Retirement Savings

Date

C. Retirement savings

C1 Concessional taxation and exemption of certain personal superannuation contributions

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
960 1,000 620 750 810 820 840 850
Tax expenditure type: Exemption, Reduction in taxable value 2014 TES code: C1
Estimate Reliability: Medium    
Commencement date: Introduced before 1985 Expiry date:  
Legislative reference: Divisions 290, 291 and 295 of the Income Tax Assessment Act 1997

Subject to the concessional contributions caps, personal contributions for certain persons earning less than 10 per cent of their income as an employee are taxed at a concessional rate of 15 per cent. For individuals with income greater than $300,000, the effective rate is 30 per cent.

C2 Concessional taxation of capital gains for superannuation funds

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
90 80 170 350 580 1,040 1,430 1,560
Tax expenditure type: Reduction in taxable value 2014 TES code: C2
Estimate Reliability: Low    
Commencement date: 1999 Expiry date:  
Legislative reference: Paragraph 115-10(b) and subparagraph 115-100(b)(i) of the Income Tax Assessment Act 1997

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 12 months.

C3 Concessional taxation of employer superannuation contributions

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
14,250 13,850 14,400 15,500 16,250 16,200 16,850 18,750
Tax expenditure type: Exemption, Reduction in taxable value 2014 TES code: C3
Estimate Reliability: Medium    
Commencement date: Introduced before 1985 Expiry date:  
Legislative reference: Divisions 290, 291 and 295 of the Income Tax Assessment Act 1997

Employer contributions, up to the concessional contributions caps, are included in the assessable income of a superannuation entity and taxed at a concessional rate of 15 per cent. For individuals with income greater than $300,000, the effective rate is 30 per cent.

C4 Concessional taxation of lump sum payments for unused recreation and long service leave

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
145 200 220 240 205 195 180 175
Tax expenditure type: Concessional rate 2014 TES code: C4
Estimate Reliability: Medium    
Commencement date: Introduced before 1985 Expiry date:  
Legislative reference: Subdivision 83-A and 83-B of the 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.

C5 Concessional taxation of non-superannuation termination benefits

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
2,000 2,450 2,550 2,700 2,050 1,950 1,900 1,900
Tax expenditure type: Concessional rate 2014 TES code: C5
Estimate Reliability: Low    
Commencement date: Introduced before 1985 Expiry date:  
Legislative reference: Division 82 of the Income Tax Assessment Act 1997
Division 82 of the Income Tax (Transitional Provisions) Act 1997
Subdivision 83-C of the Income Tax Assessment Act 1997

Non-superannuation termination payments, known as employment termination payments (ETPs), are taxed differently to lump sums paid from untaxed superannuation funds. Genuine redundancy and early retirement scheme payments made to people under 65 years of age are also tax free up to a limit, and amounts in excess of this limit are taxed as an ETP.

C6 Concessional taxation of superannuation entity earnings

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
13,100 11,600 11,100 12,500 13,550 14,100 15,350 18,050
Tax expenditure type: Exemption, Concessional rate 2014 TES code: C6
Estimate Reliability: Low    
Commencement date: Introduced before 1985 Expiry date:  
Legislative reference: Division 295 of the Income Tax Assessment Act 1997

The tax rate on earnings for complying superannuation entities is 15 per cent (accumulation phase) or nil where the earnings are derived from assets which are used to meet current pension liabilities (drawdown phase). Complying superannuation entities are entitled to refunds of excess imputation credits attached to dividends payable to them.

A complying superannuation entity is one that has elected to be regulated and has complied with certain prudential requirements in the Superannuation Industry (Supervision) Act 1993.

C7 Concessional taxation of unfunded superannuation

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
450 470 500 530 560 600 630 670
Tax expenditure type: Exemption, Offset, Concessional rate 2014 TES code: C7
Estimate Reliability: Medium    
Commencement date: Introduced before 1985 Expiry date:  
Legislative reference: Part 3-30 and Subdivision 320-D of the Income Tax Assessment Act 1997
Part 3-30 of the Income Tax (Transitional Provisions) Act 1997

In the case of unfunded superannuation, no employer contributions are made until the benefit is provided on the member’s retirement. The appropriate benchmark treatment of these amounts is 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 C13). Similarly, unfunded superannuation income streams are taxed in the same way as funded superannuation income streams from untaxed funds (see C12). The tax treatment of a death benefit paid to a dependant as an income stream depends on the age of the fund member and the dependant. If either was aged 60 or over at the time of death, then the taxable component of payments to the dependant will be taxed at marginal rates with a 10 per cent tax offset. If both were under age 60 at the time of death, the taxable component of the pension will be taxed at the dependant’s marginal rate and will become eligible for the 10 per cent offset once the dependant reaches age 60.

C8 Concessional taxation of unused long service leave accumulated prior to 15 August 1978

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
60 60 55 50 50 45 45 45
Tax expenditure type: Concessional rate 2014 TES code: C8
Estimate Reliability: Medium — High    
Commencement date: Introduced before 1985 Expiry date:  
Legislative reference: Subsection 83-80(1) of the 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.

C9 Exemption for capital gains on small business retirement

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
370 370 400 420 430 440 460 480
Tax expenditure type: Exemption 2014 TES code: C9
Estimate Reliability: Medium — Low    
Commencement date: 1997 Expiry date:  
Legislative reference: Subdivision 152-D of the Income Tax Assessment Act 1997

Eligible small businesses can exclude capital gains arising from the sale of active small business assets, where the proceeds of the sale are used for retirement. There is a lifetime limit of $500,000 in respect of any one individual.

