Australian Government, A Plan to Simplify Superannuation

Simplified Superannuation - Final Decisions

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Other measures

Key Points

  • The taxation of employer ETPs will be changed to reflect the removal of the RBL system and benefits tax.
  • Greater use of tax file numbers will be encouraged.

Employer payments (page 41)

Currently, both superannuation benefits and employer ETPs are counted together in assessing if they exceed the RBL. As the RBL is to be removed for superannuation benefits, it is necessary to consider the taxation of employer ETPs, particularly the application of an upper limit on the amount of employer ETPs that receive concessional taxation treatment.

Employer ETPs will be comprised of two components — exempt and taxable. The exempt component will be any post-June 1994 invalidity amount and the pre-July 1983 amount. This will be exempt from tax. The taxable component will be the post-June 1983 amount. This will be taxed at 15 per cent for amounts up to $140,000 (indexed) for recipients aged 55 and over and at 30 per cent for those aged under 55. Amounts in excess of $140,000 will be taxed at the top marginal tax rate (plus Medicare levy). These arrangements will apply per termination and any payment must be made within one year of termination.

As superannuation benefits paid to those over age 60 will be tax free, employer ETPs will no longer be able to be rolled over into superannuation. This would have allowed people to put in place arrangements to avoid the intent of the caps on concessional and post-tax contributions.

Transitional arrangements

Transitional arrangements will be put in place for individuals with employer ETPs specified in existing employment contracts as at 9 May 2006, provided payment is made prior to 1 July 2012. Under these arrangements, amounts will be taxed at 15 per cent up to $140,000 (30 per cent if under 55), 30 per cent up to $1 million and the top marginal rate plus Medicare levy for amounts over $1 million.

These employer ETPs can also be rolled into superannuation until 1 July 2012. However, any amounts above $1 million that are rolled over will have the excess above $1 million taxed at the top marginal tax rate plus Medicare levy. Amounts of less than $1 million will be treated as a taxable contribution to the fund but will not count against the $50,000 cap on concessional contributions.

Other employer payments

The taxation treatment of bona fide redundancy payments, approved early retirement scheme payments, or unused leave will not be changed.

Non-quoting of tax file numbers (page 43)

Tax on contributions

Currently there is no requirement for a person to quote their tax file number before making a contribution to a superannuation fund. However, a higher rate of tax is imposed on superannuation benefits if the member has not quoted their TFN.

The provision of TFNs with contributions being made to superannuation funds is important for the effective administration of the new superannuation system, particularly enforcing the superannuation contribution caps. Accordingly, where a TFN has not been quoted to a taxed fund, contributions will be taxed at the top marginal tax rate plus Medicare levy where taxable contributions to that fund for an existing member exceed $1,000 in a year. The $1,000 threshold will not apply for accounts opened on or after 1 July 2007.

Funds will not be required to apply the higher tax for accounts where a TFN has not been quoted until 30 June each year. This will give people until 30 June 2008 to quote their TFN if they have not already done so before the higher rate need apply. The additional tax will be refunded back to the fund where a valid TFN is provided within the period a fund can amend its own assessment (generally four years).

New arrangements will be put in place to minimise the number of accounts subject to the additional tax. Currently, when an employee completes a TFN declaration form for employment purposes they can also allow their employer to pass on their TFN to a superannuation fund. The provision of superannuation is an integral part of an employment package. Therefore, the legislation will be amended so that where an employee quotes a TFN for employment purposes it is automatically taken to be quoted for superannuation purposes. Generally, the employer must pass this onto a superannuation fund within 14 days of the TFN being quoted. Enforcement of this requirement will move from the Australian Prudential Regulation Authority to the ATO.

Where possible, the ATO will use its systems to match TFNs to members where non-quotation has occurred and contact members to organise for a TFN to be provided to their superannuation fund. The ATO will also undertake an education campaign to encourage members to provide their TFN to the fund.

Undeducted contributions

A superannuation fund will only be able to accept post-tax contributions for or on behalf of a member, if the member’s tax file number has been quoted to the fund.

Benefit payments

Currently, where a person has not quoted their tax file number, the superannuation fund withholds tax at the top marginal tax rate on the payment of any pre-July 1983 component and post-June 1983 component.

Under the new arrangements, where a tax file number is not quoted only the post-June 1983 component (the taxable element) will be subject to withholding at the top marginal tax rate, as the pre-July 1983 component will be classed as an exempt component which is tax free.

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Miscellaneous