TAX AND SUPERANNUATION LAWS AMENDMENT (2016 MEASURES NO. 2) REGULATION 2016 (F2016L00710) EXPLANATORY STATEMENT

Commonwealth Numbered Regulations - Explanatory Statements

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TAX AND SUPERANNUATION LAWS AMENDMENT (2016 MEASURES NO. 2) REGULATION 2016 (F2016L00710)

EXPLANATORY STATEMENT

Issued by authority of the Assistant Treasurer

Corporations Act 2001

Income Tax Assessment Act 1936

Superannuation Industry (Supervision) Act 1993

 

Tax and Superannuation Laws Amendment (2016 Measures No.2) Regulation 2016

Section 1364 of the Corporations Act 2001, section 266 of the Income Tax Assessment Act 1936 and section 353 of the Superannuation Industry (Supervision) Act 1993 (Authorising Acts) each provide that the Governor-General may make regulations prescribing matters required or permitted by the Authorising Acts to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to each of the Authorising Acts.

The Tax and Superannuation Laws Amendment (2016 Measures No. 2) Regulation 2016 (Regulation) amends various regulations as detailed below.

Schedule 1 to the Regulation amends the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulation) to allow trustees of eligible rollover funds (ERFs) to transfer member account balances to active accounts in other superannuation funds without a member's consent. The Regulation also includes an exemption for this type of transfer to the significant event disclosure requirements in the Corporations Regulations 2001.

The SIS Regulation provides that a member's benefits in a superannuation fund must not be transferred from the fund without the member's consent. However, there are several exceptions to this. The Regulation amends the SIS Regulation to include a further exception for trustees of ERFs to transfer member account balances to active accounts in another superannuation fund without a member's consent.

Schedule 1 to the Regulation also amends the Corporation Regulations 2001 to include an exemption for this type of transfer to the requirement to disclose material changes and significant events in relation to superannuation products and retirement savings accounts in the Corporations Act 2001.

Schedule 1 to the Regulation was publicly consulted on between 29 September and 20 October 2015 as part of the Superannuation Laws Amendment (Unclaimed Superannuation Money) Regulation 2015. Submissions were supportive of this measure.

Schedule 2, Part 1 to the Regulation makes consequential amendments to the SIS Regulation. The amendments are minor technical corrections and consequential amendments. Specific public consultation was not conducted on these changes. However, there was extensive consulted on the broader Managed Investment Trust reforms.

Schedule 2, Part 2 to the Regulation ensures that Australian Defence Force Cover (ADF Cover) is listed as an exempt public sector scheme. ADF Cover was established under the Australian Defence Force Cover Act 2015. It is the new statutory death and invalidity scheme for Australian Defence Force personnel. It is consistent with the death and invalidity arrangements which ADF members currently benefit from under the Military Superannuation and Benefits Scheme. 

Schedule 2, Part 2 to this Regulation inserts Australian Defence Force Cover Act 2015 into Part 3 to Schedule 1AA to the SIS Regulation (which prescribes exempt public sector superannuation schemes). Exempt public sector superannuation schemes are complying superannuation funds, and consequently ADF Cover qualifies for the same concessional tax treatment as other compliant funds.

Schedule 2, Part 2 to the Regulation is a minor consequential amendment that only affects Australian Defence Force personnel. Consequently, public consultation was not conducted. However, the Department of Defence was consulted during the development of this schedule to this Regulation.

Schedule 3 to this Regulation amends the Income Tax (1936 Act) Regulation 2015 to exempt from income tax the remuneration of Australian Defence Force personnel serving on Operations Accordion, Highroad, Manitou, Okra and Palate II.

Public consultation was not undertaken on Schedule 3 to this Regulation as the amendments relate only to the Defence Force Operations listed in the preceding paragraph and do not impact directly on the public. Furthermore the decision to exempt the pay and allowances was made in the Budget process and was not public prior to that.

Details of the Regulation are set out in the Attachment.

The Regulation is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Act specifies no conditions that need to be met before the power to make the Regulation may be exercised.

