EXPLANATORY STATEMENT

Select Legislative Instrument 2005 No. 334

 

Issued by authority of the Minister for Revenue
and Assistant Treasurer

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Amendment Regulations 2005 (No. 8)

Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993 (the Act) provides, in part, that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The purpose of the amending Regulations is to amend the Superannuation Industry (Supervision) Regulations 1994 to facilitate the splitting of superannuation contributions between a member and their spouse and to add a special purpose travel visa issued for the Melbourne 2006 Commonwealth Games to the list of ‘eligible temporary resident visas’ to allow departing temporary residents to access any accrued superannuation.

No public consultation was undertaken in relation to the inclusion of the Commonwealth Games special purpose visa on the list of ‘eligible temporary resident visas’ as the amendment is of a minor nature and will benefit people from overseas who come to Australia to work in connection with the Games.

Extensive public consultation was undertaken in respect of the introduction of the superannuation contribution splitting regime.  Draft versions of these regulations were exposed on a number of occasions to elicit public feedback on the operation of this aspect of the regime.

The Act does not specify any conditions that must be met before the power to make the proposed Regulations may be exercised.

The proposed Regulations would be a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Regulations relating to the Commonwealth Games special purpose visa will commence on the day after they are registered.  The Regulations relating to the superannuation contributions splitting regime will commence on 1 January 2006. 

ATTACHMENT

Details of the proposed Superannuation Industry (Supervision) Amendment Regulations 2005 (No. 8)

Regulation 1 — specifies the name of the Regulations as the Superannuation Industry (Supervision) Amendment Regulations 2005 (No. 8).

Regulation 2 — provides that Regulations 1 to 3 and Schedule 1 commences on the day after they are registered and Schedule 2 commences on 1 January 2006.

Regulation 3 — provides that Schedule 1 and 2 amends the Superannuation Industry (Supervision) Regulations 1994.

Schedule 1 — Amendments

Item 1 amends the definition of an ‘eligible temporary resident visa’ to include a special purpose travel visa for the Melbourne 2006 Commonwealth Games.

The Minister of Immigration and Multicultural and Indigenous Affairs granted a special purpose travel visa on 8 October 2005 for people coming to work in Australia in connection with the Melbourne 2006 Commonwealth Games.  The visa will be issued to competing athletes, coaches, officials, members of the Commonwealth Games Federation, National Commonwealth Games Associations, certain media with broadcasting rights and major sponsors accredited to the games by the Melbourne Games 2006 Corporation.

Item 2 amends Schedule 1AB by creating a new part for the existing ‘visa subclasses’ (ie, Part 1 Visa subclasses).

Item 3 omits the existing note but reinstates it in the new Part 2 of the Schedule.

Item 4 amends Schedule 1AB by inserting a new part (Part 2) into the list of ‘eligible temporary resident visas’ for ‘special purpose visas’ and lists the special purpose visa declared by the Minister of Immigration and Multicultural and Indigenous Affairs for the Melbourne 2006 Commonwealth games.

Schedule 2 — Amendments

Item 1 inserts the definition of ‘allot’, which means to credit an amount in the same superannuation fund under Division 6.7 for the receiving spouse if such an action would otherwise not be considered a transfer or rollover.

Item 2 inserts the definition of receiving spouse into subregulation 1.03(1).  The definition provides that the term has the meaning given by new regulation 6.46. 

Items 3 and 4 amend the definition of prescribed class in existing regulation 3.01.

Under subparagraph 18(1)(a)(ii) of the Act, a standard employer-sponsored fund becomes a public offer fund if it contains any members that are not standard employer-sponsored members and not members of a prescribed class.

Item 3 places an ‘or’ at the end of paragraph 3.01(h) to allow for the insertion of a new prescribed class clause.

Item 4 inserts new paragraph 3.01(i), which provides that a current or former spouse of a current or former standard employer-sponsored member for whom an interest has been created in the fund under new Division 6.7 is a member of a prescribed class.  This means that creating an interest in the fund for the spouse in such circumstances will not cause the fund to become a public offer fund.

Item 5 substitutes a new subregulation 5.06(1).  The current paragraph provides that benefits rolled over or transferred to a regulated superannuation fund are taken to be minimum benefits in the regulated superannuation fund.  The new paragraph retains this meaning but also provides that benefits allotted under new Division 6.7 to an interest in a regulated superannuation fund held by, or created for a receiving spouse are taken to be minimum benefits in a regulated superannuation fund.

