The Commonwealth Treasury


Tax Expenditures Statement - 2007

Close Window

Retirement savings

Tax expenditures for social security and welfare

C1 Capital gains tax small business retirement exemption
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
100 150 150 200 220 260 280 300
Tax expenditure type:
Exemption
2006 TES code:
C6
Commencement date:
1997
Expiry date:
-
Legislative reference:
Subdivision 152-D of the Income Tax Assessment Act 1997

Capital gains arising from the sale of active small business assets are exempt from capital gains tax, up to a lifetime limit of $500,000, where the proceeds of the sale are used for retirement. An eligible small business is one where the net value of assets that the taxpayer and connected entities own is no more than $6 million.

From 1 July 2007, small businesses with average annual turnover of less than $2 million have been able to access this concession under the Small Business Framework without having to satisfy the net value of assets test.

C2 Capped taxation rates for lump sum payments for unused recreation and long service leave
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
190 190 180 130 120 115 110 100
Tax expenditure type:
Concessional rate
2006 TES code:
C4
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Sections 26AC, 26AD, 159S and 159SA Income Tax Assessment Act 1936
Subdivisions 83-A and 83-B Income Tax Assessment Act 1997

A maximum tax rate of 30 per cent plus the Medicare levy applies to lump sum payments in lieu of unused long service or annual leave which accrued before 18 August 1993, or which are made in circumstances of bona fide redundancy, invalidity or under an early retirement scheme. All other lump sum payments in respect of unused annual or long service leave which accrued after 18 August 1993 are taxed at individual marginal rates.

C3 Concessional taxation of non-superannuation termination benefits
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
1200 1300 1800 1550 1400 1250 1150 1050
Tax expenditure type:
Concessional rate
2006 TES code:
C3
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Part III, Division 2, Subdivision AA Income Tax Assessment Act 1936
Part III, Division 14 Income Tax Assessment Act 1936
Part III, Division 17, Subdivision AAA Income Tax Assessment Act 1936
Termination payments tax acts (termination payments surcharge acts)
Division 82 Income Tax Assessment Act 1997
Division 82 Income Tax (Transitional Provisions) Act 1997

Non-superannuation termination payments are generally paid by employers to terminating employees. Before 1 July 2007 these amounts were taxed in the same way as superannuation lump sums from untaxed funds with the exception of bona fide redundancy payments and approved early retirement scheme payments which were tax free up to certain limits. This tax expenditure excludes the treatment of payments in lieu of leave.

From 1 July 2007, non-superannuation termination payments are taxed differently to lump sums paid from untaxed funds. Pre-June 1983 and invalidity amounts are tax free, and the residual is taxed at 15 per cent for amounts up to $140,000 (indexed) for recipients aged above preservation age and at 30 per cent for those aged under preservation age. Amounts in excess of $140,000 are taxed at the top marginal tax rate. The Medicare levy is payable in addition to these rates. Transitional arrangements also apply for entitlements in place as at 9 May 2006. The tax treatment of genuine redundancy payments and early retirement scheme payments has not changed.

This tax expenditure excludes the treatment of payments in lieu of leave (see the tax expenditures Capped taxation rates for lump sum payments for unused recreation and long service leave and Taxation of five per cent of unused long service leave accumulated by 15 August 1978).

C4 Superannuation - capital gains tax discount for funds
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
95 420 1100 1550 1550 1450 1550 1650
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
10 December 1999
Expiry date:
-
Legislative reference:
Paragraph 115-10(b) and subparagraph 115-100(b)(i) of the Income Tax Assessment Act 1997

Capital gains made by complying superannuation funds are taxed concessionally. Two-thirds of any nominal capital gain made from a capital gains tax event occurring on or after 21 September 1999 is included in the assessable income of a fund, provided the fund has held the asset for at least one year. The effect of this item is in addition to the effect of lower tax rates for superannuation investments reported in the tax expenditure Superannuation - concessional taxation of superannuation entity earnings. The amounts reported reflect the additional tax that would be raised at fund rates on the same investments if total nominal capital gains were taxed instead of discounted gains or gains with frozen indexation.

C5 Superannuation - concessional taxation of employer contributions
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
8100 7900 9500 9400 10150 10850 11550 12250
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Before 1 July 2007:
Part III, Division 3, Subdivisions AA Income Tax Assessment Act 1936
Part IX Income Tax Assessment Act 1936
Superannuation contributions tax acts (surcharge acts)
After 1 July 2007:
Divisions 290, 292 and 295 Income Tax Assessment Act 1997

Currently, employer contributions, after certain costs of the superannuation entity are deducted, are generally taxed in the assessable income of a superannuation entity at a concessional rate of 15 per cent. Concessional deductible contributions subject to the 15 per cent tax rate are limited to $50,000 per annum for all individuals, subject to transitional arrangements for persons aged 50 and over at $100,000 per annum. Contributions above these limits are taxed at the top marginal tax rate and Medicare Levy by applying an additional tax of 31.5 per cent on the excess contribution payable by the individual.

