Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
1996-97
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SMALL SUPERANNUATION ACCOUNTS AMENDMENT BILL 1997
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Treasurer, the Hon Peter
Costello, MP)
88527 Cat. No. 96 7737 2 ISBN 0644 502789
The amendments tighten the preservation of superannuation monies in the Superannuation Holding Accounts Reserve (SHAR) and provide an objective test for release of those monies on the ground of hardship.
The amendments will:
remove access to monies in SHAR on the ground of being less than $500;
restrict access to monies in SHAR on the ground that the individual is not an Australian resident, to cases where the individual has reached preservation age (currently age 55); and
replace access to monies in SHAR on the ground of severe financial hardship with a new objective test that an individual has been in receipt of specified Commonwealth income support payments for a continuous period of 52 weeks or if over age 55, a cumulative period of 39 weeks after that age.
Date of effect: The amendments apply to withdrawal requests (for the withdrawal of money from SHAR) given to the Commissioner of Taxation on or after 1 July 1997.
Proposal announced: 1997-98 Budget.
Financial impact: Negligible.
Compliance cost impact: None.
1.1 The Bill will change the arrangements governing the early release of monies from the Superannuation Holding Accounts Reserve (SHAR) to individuals on whose behalf the monies are held. The arrangements will be altered in three aspects:
the current $500 threshold will be abolished.
the 'severe financial hardship' test will be replaced with an objective test of hardship based on whether the individual has received specified Commonwealth payments for a certain period.
SHAR will be able to release monies to a person who claims to be a non-resident only after that person has reached the preservation age, currently 55.
1.2 The amendments will tighten the preservation arrangements relating to monies in SHAR. Although SHAR is simply a holding reserve for payments made on behalf of employees, this tightening is consistent with the Government's retirement incomes policy in ensuring leakage from superannuation funds prior to genuine retirement is kept to a minimum.
1.3 The amendments will apply to withdrawal requests, in respect of monies in SHAR, given to the Commissioner of Taxation after 30 June 1997. [Clause 2, Item 11]
1.4 The Government announced, in the 1997-98 Budget, that it would tighten the arrangements for the early release of superannuation benefits. This decision was made in response to concerns that there is unnecessary leakage of preserved superannuation monies and also concerns of high compliance costs to superannuation funds in ascertaining whether members satisfy the current conditions for early release of benefits.
1.5 Although SHAR is not a superannuation fund, the Government nonetheless considers it appropriate that changes be made to SHAR to mirror the changes that will be made to early release arrangements for superannuation funds.
1.6 SHAR was established by the Small Superannuation Accounts Act 1995 (the Act). This Act was part of a legislative package requiring superannuation funds to protect small superannuation amounts by ensuring that fees and charges applying to small amounts are no greater than the interest earned on such amounts.
1.7 The Act enables SHAR to accept superannuation contributions from employers. This was done to ensure that where an employer's superannuation fund did not accept a particular contribution because it had to protect it, the employer had an accessible fund with no contribution restrictions to make their contributions. SHAR is administered by the Commissioner of Taxation.
1.8 Consistent with the Government's retirement incomes policy that superannuation savings should be preserved for retirement, the Act only permits contributions to SHAR to be accessed by the individual for whose benefit they are held, in limited circumstances.
1.9 These limited circumstances are set out in Division 5 of Part 7 of the Act. Section 62 of the Act provides a simplified outline of these circumstances and provides that the balance of an individual's account may be withdrawn if:
the balance is less than $500 and the individual has ceased to be employed by all depositors;
the individual is in severe financial hardship;
the individual has retired because of permanent disability;
the individual has turned 65; or
the individual is not an Australian resident and is not employed in Australia.
1.10 Schedule 1 to the Bill alters three of the above five circumstances in which individuals can access money from SHAR. The amendments to the three circumstances are:
individuals will no longer be able to request payment of their SHAR balance on the basis that the balance is less than $500;
the severe financial hardship test will be replaced with an objective test of whether an individual has received specified Commonwealth payments over a certain period of time; and
individuals will only be able to request payment of their SHAR balance on the basis that they are not an Australian resident if they have reached 55 years of age.