Item 6 places an ‘or’ at the end of paragraph 5.08(1)(b) to allow for insertion of new paragraph 5.08(1)(c).

Item 7 inserts new paragraph 5.08(1)(c) to provide that a member’s minimum benefits may be rolled over, transferred or allotted under new Division 6.7.

Item 8 replaces existing regulation 6.15 by moving the provision to subregulation 6.15(1) and inserting new subregulation 6.15(2), which provides that benefits rolled over, transferred or allotted under new Division 6.7 to an interest in a regulated superannuation fund held by, or created for, a receiving spouse are taken to be preserved benefits.

Item 9 replaces subparagraph 6.17(2)(a)(ii) with new subparagraphs 6.17(2)(a)(ii) and 6.17(2)(a)(iii).  Current subregulation 6.17(2) lists the ways in which superannuation benefits may be paid.  The substituted subparagraphs retain the payment standards previously set out in subparagraph 6.17(2)(a)(ii) and extend it to ensure that benefits transferred, rolled over or allotted under new Division 6.7 are within the circumstances under which a superannuation fund is allowed to make payment. 

Item 10 inserts Division 6.7 spouse contributions-splitting amounts. 

Division 6.7 provides the mechanism for members to request a split of their contributions (which is in effect a request to roll-over, transfer or allot an amount of their benefit to their spouse with the amount determined by reference to the previous year’s contributions) and outlines the circumstances in which a trustee may accept such an application.

Regulation 6.40 — Interpretation

This regulation provides the following definitions, which apply in respect of new Division 6.7:

allocated surplus contribution amount is an amount allocated from a surplus within a fund to meet an employer’s contribution obligations.

applicant is defined as a member who makes an application under subregulation 6.44(1).

defined benefit component is defined by reference to the existing meaning of the term in regulation 6.31.

eligible non-resident non-complying superannuation fund is defined by reference to the meaning given to the term by section 27A of the Income Tax Assessment Act 1936 (ITAA 1936).

maximum splittable amount means, for taxed splittable contributions, 85 per cent of the amount of taxed splittable contributions made in the relevant financial year.  The 85% limit is a simple means of ensuring that it is the total amount of deductible contributions, net of 15 per cent contributions tax, which can be split.  For untaxed splittable contributions (which are not subject to contributions tax) the maximum splittable amount is 100 per cent of such contributions made in the relevant financial year.

post-June 83 component has the meaning given by section 27A of the ITAA 1936.

relevant financial year is defined, in respect of paragraph 6.44(1)(a) as the financial year immediately preceding the financial year in which a splitting application has been made, or, in respect of paragraph 6.44(1)(b), as the financial year in which the application is made.

splittable contribution has the meaning given by regulation 6.42.

taxed splittable contribution is defined in new regulation 6.41.

undeducted contributions, in relation to an ETP, has the meaning given by section 27A of the ITAA 1936.

untaxed splittable contribution has the meaning given by regulation 6.41.

Regulation 6.41 – taxed splittable contributions and untaxed splittable contributions

Subregulations 6.41(1) and (2) provide that a taxed splittable contribution means a contribution that is a taxable contribution under section 274 of the ITAA 1936, or would be such a contribution but for the Commonwealth’s inability to tax the property of a State, or an allocated surplus contribution amount.  Amounts rolled over, transferred or allotted, or lump sum payments from eligible non-resident non-complying funds are not taxed splittable contributions contributions.

Subregulations 6.41(3) and (4) provide that an untaxed splittable contribution is a contribution that is not a taxable contribution under section 274 of the ITAA 1936.  Amounts paid by employers, amounts rolled over to a fund and lump sum payments from eligible non-resident non-complying funds are not untaxed splittable contributions.

Regulation 6.42 — Splittable contributions

A splittable contribution is defined as a contribution (which is a term defined in subregulation 1.03(1) of the Principal Regulations) made on or after 1 January 2006 or an amount allocated from a surplus within a fund to meet an employer’s contribution obligations (to the extent such an amount is not otherwise a contribution) on or after 1 January 2006. 

Clarification of those amounts which are not splittable contributions is also provided.  Amounts that are rolled over or transferred, amounts that are allotted under Division 6.7, lump-sum payments from an eligible non-resident non-complying superannuation fund and the ETPs described in paragraphs (a) and (jaa) of the definition of eligible termination payment in subsection 27A(1) of the ITAA 1936 are not splittable contributions and may not be split with a person’s spouse.