Schedule 1 to this Regulation commences on the day after registration. Item 2 applies to transfers of benefits made on or after the day the Regulation commences.

Schedule 2, Part 1 to this Regulation commences on the day after registration. Schedule 2, Part 2 to this Regulation commences at the same time that section 3 to the Australian Defence Force Cover Act 2015 commences (being 1 July 2016).

Schedule 3 to this Regulation commences on the day after registration.

 

 

 

 


 

 

ATTACHMENT

Details of the Tax and Superannuation Laws Amendment (2016 Measures No.2) Regulation 2016

Section 1 - Name of Regulation

This section provides that the title of the Regulation is the Tax and Superannuation Laws Amendment (2016 Measures No. 2) Regulation 2016 (the Regulation).

Section 2 - Commencement

This section provides that each provision of the Regulation specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table, and that any other statement in column 2 has effect according to its terms.

Section 3 - Authority

This section provides that the Regulation is made under the Corporations Act 2001, the Income Tax Assessment Act 1936 and the Superannuation Industry (Supervision) Act 1993.

Section 4 - Schedule

This section provides that each instrument that is specified in a Schedule to this instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this instrument has effect according to its terms. 

Schedule 1 - Transfer of superannuation benefits from eligible rollover funds

The Regulation amends the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulation) to allow trustees of eligible rollover funds (ERFs) to transfer member account balances to active accounts in other superannuation funds or with a retirement savings account (RSA) provider without consent. ERFs are superannuation entities that operate as temporary repositories for the superannuation of members who have lost connection with their superannuation accounts.

Regulation 6.29 of the SIS Regulation provides that a member's benefits in a fund must not be transferred from the fund unless the member has given their consent to the transfer. However, transfers to successor funds and certain transfers under prudential standards in the Superannuation Industry (Supervision) Act 1993 are permitted without the member's consent.

Item 2 of the Regulation amends regulation 6.29 of the SIS Regulation to include an exception for trustees of ERFs to transfer a member's superannuation interest in the fund to an active account without the member's consent. A transfer will only be permitted if the trustee of the ERF believes, on reasonable grounds, that the member has an interest in the receiving fund or with the RSA provider and the receiving fund or RSA provider has received at least one contribution or rollover in respect of the member within the last 12 months. It is envisaged that a trustee of an ERF taking advantage of this exception would have an agreement with the receiving fund or RSA provider to share information for this purpose.

Item 3 of the Regulation amends the SIS Regulation to insert a transitional arrangement. It provides that item 2 applies to transfers of benefits made on or after the day the Regulation commences.

Ongoing disclosure exemption

Section 1017B of the Corporations Act 2001 imposes an ongoing obligation on issuers of financial products to notify the holders of a product of material changes or significant events in relation to products. Part 10 of Schedule 10A of the Corporations Regulations 2001 modifies the requirements of section 1017B of the Corporations Act 2001 in relation to superannuation products and RSAs.

For superannuation products these events include a transfer of a member to a different category of membership or to a different fund, including a transfer of member benefits without the member's consent. An issuer of a superannuation or RSA product is also required to notify members of these events, as soon as it is practicable, prior to the transfer of the benefits taking place.

In the case of transfers of a superannuation interest in an ERF, prior notification may not be possible or practicable, particularly where the member of the ERF was transferred to the ERF as a lost member.

Item 1 of the Regulation amends the Corporations Regulations 2001 to include an exemption for transfers from ERFs to the requirement to notify members about material changes and significant events in relation to superannuation products and RSAs. However, this does not preclude ERFs from notifying affected members where possible.