Before 1 July 2007, employers were not entitled to a deduction for contributions in excess of an employee’s age-based limit.

The superannuation surcharge for higher income earners applied to some of these contributions in 2004-05 and earlier financial years. The maximum surcharge rates were reduced from the original 15 per cent to 14.5 per cent in 2003-04, and to 12.5 per cent in 2004-05. The surcharge was abolished for contributions made on or after 1 July 2005.

In any particular year, the application of the benchmark treatment rather than the concessional tax rates to these contributions would increase tax revenue by the amounts indicated.

C6 Superannuation - concessional taxation of superannuation entity earnings
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
5400 8600 11850 12750 13600 13700 14900 16150
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Before 1 July 2007:
Part IX Income Tax Assessment Act 1936
After 1 July 2007:
Division 295 Income Tax Assessment Act 1997

The earnings of complying superannuation entities, after certain costs of the entities are deducted, are taxed at a concessional rate. The tax rate on earnings is 15 per cent (for the accumulation phase) or nil where they are derived from assets which are used to meet current pension liabilities (drawdown phase). Complying superannuation funds are entitled to refunds of excess imputation credits attached to dividends payable to the fund.

For financial year 2007-08 and later years, this item also includes the concessional taxation of fund earnings on funded superannuation income streams for persons aged 60 or over (for earlier years all superannuation income stream related items are included in the tax expenditure Superannuation – tax on funded superannuation income streams).

This tax expenditure reflects the extra tax in a particular year that would be collected if superannuation earnings of that year were held constant, but were taxed at the personal tax rates of members rather than fund rates. The effect of taxation on subsequent accumulations, earnings and tax is not taken into account.

C7 Superannuation - concessional taxation of unfunded superannuation
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
145 160 160 160 590 610 640 670
Tax expenditure type:
Concessional rate
2006 TES code:
C2
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Part III, Division 2, Subdivision AA Income Tax Assessment Act 1936
Part III, Division 14 Income Tax Assessment Act 1936
Part III, Division 17, Subdivision AAA Income Tax Assessnebt Act 1936
Part IX Income Tax Assessment Act 1936
Superannuation contributions tax acts (surcharge acts)
Part 3-30 Income Tax Assessment Act 1997
Subdivision 320-D Income Tax Assessment Act 1997
Part 3-30 Income Tax (Transitional Provisions) Act 1997

In the case of unfunded superannuation, no employer contribution is made until the actual benefit is provided on the member’s retirement. The appropriate benchmark treatment for these amounts is therefore taxation at personal rates on receipt by the member.

Unfunded superannuation lump sums are taxed in the same way as funded superannuation lump sums from untaxed funds (see the tax expenditures Superannuation - tax on funded lump sums relating to post-June 1983 service and Superannuation - tax on funded lump sums relating to pre-July 1983 service).

Pension payments from an unfunded source are included in the taxpayer’s assessable income and are subject to tax at marginal rates. From 1 July 2007, pension payments from an unfunded source became eligible for a 10 per cent tax offset for persons aged 60 or over.

C8 Superannuation - deduction and concessional taxation of certain personal contributions
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
260 370 380 790 780 880 980 1150
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Before 1 July 2007:
Part III, Division 3, Subdivision AB Income Tax Assessment Act 1936
Section 26-80 Income Tax Assessment Act 1997
Pt IX Income Tax Assessment Act 1936
Superannuation contributions tax acts (surcharge acts)
After 1 July 2007:
Division 290 Income Tax Assessment Act 1997
Division 295 Income Tax Assessment Act 1997
Division 292 Income Tax Assessment Act 1997

Currently, certain persons are entitled to a full deduction for personal contributions. For the purposes of this deduction, the persons entitled are those who have less than 10 per cent of their income earned as an employee. This includes many unincorporated and substantially self-employed persons.

Prior to 1 July 2007, these persons were not entitled to a deduction for contributions in excess of their age-based limit.

If the level of contributions made by these persons was maintained, but the contributions were not deductible, revenue would be higher by the amounts indicated.

The superannuation surcharge for higher income earners applied to some of these contributions in 2004-05 and earlier financial years. The surcharge was abolished for contributions made on or after 1 July 2005.

C9 Superannuation - measures for low-income earners
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
6 80 260 510 300 310 300 340
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Before 1 July 2003:
Part III, Division 17, Subdivision AAC Income Tax Assessment Act 1936
After 30 June 2003:
Superannuation (Government Co-Contribution for Low Income Earners) Act 2003

From 1 July 2003, a superannuation co-contribution applying to eligible personal superannuation contributions by qualifying people replaced the low-income earners’ tax offset.