 

 

Regulation 6.43 — Application

This regulation provides that members who hold an accumulation interest in a superannuation fund will be able to make a request under Division 6.7.  The provision will allow members of defined benefit funds to utilise the splitting regime in respect of any accumulation interest they hold (either as an accumulation member of a hybrid fund or where a separate accumulation interest is held in addition to a defined benefit component).

The regulation further provides that Division 6.7 cannot be used to transfer benefits out of a superannuation interest that is subject to a payment split or on which a payment flag (within the meaning of Part VIIIB of the Family Law Act 1975) is operating.

This prevents members using Division 6.7 to transfer benefits to an interest of a current spouse to prevent them being accessed by a former spouse under family law provisions.

Regulation 6.44 — Application to roll-over, transfer or allot an amount of contributions

Paragraph 6.44(1)(a) provides that a member of a regulated superannuation fund may apply to the trustee of the fund to roll over, transfer or allot an amount of the member’s benefit for the benefit of the member’s spouse with the amount determined by reference to the amount of contributions made by, for, or on behalf of the member in the previous financial year. 

Paragraph 6.44(1)(b) provides that a member of a regulated superannuation fund may apply to the trustee of the fund, where their entire benefit is to be rolled over or transferred in that financial year, to roll over, transfer or allot an amount of the member’s benefit for the benefit of the member’s spouse with the amount determined by reference to the amount of contributions made by, for, or on behalf of the member during the financial year.

Paragraph 6.44(2)(a) provides that an application will be invalid if the member has already made an application in respect of a relevant financial year and that application has been given effect to or is still being processed.  This effectively limits members to one valid application per year for administrative simplicity.

Paragraph 6.44(2)(b) provides that an application will be invalid if the amount requested to be split exceeds the maximum splittable amount (85 per cent for taxed splittable contributions and 100 per cent for personal contributions).

Paragraph 6.44(2)(c) provides that (subject to subregulation 6.44(3)) an application will be invalid if the member’s spouse is aged 65 years or more or between the relevant preservation age and 65 where the spouse currently satisfies a condition of release specified as item 101 in column 1 of Schedule 1 of the Principal Regulations.  However, if the application includes a statement from the receiving spouse that they are either between their relevant preservation age and 65 and not permanently retired or that they are under their preservation age, then (under subregulation 6.44(3)) the application will be valid and the trustee may give effect to the application.  In effect, these conditions ensure that contributions cannot be split to a spouse who is able to immediately access them.

Paragraph 6.44(4) provides that the applicant must specify the amounts of taxed splittable contributions and/or untaxed splittable contributions that the applicant wishes to split.

Regulation 6.45 — Decision on application

This regulation provides that the trustee of a superannuation fund may accept an application made by a member under subregulation 6.44(1) provided that certain conditions are met.  The ability to split contributions is entirely voluntary upon superannuation funds and accordingly funds may impose additional restrictions or limits on how and when they would offer splitting.

Subregulation 6.45(1) requires that:

•                the application complies with regulation 6.44;

•                he trustee has no reason to believe that the statement mentioned in subregulation 6.44(3) (regarding the receiving spouse advising that they are under their preservation age or between their preservation age and 65 but do not meet condition of release 101 - retirement) is untrue; and

•                the application relates to the roll-over, transfer or allotting of an amount that is not more than the maximum splittable amount (85 per cent for taxed splittable contributions and 100 per cent for untaxed splittable contributions).

Subregulation 6.45(2) provides that a trustee must give effect to a splitting request they have accepted as soon as practicable and in any event within 90 days of receiving the application.

Subregulation 6.45(3) provides that if the application relates to splitting of untaxed splittable contributions then the trustee can only give effect to the application where the amount specified is less than or equal to the undeducted contributions component that would form part of the ETP that would be payable if the member withdrew their entire benefit at the time of the trustee giving effect to the split.

Subregulation 6.45(4) provides that if the application relates to splitting of taxed splittable contributions then the trustee can only give effect to the application where the amount specified is less than or equal to the taxed post-June 83 component that would form part of the ETP that would be payable if the member withdrew their entire benefit at the time of the trustee giving effect to the split.

Regulation 6.46 — Receiving spouse

This regulation defines the ‘receiving spouse’ for the purposes of the Part.  A ‘receiving spouse’ is the spouse of the applicant (and hence the person who will receive the transferred, rolled over or allotted benefits).