The Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, announced today that the Government will amend the tax laws to ensure taxpayers are not disadvantaged when they decide to stop their superannuation pension and start accumulating superannuation again within the same superannuation fund.
This situation can arise when a person returns to work or begins to look for work after they have already started receiving an allocated pension.
Senator Coonan said the changes would ensure that that such `internal roll-overs' were treated as Eligible Termination Payments (ETPs).
They will therefore be able to be reported for reasonable benefit limit purposes, avoiding the potential adverse tax consequences that would otherwise arise.
The amendments will apply with effect from 1 July 2001 to co-incide with the Government's measure to exempt superannuation assets from the social security means test for people aged between 55 and age pension age.
The Government will also be acting to close off opportunities for any tax planning strategies that could undermine the Government's retirement income policy objectives. The measures to address these strategies involve:
- requiring a minimum payment to be made from a superannuation pension prior to commutation; and
- clarifying the operation of the rule which allows a `complying pension' to be commuted within six months of its commencement.
These integrity measures will apply with effect from 1 July 2003 to enable industry to prepare for the changes.
More detail on these measures is contained in Attachment A.
Queries about the internal roll-over measures should be directed to the Australian Taxation Office Superannuation Information Line on 13 10 20.
"The Government is committed to encouraging individuals to save for their retirement and supports this commitment with generous taxation concessions that currently total about $9.5 billion," Senator Coonan said.
"The measures I am announcing today are consistent with maintaining the integrity of these concessions."
Media contact: Shaun Anthony (02) 6277 7360 or 0438 690 305
Attachment A
MEASURES TO ADDRESS SUPERANNUATION TAX PLANNING STRATEGIES
Requiring a minimum income amount to be paid in the event of the commutation of a superannuation pension
The Superannuation Industry (Supervision) Regulations (SISR) will be amended with the intention of ensuring that the requirement to make regular income payments from a superannuation pension can not be circumvented. Broadly, this will be done by:
- requiring a minimum income payment to be made from a superannuation pension in the event of a full commutation; and
- tightening the rule allowing funds not to make a pension payment in the year that a pension commences if it commences between 1 April and 30 June.
The minimum payment required prior to a full commutation will be the annual minimum or guaranteed payment, pro-rated on the basis of the time of the year at which the commutation occurs (similar pro-rating rules currently apply to new pensions commencing part way through a year).
- $10,000 x (93/365) = $2,548.
- For example, Bob purchased an allocated pension 3 years ago which has a current minimum annual payment of $10,000. Bob decides to commute the pension on 1 October and roll-over the proceeds to the accumulation phase. Bob's minimum pension payment required prior to commutation will be:
The 1 April rule will be replaced with a new rule whereby an income payment would not have to be made from a pension in its first year where the pension commences on or after 1 June.
The majority of retirees who are already drawing regular payments from their superannuation pensions will be unaffected by the changes.
Similar changes will be made in respect of annuities.
Clarifying the operation of the 6 month rule for commutation of a `complying' superannuation pension
`Complying' lifetime or life expectancy superannuation pensions are, with limited exceptions, non commutable. These limited exceptions include that a pension can be commuted within 6 months of its commencement, or where the proceeds of the commutation are rolled over in full to purchase another `complying' income stream. The intention behind this rule is that superannuation savings invested in these income streams are required to satisfy the commitment to pay an income for life, or the prescribed term, in order to qualify for the associated taxation and social security concessions.
The SISR will be amended to clarify that the six month window for commutations is a once only `cooling off' period for a given tranche of superannuation savings invested in a `complying' income stream. This change will ensure that a `complying' income stream which has run for longer than 6 months cannot be commuted out of the system under a strategy involving commutation and roll-over to another `complying' income stream, and subsequent commutation of the new income stream within 6 months of its commencement.