The superannuation co-contribution is an expense measure. As such, the co-contribution payments are not included in the TES. The amounts indicated represent the impact of the co-contributions not being taxed, and the value of the offset before 2003-04.

C10 Superannuation - spouse contribution offset
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
12 13 15 15 15 16 16 17
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Before 1 July 2007:
Part III, Division 17, Subdivision AACA Income Tax Assessment Act 1936
After 30 June 2007:
Subdivision 290-D, Income Tax Assessment Act 1997

An 18 per cent offset is available for post-tax contributions to the superannuation account of a spouse (where the total of assessable income and reportable fringe benefits for the spouse is less than $13,800). The offset applies up to a maximum annual contribution of $3,000 where the spouse income is $10,800 or less, with the eligible contribution limit reducing dollar for dollar for each dollar of spouse income above that amount. The amounts reported are the value of the offset.

C11 Superannuation - tax on excess non-concessional contributions
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
10 May 2006
*Category:
2-
Expiry date:
-
Legislative reference:
Division 292 Income Tax (Transitional Provisions) Act 1997
Division 292 Income Tax Assessment Act 1997

Non-concessional contributions include those made from an individual’s after tax income (generally undeducted contributions) and excess concessional contributions (that is, employer and personal deducted contributions which have exceeded the annual concessional contribution thresholds). The benchmark treatment of these contributions is that they are taxed like any other income in the hands of the individual (that is, the contributions are taxed at the individual’s marginal tax rate).

Prior to 9 May 2006, the tax treatment of non-concessional (then referred to as undeducted) contributions was consistent with the benchmark. Since 10 May 2006, non-concessional contributions have been subject to a cap, with contributions in excess of the cap taxed at the top marginal tax rate, payable by the individual. The taxation of these excess contributions represents a deviation from the benchmark.

A cap of $1 million applies to non-concessional contributions made between 10 May 2006 and 30 June 2007. From 1 July 2007, an annual cap of $150,000 applies to non-concessional contributions, although people under age 65 will be able to bring forward up to two years worth of non-concessional contributions. Exemptions to the cap include proceeds from the disposal of assets that qualify for some small business CGT concessions, up to a lifetime limit of $1 million, and proceeds arising from structured settlements or orders for personal injuries.

C12 Superannuation - tax on funded lump sums relating to post-June 1983 service
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-160 -160 -170 -160 -140 -130 -130 -130
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Before 1 July 2007:
Part III, Division 2 Income Tax Assessment Act 1936
Part III, Division 14 Income Tax Assessment Act 1936
Part III, Division 17 Income Tax Assessment Act 1936
After 1 July 2007:
Division 301 Income Tax Assessment Act 1997
Division 302 Income Tax Assessment Act 1997

For taxed funds, the taxable component of lump sums is generally taxed at 20 per cent where the taxpayer is aged under 55 years.

For lump sums paid before 1 July 2007 to taxpayers aged 55 or over, or paid after 1 July 2007 to taxpayers aged 55 to 59, the element of any lump sum benefit taxed during the accumulation stage is typically taxed at zero per cent up to the low rate threshold and 15 per cent thereafter.

Untaxed funds are those where superannuation benefits are not taxed during the accumulation phase. For taxpayers under age 55 both before and after 1 July 2007, the taxation rate on these elements is typically 30 per cent. For taxpayers aged 55 or over before 1 July 2007, the element of a lump sum untaxed during the accumulation stage was typically taxed at 15 per cent up to the low rate threshold and 30 per cent thereafter. From 1 July 2007, lump sums received by taxpayers aged 55 to 59 are subject to tax rates ranging from 15 per cent to the top rate.

From 1 July 2007, the element of a lump sum from a taxed source relating to post-June 1983 service is tax free for persons aged 60 or over. The post-June 1983 element untaxed in a fund is typically taxed at 15 per cent up to an amount of $1 million for persons aged 60 or over.

The amounts reported are the tax raised on these lump sums.

C13 Superannuation - tax on funded lump sums relating to pre-July 1983 service
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
-25 -30 -30 -30 - - - -
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Before 1 July 2007:
Section 27C Income Tax Assessment Act 1936
After 1 July 2007:
Sections 307-210 and 307-225 Income Tax Assessment Act 1997

Before 1 July 2007, the part of a lump sum benefit relating to service before July 1983 was taxed at a lower rate. Only 5 per cent of the pre-July 1983 amount was included in a taxpayer’s assessable income and subject to tax at marginal rates. This concessional treatment reflected the regime for taxing eligible termination payments that existed before July 1983. Applying the post-June 1983 tax rates to these funded benefits would have imposed a tax retrospectively. The amounts reported are the tax raised on these lump sums.