Balance of less than $500
1.11 Individuals will no longer be able to request payment of their SHAR balance on the basis that the balance is less than $500. The provision in the Act allowing this, section 63, will be repealed. [Item 6]
1.12 This repeal necessitates two consequential amendments. Section 14, which outlines the types of debits that can be made to an individual's SHAR account, and section 62, which provides a simplified outline of Division 5 of Part 7, are both amended to reflect the repeal of section 63. [Items 1 and 4]
Replacing the 'severe financial hardship' test
1.13 The current 'severe financial hardship' test in section 64 essentially allows individuals to access their SHAR balance where the Insurance and Superannuation Commissioner determines in writing that the individual is in severe financial hardship. This test will be replaced with an objective test that relies on the individual receiving specified Commonwealth payments for a certain period of time.
1.14 To access their SHAR balance under the replacement arrangements, individuals face slightly different tests depending upon their age. Where an individual is 55 years of age or older he or she must be able to provide to the Commissioner of Taxation a letter from the Department or agency administering the particular payment or payments, that evidences the individual's receipt of that payment or payments for a period of at least 39 weeks or two or more periods that add up to at least 39 weeks, since the person has turned 55. [Item 7, new subparagraph 64(1)(b)(i) and new paragraph 64(1)(c)]
1.15 In any other case, the individual must be able to provide to the Commissioner of Taxation a letter from the Department or agency administering the particular payment or payments they are receiving, that evidences the individual's receipt of that payment or payments for a continuous period of at least 52 weeks up until the withdrawal request is given to the Commissioner of Taxation [item 7, new subparagraph 64(1)(b)(ii) and new paragraph 64(1)(c)]. The letter is taken to provide evidence that the continuous period of payment or payments has continued for 21 days after the date of the letter unless there is evidence to the contrary [item 8, new subsection 64(6)]. This extends the life of the letter to allow the individual 21 days after the date of the letter to give the Commissioner of Taxation a withdrawal request.
1.16 The Commonwealth payments that are specified for the purposes of the new test are social security benefits or pensions, service pensions or income support supplements as defined in section 23 of the Social Security Act 1991. In addition, the amendments will provide for additional payments to be prescribed if such a need arises. [Item 9]
1.17 Similar to the consequential amendments noted in paragraph 1.12 above, this change results in consequential amendments to sections 14 and 62. [Items 1 and 4]
1.18 In addition, existing subsection 64(6) is repealed, given that there is no longer any need to provide a power of delegation for the Insurance and Superannuation Commissioner to determine severe financial hardship. [Item 8]
Examples of the new 'Commonwealth income support' test
1.19 John Citizen, age 54, has been in receipt of a service pension from the Department of Veterans Affairs for the last 52 weeks. John may access his superannuation money in SHAR by giving the Commissioner of Taxation a withdrawal request and a letter from the Department of Veterans Affairs stating that John has been in receipt of a service pension for at least the last 52 weeks.
1.20 Mary Smith, age 59, received social security pension payments from the Department of Social Security for 28 weeks when she was 56 and for another 28 weeks when she was 57. Mary may access her superannuation money in SHAR by giving the Commissioner of Taxation a withdrawal request and a letter from the Department of Social Security stating that Mary has been in receipt of a social security pension for at least 39 weeks since she reached 55.
1.21 Bob Jones, age 30, ceased to be in receipt of social security benefits on 31 July 1997. Bob had been in continuous receipt of social security benefits for the 2 years before 31 July 1997, but had not applied to withdraw his superannuation money from SHAR before that time. Bob is unable to now withdraw his superannuation money because he is no longer in receipt of social security benefits.
Not an Australian resident
1.22 The current test effectively allows persons who intend to permanently depart Australia to have access to their account balance. The Bill changes this test to allow non-residents access to their SHAR balances only where they have reached 55 years of age. [Item 10]
1.23 Similar to the other two changes, this amendment results in consequential amendments to sections 14 and 62 of the Act. [Items 2, 3 and 5]