Schedule 2 - Various superannuation measures

Changes to subparagraph 1.04(5)(a)(iv) and paragraph 1.04(5)(a)(note 2) of the SIS Regulation

Subparagraph 1.04(5)(a)(iv) of the SIS Regulation refers to the 'virtual PST assets' of a life insurance company' within the meaning of the Income Tax Assessment Act 1997 (ITAA 1997).  In 2008 the First Home Savers Account (Consequential Amendments) Act 2008 replaced the definition of 'virtual PST asset' with the term 'complying superannuation/FHSA asset.' In 2015, Schedule 1 to the Tax and Superannuation Laws: Amendment (2015 Measures No.1) Act 2015 changed the term 'complying superannuation/FHSA asset', that was contained in the ITAA 1997, to 'complying superannuation asset.' As a result of those changes the SIS Regulation no longer refers to the correct terms in the ITAA 1997. Consequently, Schedule 2, Part 1 to this Regulation changes the reference in subparagraph 1.04(5)(a)(iv) of the SIS Regulation from 'virtual PST assets' to 'complying superannuation assets.' It also changes the reference in note 2 to paragraph1.04 (5)(a) of the SIS Regulation from 'virtual PST assets' to 'complying superannuation assets'. 

Changes to paragraph 1.04(5)(b) of the SIS Regulation

Paragraph 1.04(5)(b) of the SIS Regulations refers to section 102H of the Income Tax Assessment Act 1936 (ITAA 1936). Section 102H of the ITAA 1936 defines a 'resident unit trust'. This section is in Division 6B of the ITAA 1936. Division 6B is to be repealed by the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Act 2015. However, the concept of a 'resident unit trust' still exists in the ITAA 1936. Section 102Q of the ITAA 1936 has the same definition of 'resident unit trust' as section 102H. To ensure that 'resident unit trust' remains correctly defined in the SIS Regulation, Schedule 2, Part 1 to this Regulation changes the reference to section 102H in paragraph 1.04(5)(b) of the SIS Regulation to section 102Q of the ITAA 1936.

Changes to Part 3 of Schedule 1AA to the SIS Regulation

Schedule 2, Part 2 to this Regulation inserts Australian Defence Force Cover Act 2015 into Part 3 to Schedule 1AA to the SIS Regulation (which prescribes exempt public sector superannuation schemes). Exempt public sector superannuation schemes are complying superannuation funds, and consequently ADF Cover qualifies for the same concessional tax treatment as other compliant funds.

 

Schedule 3 - Exemption for defence operations

Subsection 23AD(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that the pay and allowances of Australian Defence Force personnel are exempt from income tax if:

                the individual is on 'eligible duty' with a specified organisation in a specified area outside Australia, and the Chief of the Defence Force has issued a certificate to that effect; and

                the eligible duty is not as, or under, an attaché at an Australian embassy or legation.

Subsection 23AD(2) of the ITAA 1936 provides that the regulations may also declare that duty with a specified organisation in a specified area outside Australia and after a specified day is 'eligible duty'.

Where the Chief of the Defence Force issues a certificate under paragraph 23AD(1)(a) of the ITAA 1936, paragraph 23AD(2)(b) of the ITAA 1936 states that the certificate continues in force until the individual's departure from the specified area, revocation of the certificate by the Chief of the Defence Force, or any such time prescribed by the regulations (whichever is earliest). 

Defence operations declared to be 'eligible duty' are listed in regulation 6 of the Income Tax (1936 Act) Regulation 2015 with reference to a specific geographical area and period in which the duty is 'eligible duty'. This Regulation updates regulation 6 Income Tax (1936 Act) Regulation 2015 to:

                extend the period of eligibility for Operations Accordion, Highroad, Manitou, Okra and Palate II; and

                update the geographical area of eligibility following changes to the operational area of Operations Manitou and Okra.

 

 

 

 


 

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Tax and Superannuation Laws Amendment (2016 Measures No.2) Regulation 2016

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

The purpose of the Regulation is to:

                amend the SIS Regulation to allow trustees of eligible rollover funds (ERFs) to transfer member account balances to active accounts in other superannuation funds without a member's consent. It also provides an exemption for this type of transfer to the significant event disclosure requirements in the Corporations Regulations 2001;

                make minor, technical corrections and consequential amendments to the SIS Regulation;

                amend the SIS Regulation to list the Australian Defence Force Cover as an exempt public sector scheme; and

                amend the Income Tax (1936 Act) Regulation 2015 to exempt from income tax the remuneration of Australian Defence Force personnel serving on Operations Accordion, Highroad, Manitou, Okra and Palate II.

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.


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