From 1 July 2007, the component of a lump sum benefit relating to pre-July 1983 service is tax free.

C14 Superannuation - tax on funded superannuation income streams
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Exemption, Reduction in taxable value
2006 TES code:
C1
Commencement date:
Introduced before 1985
*Category:
1-
Expiry date:
-
Legislative reference:
Before 1 July 2007:
Part III, Division 2, Income Tax Assessment Act 1936
Part III, Division 14, Income Tax Assessment Act 1936
Part III, Division 17, Income Tax Assessment Act 1936
After 1 July 2007:
Division 301, Income Tax Assessment Act 1997
Division 302, Income Tax Assessment Act 1997

The taxable component of superannuation income stream payments received by a taxpayer before 1 July 2007 was included in assessable income and subject to tax at marginal rates. The taxable component of superannuation income stream payments from a taxed source to a taxpayer aged 55 or over generally attracted a tax offset of 15 per cent. The tax raised reduces the total superannuation tax expenditure, as under the benchmark withdrawals from superannuation are tax free.

From 1 July 2007, superannuation income stream payments from a taxed source are tax free for persons aged 60 or over. The taxable component of superannuation income stream payments received by a taxpayer below age 60 are included in assessable income. A tax offset of 15 per cent applies to the taxable component of superannuation income stream payments paid to taxpayers aged 55 to 59, and to disability benefits paid to taxpayers of any age.

The taxable component of pension payments from an untaxed source are eligible for a 10 per cent tax offset for persons aged 60 or over.

From 1 July 2007, this item relates to the tax on funded pensions for persons under the age of 60.

C15 Taxation of five per cent of unused long service leave accumulated by 15 August 1978
Social security and welfare ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
85 90 95 80 70 60 55 50
Tax expenditure type:
Concessional rate
2006 TES code:
C5
Commencement date:
Introduced before 1985
Expiry date:
-
Legislative reference:
Subsection 26AD(5) Income Tax Assessment Act 1936
Subsection 83-80(1) Income Tax Assessment Act 1997

A reduced tax rate applies to lump sum payments for unused long service leave which accrued prior to 15 August 1978. Five per cent of such payments is included in the taxpayer’s assessable income and is subject to tax at marginal rates.

Tax expenditures for other economic affairs

C16 Capital gains tax roll-over relief for changes to trust deeds of Approved Deposit Funds and superannuation funds
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
* * * * * * * *
Tax expenditure type:
Deferral
2006 TES code:
C9
Commencement date:
1994
*Category:
1+
Expiry date:
-
Legislative reference:
Subdivision 126-C of the Income Tax Assessment Act 1997

Capital gains tax (CGT) roll-over relief is provided where a complying superannuation fund or a complying Approved Deposit Fund amends or replaces its trust deed.

C17 Capital gains tax roll–over relief for transfer of Commonwealth Superannuation Scheme assets to the Public Sector Superannuation Investments Trust
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - 65 -15 -15 -15
Tax expenditure type:
Deferral
2006 TES code:
C7
Commencement date:
1 July 2006
Expiry date:
-
Legislative reference:
Schedule 1, Part 3 of the Superannuation Legislation Amendment (Trustee Board and Other Measures) Act 2006

An automatic capital gains tax (CGT) roll–over is available for the transfer of CGT assets from the Commonwealth Superannuation Scheme (CSS) to the Public Sector Superannuation Investments Trust as part of a restructure of the CSS.

C18 Small business capital gains tax exemption for assets held more than 15 years
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
15 15 55 55 60 60 65 65
Tax expenditure type:
Exemption
2006 TES code:
C8
Commencement date:
1999
Expiry date:
-
Legislative reference:
Subdivision 152-B of the Income Tax Assessment Act 1997

Capital gains arising from the disposal of active small business assets that have been held continuously for 15 years are exempt from capital gains tax. This exemption is available only if the taxpayer is permanently incapacitated or reaches the age of 55 and retires. An eligible small business is one where the net value of assets that the taxpayer and connected entities own is no more than $6 million.

From 1 July 2007, small businesses with average annual turnover of less than $2 million have been able to access this concession under the Small Business Framework without having to satisfy the net value of assets test.

C19 Superannuation - payment of temporary residents' superannuation to the Australian Government
Other economic affairs - Other economic affairs, nec ($m)
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- - - - - -220 -415 -290
Tax expenditure type:
Increased rate
2006 TES code:
New
Commencement date:
1 July 2008
Expiry date:
-
Legislative reference:
Not yet legislated

Unclaimed superannuation for temporary residents, other than New Zealand citizens, will be paid to the Australian Government from 1 July 2008.

 

Next: Chapter: 6.2 Income tax benchmark (section D)
Previous:
Chapter: 6.2 Income tax benchmark (section B)
Return to: Contents