asset under section 320-200, these amendments
provide that section 320-200 does not apply in relation to asset
realisations subject to the asset roll-over. [Schedule 1, item 1,
subsection 311-55(1)]
1.58 Similarly, where the receiving entity is a life insurance
company, an asset acquired under the asset roll-over is taken to be a
complying superannuation/FHSA asset of the company, and not life
insurance premiums relating to that asset class, which would otherwise be
assessable. This rule, which broadly resembles sections 320-315 and
320-320 that apply to life insurance business transfers, ensures that the
Division 320 life insurance business taxation provisions do not override
the relief provided by these amendments. [Schedule 1, item 1,
subsection 311-55(2)]
Claiming a tax deduction where members have been mandatorily
transferred under the MySuper reforms
1.59 Members who make a personal contribution to a complying
superannuation fund may be able to claim an income tax deduction if they
give a notice to that fund and the conditions of Subdivision 290-C are
satisfied. However, an individual cannot give such a notice to a
complying superannuation fund if they have ceased to be a member of the
fund.
1.60 These amendments provide that, where a member has not given
a notice in relation to their contribution to the original superannuation
fund before their accrued default amount is mandatorily transferred to
another fund, they are able to give a notice to their new fund and still
deduct all or part of their contribution. Taxpayers are also able to give a
variation notice to their new fund in respect of a contribution they made to
their original fund. [Schedule 1, items 6 and 7, subsections 290-170(6) and
290-180(6)]
1.61 Currently, an exception to the rule described in paragraph 1.59
ensures that members who are compulsorily transferred to another fund
under the successor fund transfer rules are able to retain their ability to
claim a personal tax deduction. However, this exception may not always
be satisfied for mandatory MySuper transfers. Therefore, these
amendments operate in the same way as the successor fund transfer
provisions to ensure members have access to the same deduction rules that
would apply if their account balance were transferred under those
provisions.
1.62 Where a member gives a notice to the new fund, the amount of
the contribution covered by the notice is included in the assessable income
of the new fund. In these cases, the amount is included in the member's
17
Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
concessional contributions and the member's non-concessional
contributions is reduced by the same amount. In addition, where a
member provides the new fund with a variation notice that reduces the
amount covered by a deduction notice, the amendments ensure the fund
either reduces the amount included in its assessable income or deducts the
amount of the variation in the same way as a successor fund can under the
superannuation deduction provisions. [Schedule 1, items 8, 10 and 11,
paragraphs 292-25(2)(b) and 292-90(2)(b), and table item 2A in subsection 295-190(1)
and table item 2A in subsection 295-490(1)]
Individuals subject to reduction in income tax concession for
contributions made to a superannuation fund
1.63 Schedule 3 to the Tax and Superannuation Laws Amendment
(Increased Concessional Contributions Cap and Other Measures)
Bill 2013 reduces the tax concession that individuals with incomes above
$300,000 receive on concessional contributions made to a superannuation
fund by imposing a tax of 15 per cent on these contributions (Division 293
tax).
1.64 In general, an individual's concessional contributions are those
that are assessable income for the superannuation fund. In cases involving
successor fund transfers, a contribution may be assessable income for the
successor fund where an individual gives a valid deduction notice to that
fund in respect of a contribution made to the original fund.
1.65 Subject to Schedule 3 becoming enacted, these amendments
ensure the same outcome arises in respect to members whose accrued
default amounts are transferred mandatorily under the MySuper reforms.
This means that when members give a valid deduction notice to their new
fund in respect of a contribution they made to their original fund, the
amount of contributions covered by the notice is taken into account when
applying the Division 293 tax. [Schedule 1, item 9, subparagraph 293-30(2)(b)(ii)
and clause 2, table item 4]
Guide material for CGT cost base rules
1.66 The guide material in section 112-97 that lists the cost base
modifications outside of the core CGT provisions (Part 3-1 and 3-3 of the
ITAA 1997) is amended to include the CGT roll-over provided by these
amendments. [Schedule 1, item 4, table item 36 in section 112-97]
18
Loss relief and asset roll-over for transfer of amounts to a MySuper product
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
MySuper loss transfer and asset roll-over
1.67 This Schedule 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
1.68 Schedule 1 to this Bill amends the Income Tax Assessment
Act 1997 to facilitate the Government's MySuper reforms by providing
income tax relief to superannuation funds where there is a mandatory
transfer of default members' account balances to a MySuper product in
another superannuation fund.
