The Australian Government will protect the integrity of the taxation system by ensuring that pre-1July1988 Funding Credits (‘funding credits’) can be used only in accordance with the original policy intent. The measure is expected to only affect some public sector superannuation schemes.
The Government has become aware of arrangements under which some public sector superannuation schemes are inappropriately applying funding credits to reduce tax on contributions made to fund benefits that accrued after 1July1988. This measure will remove this anomaly and ensure consistent treatment between funded and unfunded schemes.
Pre-1July1988 funding credits will be able to be used by superannuation schemes to reduce their taxation liability on contributions made after 1July1988, only if those contributions were made to fund benefits that accrued before 1July1988. The measure will take effect from 9May2006.
Since 1July1988 most contributions to superannuation schemes have been subject to a 15percent tax. Unfunded superannuation schemes have access to pre-1July1988 funding credits so that contributions made after 1July1988 in order to fund benefits that accrued prior to 1July1988 are not taxed. This ensures equity with funded superannuation schemes which pay tax on contributions from 1July1988.
Any new or outstanding objections or requests for amendment to past assessments will only be able to amend funding credit use for that year/s up to the amount that can be claimed under the new law. This is designed to ensure that the new law cannot be avoided by superannuation schemes adjusting previous years’ returns.