C10 Superannuation measures for low-income earners

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
170 140 120 200 210 210 200 200
Tax expenditure type: Exemption, Reduction in taxable value 2014 TES code: C10
Estimate Reliability: Medium — Low    
Commencement date: Co-contribution introduced 1/7/2003.
Low income superannuation contribution introduced 1/7/2012.		 Expiry date: Low income superannuation contribution ends 30/6/2017. Co-contribution is ongoing.
Legislative reference: Superannuation (Government Co-Contribution for Low Income Earners) Act 2003

The Superannuation Co-contribution and the Low Income Superannuation Contribution are Government payments that increase the retirement savings of eligible low-income taxpayers. These payments are expense payments and as such are not included in the TES. The amounts indicated represent the impact of these payments not being taxed.

In addition, an 18 per cen
t tax offset is available for post-tax contributions to the superannuation account of a low income spouse. A maximum offset of $540 applies for a $3,000 contribution and is phased out once the spouse’s income exceeds $13,800.

C11 Tax on excess non-concessional superannuation contributions

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
-28 -23 -36 -35 * * * *
Tax expenditure type: Exemption, Reduction in taxable value 2014 TES code: C11
Estimate Reliability: Medium * Category 2-
Commencement date: Expenditure will be amended from 1/7/2013. Expiry date:  
Legislative reference: Division 292 of the Income Tax(Transitional Provisions) Act 1997
Division 292 of the Income Tax Assessment Act 1997
Superannuation (Excess Non-Concessional Contributions Tax) Act 2007

Contributions above the non-concessional caps may be subject to the excess contributions tax levied at 49 per cent (the top marginal tax rate, including the Medicare levy and temporary budget repair levy). Non-concessional contributions above the non-concessional cap can be withdrawn, in which case, they are not subject to the excess contributions tax.

C12 Tax on funded superannuation income streams

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
-290 -290 -330 -350 -350 -360 -360 -370
Tax expenditure type: Increased rate 2014 TES code: C12
Estimate Reliability: Medium    
Commencement date: Introduced before 1985 Expiry date:  
Legislative reference: Divisions 301 and 302 and Part 3-30 of the Income Tax Assessment Act 1997
Part 3-30 of the Income Tax (Transitional Provisions) Act 1997

Superannuation income stream payments from a taxed source are tax free for persons aged 60 and over. The taxable component of superannuation income stream payments from a taxed source to persons below age 60 is included in assessable income, and the tax paid on this amount creates a negative tax expenditure because benefits are untaxed under the superannuation benchmark. Similarly, a death benefit paid from a taxed source as a reversionary pension to a beneficiary aged under 60 is taxed. Some offsets reduce the amount of tax paid, for instance a 15 per cent tax offset applies to the taxable component of superannuation income stream benefits paid to persons aged 55 to 59, and to disability benefits paid to persons of any age.

The taxable component of superannuation income stream payments from an untaxed source is included in the recipient’s assessable income. A 10 per cent tax offset applies to the taxable component of pension payments for persons aged 60 and over.

C13 Tax on funded superannuation lump sums

Social security and welfare ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
-250 -270 -320 -360 -390 -430 -460 -510
Tax expenditure type: Increased rate 2014 TES code: C13
Estimate Reliability: Medium    
Commencement date: Introduced before 1985 Expiry date:  
Legislative reference: Divisions 301, 302 and 307 and Part 3-30 of the Income Tax Assessment Act 1997
Part 3-30 of the Income Tax (Transitional Provisions) Act 1997

The tax raised on lump sum payments results in a negative tax expenditure because the benchmark treatment of savings applies marginal personal income tax rates to contributions and earnings, while benefits are tax free.

For a person aged 55 to 59, the tax rate on the taxable component of a lump sum above the cap amount paid from a taxed fund, is 15 per cent. For a person below age 55, a maximum tax rate of 20 per cent applies.

The taxable component of lump sums paid from untaxed funds to persons aged 60 or over is taxed at a maximum rate of 15 per cent up to an (indexed) amount and at the top marginal rate thereafter. For persons aged 55 to 59, the tax rate ranges from 15 per cent up to the top marginal rate, while for persons under age 55 the tax rate is typically 30 per cent.

Special arrangements apply to lump sums paid to certain temporary residents who have departed Australia, while death benefit payments to non-dependants are taxed at a maximum rate of 15 per cent where paid from a taxed source, and at a maximum rate of 30 per cent where paid from an untaxed source.

C14 Exemption of foreign termination payments

Other economic affairs — Other economic affairs, nec ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
* * * * * * * *
Tax expenditure type: Exemption 2014 TES code: C14
Estimate Reliability: Not Applicable * Category 1+
Commencement date: 2007 Expiry date:  
Legislative reference: Subdivision 83-D of the Income Tax Assessment Act 1997

Termination payments from foreign employment are non-assessable and non-exempt income where the taxpayer is a foreign resident. Where the taxpayer is an Australian resident for some of the period to which the termination payment relates, the payment will be non-assessable and non-exempt if it was received in consequence of the termination of a period of employment or engagement for the purposes o
f section 23AF or section 23AG and the payment relates only to that period of employment or engagement. This does not apply if the payment is a superannuation benefit or a pension or annuity.

C15 Exemption for small business assets held for more than 15 years

Other economic affairs — Other economic affairs, nec ($m)
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
130 135 150 200 205 210 220 230
Tax expenditure type: Exemption 2014 TES code: C15
Estimate Reliability: Medium — High    
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 where the taxpayer is permanently incapacitated or reaches the age of 55 and retires.