1.69 In particular, these amendments ensure that a complying
superannuation fund that mandatorily transfers account balances of default
members to other funds under the MySuper reforms can:
· transfer losses to other entities; and
· defer an income tax liability for assets transferred to other
entities so that a liability will not arise until an ultimate
disposal of the asset by the other entity.
1.70 Where the superannuation fund invests in a life insurance
company or a pooled superannuation trust to support its default members,
the same relief is also provided to those entities.
Human rights implications
1.71 This Schedule engages and promotes the right to an adequate
standard of living as contained in article 11(1) of the International
Covenant on Economic, Social and Cultural Rights.
1.72 Article 11(1) recognises the right of everyone to an adequate
standard of living, including adequate food, clothing and housing, and to
the continuous improvement of living conditions. Superannuation
promotes the right to a financially secure future by providing individuals
with the capacity to provide for their retirement.
19
Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
1.73 MySuper is designed to improve the simplicity, transparency
and comparability of default superannuation products. MySuper products
have a simple set of product features, irrespective of who provides them,
enabling members to compare funds more easily, based on a few key
differences -- cost, investment performance and the level of insurance
coverage. Moving members into a MySuper product ensures members
will not pay for unnecessary features they will not use. This will
ultimately result in higher retirement incomes for members as a result of
lower fees and charges.
1.74 The introduction of MySuper also imposes heightened duties on
trustees to act in the best financial interests of their members. Trustees
have a duty to actively consider whether their investments are of a
sufficient scale (in terms of assets and members) to competitively provide
a MySuper product.
1.75 For some superannuation funds, the MySuper reforms are
expected to necessitate the transfer of default members' account balances
to other funds. If such transfers create an income tax liability from the
realisation of fund assets, or if relevant losses remain with the transferring
entity, the members whose benefits are transferred would be adversely
impacted. This is particularly so as superannuation funds typically credit
the value of unutilised losses to the account balances of their members.
1.76 Schedule 1 ensures members are not financially disadvantaged
in that way where their account balance is transferred under the MySuper
reforms. Without these amendments, members would be adversely
impacted as their account balance would have to be reduced by the value
of those losses.
Conclusion
1.77 This Schedule is compatible with human rights. It promotes the
right to adequate living standards by increasing the retirement savings of
individuals.
Minister for Financial Services and Superannuation, the
Hon Bill Shorten
20
Sustaining the superannuation
contribution concession -- consequential
amendments: Defence force
superannuation
Outline of chapter
2.1 Schedule 2 amends the Defence Force Retirement and Death
Benefits Act 1973 (DFRDB Act) to give effect to changes that are
necessary as a result of implementing the sustaining the superannuation
contribution concession contained in Schedule 3 of the Tax and
Superannuation Laws Amendment (Increased Concessional Contributions
Cap and Other Measures) Bill 2013.
2.2 The amendments allow a lump sum to be paid from a
superannuation interest in the Defence Force Retirement and Death
Benefits (DFRDB) scheme to meet a debt account discharge liability for
Australian Defence Force members of the scheme who are very high
income earners. As a result a member's superannuation benefits,
including any reversionary pension to be paid to the surviving spouse of a
deceased member, is reduced.
Context of amendments
2.3 The changes are required to enable amounts to be released from
the DFRDB scheme. This is required as a result of implementing the
sustaining the superannuation contribution concession contained in
Schedule 3 of the Tax and Superannuation Laws Amendment (Increased
Concessional Contributions Cap and Other Measures) Bill 2013 which
imposes tax on concessional contributions of Australian Defence Force
members of the DFRDB scheme who are very high income earners.
