Super tax highly modified
Major changes to the superannuation fund withdrawal tax bill address investor and trustee concerns.
Monday, July 31st 2000, 12:00AM
The Finance and Expenditure Select Committee reported the Taxation (FBT, SSCWT and Remedial Matters) Bill back to Parliament yesterday.
Substantial changes have been made to the proposed legislation which covers the superannuation fund withdrawal tax and the three-tier fringe benefit tax, both of which are intended to support the recent increase in the top personal tax rate to 39%
KPMG Legal partner Tony Lines says the original bill was a mess because it was drawn up so quickly.
He says the revised bill is much tidier, however it will still be a complex piece of tax law to comply with.
Under the bill an employer can pay part of an employee's salary into a registered super fund. If that employee is earning more than $60,000 that contribution will be taxed at 33% instead of 39%.
However, if the money is withdrawn from the scheme the employee will have to pay a 5 per cent fund withdrawal tax (FWT).
This tax will be restricted to the amount of the employer contribution on an employee's behalf if the trustee can identify this.
Lines says Finance Minister Michael Cullen is committed to the FWT model and the whole concept of locked in retirement savings.
One of the key changes in the bill is that this tax will apply from July 31, rather than April 1 as originally proposed. This addresses the concerns trustees had about administering the new tax retrospectively.
Also, the bill has made it clear that existing contributions and contributions that continue at current levels will not be subject to the withdrawal tax.
When the Bill was first announced there was outrage that people on less than $60,000 would also have to pay the tax.
The committee has recommended a reduction in the amount liable for the withdrawal tax for those earning less than $60,000. For each of the four income years preceding the year of withdrawal in which the member's taxable income and the employer specified superannuation contributions are less than $60,000, the withdrawal tax is reduced by 25%.
The other main concerns with the bill related to flaws in the transition and grandfathering provisions and difficulties with the rules on contributions made in the two years prior to ceasing employment.
The committee has addressed these concerns recommending that withdrawals made on the basis of partial retirement also be exempt.
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