The Commonwealth Treasury


TAX EXPENDITURES STATEMENT 2004

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Chapter 6: Tax expenditures
(continued)

Retirement savings

C1 Concessional taxation of funded superannuation

Social security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
9,390 9,330 10,460 11,500 12,760 14,050 15,050 16,000
Tax expenditure type:
Concessional rate, deduction, increased rate
2003 TES code:
C1
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Part III, Division 2, Subdivision AA ITAA36Part III, Division 3, Subdivisions AA and AB ITAA36Part III, Division 14 ITAA36Part III, Division 17, Subdivisions AAA, AAB, AAC and AACA ITAA36Part IX ITAA36Section 26-80 ITAA97Section 115-10 and Paragraph 115-100(b) ITAA97Section 320-135 ITAA97Superannuation contributions tax acts (surcharge acts)

The concessional treatment of superannuation contributions, fund earnings and benefits paid is the largest single tax expenditure. This treatment of superannuation comprises several related components. These components are described in AppendixB, along with estimates of their contribution to the concessional taxation of superannuation.

 

C2 Concessional taxation of unfunded superannuation lump sums

Social security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
530 530 530 530 530 530 530 530
Tax expenditure type:
Concessional rate
2003 TES code:
C2
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Part III, Division 2, Subdivision AA ITAA36Part III, Division 14 ITAA36Part III, Division 17, Subdivision AAA ITAA36Part IX ITAA36Superannuation contributions tax acts (surcharge acts)

In the case of an unfunded superannuation lump sum 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 lump sums are taxed in the same way as superannuation lump sums from untaxed funds (the tax treatment of these payments is outlined in Appendix B).

 

C3 Concessional treatment of non-superannuation termination benefits

Social security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
970 910 930 850 780 700 650 590
Tax expenditure type:
Concessional rate
2003 TES code:
C3
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Part III, Division 2, Subdivision AA ITAA36Part III, Division 14 ITAA36Part III, Division 17, Subdivision AAA ITAA36Termination payments tax acts (termination payments surcharge acts)

Non-superannuation termination payments are generally paid by employers to terminating employees. These amounts are taxed in the same way as superannuation lump sums from untaxed funds (the tax treatment of these payments is outlined in Appendix B) with the exception of bona fide redundancy payments and approved early retirement scheme payments which are tax free up to certain limits. This tax expenditure excludes the treatment of payments in lieu of leave (see C4 and C5).

 

C4 Capped taxation rates for lump sum payments for unused recreation and long service leave

Social security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
210 230 210 190 170 155 145 135
Tax expenditure type:
Concessional rate
2003 TES code:
C4
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Sections 26AC, 26AD, 159S and 159SA ITAA36

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 18August 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.

 

C5 Taxation of 5 per cent of unused long service leave accumulated by 15August 1978

Social security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
135 115 100 85 70 55 50 40
Tax expenditure type:
Concessional rate
2003 TES code:
C5
Commencement date:
Introduced before 1985
Expiry date:
 
Legislative reference:
Subsection 26AD(5) ITAA36

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.

 

C6 Capital gains tax exemption on the sale of a small business at retirement

Social security and welfare ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
35 50 65 90 90 90 90 90
Tax expenditure type:
Exemption
2003 TES code:
C6
Commencement date:
1997
Expiry date:
 
Legislative reference:
Subdivision 152-D ITAA97

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.

The exemption, together with the small business 15 year capital gains tax exemption (C7), recognises the fact that small business taxpayers need to put their resources into their businesses and therefore find it more difficult to save for their retirement by contributing to tax advantaged superannuation funds.

 

C7 Small business 15 year capital gains tax exemption

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* 3 30 13 13 14 14 14
Tax expenditure type:
Exemption
2003 TES code:
C7
Commencement date:
1999
Expiry date:
 
Legislative reference:
Subdivision 152-B ITAA97

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 only available if the taxpayer is permanently incapacitated or reaches the age of 55 and retires.

The exemption, together with the capital gains tax exemption on the sale of a small business at retirement (C6), recognises the fact that small business taxpayers need to put their resources into their businesses and therefore find it more difficult to save for their retirement by contributing to tax-advantaged superannuation funds.

 

C8 Capital gains tax roll-over relief for changes to trust deeds of Approved Deposit Funds and superannuation funds

Other economic affairs (C) ($m)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
* * * * * * * *
Tax expenditure type:
Deferral
2003 TES code:
C8
Commencement date:
1994
Expiry date:
 
Legislative reference:
Subdivision 126-C ITAA97

Capital gains tax (CGT) roll-over relief is provided where a complying superannuation fund or a complying Approved Deposit Fund (ADF) amends or replaces its trust deed. In the absence of the roll-over, either CGT event E1 (creating a trust over an asset) or CGT event E2 (transferring an asset to a trust) would give rise to a CGT taxing point if the amendment or replacement of the trust deed resulted in a resettlement of the fund.

 

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Commonwealth of Australia 2005
ISBN 0 642 74280 4