2.4 The sustaining the superannuation contribution concession was
announced in the Minister for Financial Services and Superannuation's
Media Release No. 024 of 8 May 2012.
21
Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
Summary of new law
2.5 The amendments allow a lump sum to be paid from a
superannuation interest in the DFRDB scheme to meet a debt account
discharge liability for Australian Defence Force members of the scheme
who are very high income earners. As a result a member's
superannuation benefits, including any reversionary pension to be paid to
the surviving spouse of a deceased member, is reduced.
Detailed explanation of new law
2.6 The Defence Force Retirement and Death Benefits Act 1973
(DFRDB Act) is amended to enable a lump sum to be paid from a
superannuation interest in the DFRDB scheme to meet a liability for debt
account discharge liability for Australian Defence Force members of the
DFRDB scheme who are very high income earners. This results in the
member's superannuation benefits, including any reversionary pension to
be paid to the surviving spouse of a deceased member, being reduced.
2.7 The existing definition of `benefit' in section 3(1) of the
DFRDB Act is repealed and replaced with a new definition of `benefit' to
expressly include a release authority lump sum as a part of the benefit that
is payable under the DFRDB scheme. The new definition enables release
authority lump sums to fall within the appropriation included in
subsection 125(3) of the DFRDB Act. [Schedule 2, item 1, definition of `benefit'
in subsection 3(1) of the DFRDB Act]
2.8 A definition of `release authority lump sum' is included in
subsection 3(1) of the DFRDB Act and refers to section 49K which sets
out what a release authority lump sum is. [Schedule 2, item 2, definition of
`release authority lump sum' in subsection 3(1) of the DFRDB Act]
2.9 A note is inserted after subsections 24(2A) and 32A(4) of the
DFRDB Act to make it clear that any lump sum to be paid as a result of an
election to commute retirement pay or Class C invalidity pay respectively
is calculated after a release authority lump sum has been paid (that is, if
the member gives a release authority to the Commonwealth
Superannuation Corporation (CSC) and a lump sum has not been paid as a
result of an election to commute under section 24 or 32A). [Schedule 2,
items 3 and 4, note in subsections 24(2A) and 32A(4) of the DFRBD Act]
2.10 The existing subsection 48(5) of the DFRDB Act is repealed and
replaced with a new provision to ensure that an amount payable to the
personal representative of the member (or to such persons that CSC
determines) in respect of a contributing or recipient member who dies
without leaving dependants is adjusted to reflect any retirement or
22
Sustaining the superannuation contribution concession -- consequential amendments:
Defence force superannuation
invalidity pay or a release authority lump sum amount paid to the member
while still alive. [Schedule 2, item 5, subsection 48(5) of the DFRBD Act]
2.11 The amendments introduced in new Part VIB of the DFRDB Act
allow a release authority lump sum to be paid by CSC if:
· a person presents a release authority issued under item 3 of
the table in subsection 135-10(1) in Schedule 1 to the
Taxation Administration Act 1953 (TAA 1953) introduced by
Schedule 3 of the Tax and Superannuation Laws Amendment
(Increased Concessional Contributions Cap and Other
Measures) Bill 2013; and
· at the time they provide a release authority to CSC, no
benefit has been paid.
2.12 Any lump sum paid by CSC in compliance with a release
authority must be in accordance with Subdivision 135-B in Schedule 1 to
the TAA 1953. [Schedule 2, item 6, section 49K of the DFRDB Act]
2.13 The amendments in Schedule 3 of the Tax and Superannuation
Laws Amendment (Increased Concessional Contributions Cap and Other
Measures) Bill 2013 include sections 135-85 and 135-95 of Schedule 1 to
the TAA 1953 limit the amount that a superannuation provider can pay in
respect of a release authority to the lesser of the following amounts:
· the amount the release authority was issued for;
· a lower amount specified, by the individual or the
Commissioner of Taxation, than the amount for which the
release authority was issued for; or
· the total amount of all the superannuation lump sums of all
the superannuation interests held by the superannuation
provider for the person (this recognises that an amount
cannot be paid to the extent it exceeds the sum held).
2.14 In addition to the limits contained in the amendments in
Schedule 3, these amendments include a further limitation on the
maximum amount that can be paid as a release authority lump sum under
the DFRDB Act. The amendments specify that the amount of a release
authority lump sum must not have the effect of reducing the person's
benefit(s) specified in the election below zero, after first taking into
account any reduction under another provision of the DFRDB Act, such as
a person's surcharge deduction amount (if an election under section 124 is
made before giving CSC the release authority) or a reduction as a result of
23
Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
a family law split. [Schedule 2, item 6, section 49L of the DFRDB Act and item 7,
subsection 124(3) of the DFRDB Act].
2.15 The release authority lump sum amount is to be paid before any
lump sum arising from the commutation of retirement pay or Class C
invalidity pay is calculated, if a release authority is given to CSC before
any commuted amount of retirement pay or Class C invalidity pay is paid.
However, where a commuted amount has been paid, the reduced
retirement pay or invalidity pay is further reduced to take account of a
release authority lump sum. [Schedule 2, item 6, section 49M of the DFRDB Act]
2.16 The manner of calculating reduced retirement pay of Class C
invalidity pay is set out in the following formula:
Pre-reduction rate -- Release authority lump sum
Conversion factor
2.17 For the purposes of the formula, the `pre-reduction rate' will be
the actual rate of retirement pay or Class C invalidity pay otherwise
payable to the person (noting that this includes any other provision in the
DFRDB Act that affects the rate of pension). The conversion factor is to
be determined by CSC and made by legislative instrument. [Schedule 2,
item 6, section 49N of the DFRDB Act]
2.18 A DFRDB scheme member who effectively ceased to be an
eligible member of the Defence Force in order to contest an election, who
is unsuccessful at the election and who is not reinstated may be entitled to
invalidity pay (or dependants may be entitled to death benefits) in
circumstances where an amount of benefit is repaid to the Commonwealth
within 90 days (or such further period as CSC determines) of the
declaration of the poll. Paragraph 55(5)(a) of the DFRDB Act is modified
to not require payment of a release authority amount that may have been
paid when the member ceased to be an eligible member of the Defence
Force. [Schedule 2, item 6, section 49P of the DFRDB Act]
2.19 The retirement pay of a recipient member of the DFRDB
scheme who re-enters for a period of further service for 12 months or
more and again becomes a DFRDB scheme contributing member is
cancelled. Retirement pay is recalculated when the further period of
service is completed based on the member's total period of service. The
re-calculated retirement pay is required to be adjusted to reflect any
release authority lump sum payment made when the member first claimed
the retirement pay. [Schedule 2, item 6, section 49Q of the DFRDB Act]
24
Sustaining the superannuation contribution concession -- consequential amendments:
Defence force superannuation
Application and transitional provisions
2.20 The consequential amendments to the DFRDB Act apply from
the later of Royal Assent of this Bill and immediately after Royal Assent
of the Tax and Superannuation Laws Amendment (Increased
Concessional Contributions Cap and Other Measures) Bill 2013.
2.21 This measure does not apply if the Tax and Superannuation
Laws Amendment (Increased Concessional Contributions Cap and Other
Measures) Bill 2013 does not receive Royal Assent. The contingent
commencement provision reflects that these consequential amendments
are only required if the sustaining the superannuation contribution
concession contained in the Tax and Superannuation Laws Amendment
(Increased Concessional Contributions Cap and Other Measures)
Bill 2013 is enacted.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Sustaining the superannuation contribution concession -- consequential
amendments: Defence force superannuation
2.22 Schedule 2 to this 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
2.23 Schedule 2 to this Bill amends the Defence Force Retirement
and Death Benefits Act 1973 as a result of the sustaining the
superannuation contribution concession.
2.24 The purpose of Schedule 2 to this Bill is to make consequential
changes to enable the Commonwealth Superannuation Corporation to pay
amounts under the Defence Force Retirement and Death Benefits scheme
and adjust benefits under the scheme to reflect those payments.
25
Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
Human rights implications
2.25 Schedule 2 to this Bill does not engage any of the applicable
rights or freedoms.
Conclusion
2.26 Schedule 2 to this Bill is compatible with human rights as it does
not raise any human rights issues.
Minister for Financial Services and Superannuation,
the Hon Bill Shorten
26
Index
Schedule 1: Loss relief and asset roll-over for transfer of
amounts to a MySuper product
Bill reference Paragraph number
Item 1, section 311-10 1.36
Item 1, sections 311-1 and 311-5 and subsection 311-10(1) 1.17
Item 1, subsection 311-10(1) 1.18
Item 1, subsection 311-10(2) 1.21
Item 1, paragraphs 311-10(3)(a) and (b) 1.23
Item 1, paragraph 311-10(3)(c), section 311-15, and 1.25
paragraph 311-40(1)(b)
Item 1, subsection 311-10(4) 1.26
Item 1, section 311-20 1.27
Item 1, sections 311-20 and 311-35 1.28
Item 1, subsections 311-20(2) to (4) 1.29
Item 1, section 311-25 1.31
Item 1, paragraph 311-25(c) 1.32
Item 1, paragraphs 311-30(a),(b) and (d) 1.33
Item 1, paragraph 311-30(c) 1.34
Item 1, subparagraphs 311-30(c)(i) and (d)(i) 1.35
Item 1, section 311-35 1.30
Item 1, subsections 311-40(1) and (2) 1.38
Item 1, section 311-45 1.40
Item 1, section 311-50 1.48
Item 1, section 311-60 1.50
Item 1, subsection 311-55(1) 1.57
Item 1, subsection 311-55(2) 1.58
Items 1, 2 and 13, subsection 311-10(4) 1.51
Item 3, table item 7 in subsection 40-340(1) 1.46
Item 4, table item 36 in section 112-97 1.66
Item 5, table item 11 in subsection 115-30(1) 1.42
Items 6 and 7, subsections 290-170(6) and 290-180(6) 1.60
27
Superannuation Laws Amendment (MySuper Capital Gains Tax Relief and
Other Measures) Bill 2013
Bill reference Paragraph number
Items 8, 10 and 11, paragraphs 292-25(2)(b) and 292-90(2)(b), and 1.62
table item 2A in subsection 295-190(1) and table item 2A in
subsection 295-490(1)
Item 9, subparagraph 293-30(2)(b)(ii) and clause 2, table item 4 1.65
Item 12, subsection 995-1(1) (definition of `accrued default 1.24
amount')
Items 14 to 20, 23 and 24, and clause 2, table items 6 to 8 1.52
Items 21 and 22, and subitem 25(1) 1.54
Subitem 25(2) 1.55
Schedule 2: Sustaining the superannuation contribution
concession: consequential amendments for Defence Force
superannuation
Bill reference Paragraph number
Item 1, definition of `benefit' in subsection 3(1) of the DFRDB Act 2.7
Item 2, definition of `release authority lump sum' in subsection 3(1) 2.8
of the DFRDB Act
Items 3 and 4, note in subsections 24(2A) and 32A(4) of the DFRBD 2.9
Act
Item 5, subsection 48(5) of the DFRBD Act 2.10
Item 6, section 49K of the DFRDB Act 2.12
Item 6, section 49L of the DFRDB Act and item 7, subsection 124(3) 2.14
of the DFRDB Act
Item 6, section 49M of the DFRDB Act 2.15
Item 6, section 49N of the DFRDB Act 2.17
Item 6, section 49P of the DFRDB Act 2.18
Item 6, section 49Q of the DFRDB Act 2.19
28
29