House of Representatives

Explanatory Memorandum

Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP

Chapter 1 - Superannuation unclaimed money

Outline of chapter

1.1 Schedule 1 to this Bill amends the Superannuation (Unclaimed Money and Lost Monies) Act 1999 (S(UMLM) Act), and the Income Tax Assessment Act 1997 (ITAA 1997) to facilitate the transfer of unclaimed superannuation moneys from state and territory authorities and public sector superannuation schemes to the Commissioner of Taxation (Commissioner) and to enable the Commissioner to accept, and subsequently pay out amounts transferred by state and territory authorities and public sector superannuation schemes.

1.2 All references to legislative provisions in this chapter are references to the S(UMLM) Act unless otherwise stated.

Context of amendments

1.3 Private sector superannuation funds are currently required to pay unclaimed superannuation moneys to the Commissioner. The term 'unclaimed superannuation moneys' refers to three types of unclaimed money:

•

'general' unclaimed superannuation money;

•

unclaimed superannuation of former temporary residents; and

•

lost member accounts, that is, small accounts of lost members and inactive accounts of unidentifiable members.

1.4 State and territory public sector superannuation providers, on the other hand, are not required to report and pay 'general' unclaimed superannuation moneys or lost member accounts to the Commissioner provided they comply with a state or territory law which requires their unclaimed money be reported and paid to the relevant state or territory authority. Nor are they required to pay unclaimed superannuation of former temporary residents to the Commissioner.

1.5 If the state or territory law does not require payment to the state or territory authority, regulated public sector superannuation schemes are required to report and pay general unclaimed superannuation moneys and lost member accounts to the Commissioner.

1.6 State and territory authorities may also currently hold some older private sector unclaimed superannuation paid to them prior to implementation of the current unclaimed superannuation money arrangements for private sector funds.

1.7 The amendments in Schedule 1 will allow both state and territory authorities and public sector superannuation schemes to transfer unclaimed superannuation moneys to the Commissioner.

1.8 For amounts transferred to the Commissioner, individuals will still be able to claim back their money from the Commissioner at any time.

1.9 The amendments will facilitate more uniform treatment of unclaimed money across the private and public sectors and assist in the central administration of unclaimed superannuation moneys.

Summary of new law

1.10 Schedule 1 amends the operation of the S(UMLM) Act to permit participating public sector superannuation schemes as well as state and territory authorities to comply with the S(UMLM) Act in the same way as a superannuation provider.

1.11 This will allow public sector superannuation schemes and authorities to transfer unclaimed superannuation money to the Commissioner.

1.12 The amendments will also enable the Commissioner to subsequently pay out, for entitled individuals, amounts transferred from the States and Territories and Commonwealth public sector schemes.

1.13 Amendments to the ITAA 1997 will extend the application of the ITAA 1997 to cover the transfer of unclaimed superannuation moneys from the States and Territories to the Commissioner as well as subsequent payment by the Commissioner for individuals entitled to the amounts transferred. Amendments to the ITAA 1997 also clarify that the rules for working out the tax components of unclaimed money payments apply to a benefit which is an unclaimed superannuation money payment by a state or territory authority.

Comparison of key features of new law and current law

Detailed explanation of new law

1.14 Regulated state and territory public sector superannuation schemes are currently not required to pay unclaimed superannuation moneys to the Commissioner provided they comply with a state or territory law which requires their unclaimed money be reported and paid to the relevant state or territory authority.

1.15 Currently, the Commissioner is not able to issue notices in relation to former temporary residents, that is, a section 20C notice, to either state and territory public sector superannuation schemes or unfunded public sector schemes.

1.16 Where state or territory law does not require payment of unclaimed money to a state or territory authority, regulated public sector superannuation schemes are required to report and pay unclaimed superannuation to the Commissioner.

1.17 In the case of Commonwealth public sector superannuation schemes, only regulated schemes are currently required to pay 'general' unclaimed money to the Commissioner. The provisions relating to former temporary resident unclaimed money currently only apply to funded regulated Commonwealth public sector schemes while the lost member account provisions currently do not apply to Commonwealth public sector superannuation schemes which support or relate to defined benefit interests.

1.18 These amendments will allow prescribed public sector superannuation schemes, as well as state and territory authorities, to transfer unclaimed superannuation to the Commissioner. Individuals will still be able to claim back their money from the Commissioner at any time.

1.19 These amendments will facilitate more uniform treatment of unclaimed money across the private and public sectors and assist in the central administration of unclaimed monies.

1.20 Participating Commonwealth, state and territory public sector superannuation schemes will be prescribed in regulations. The schemes to be listed will be determined in consultation with the States and Territories and relevant agencies. Schemes will be able to prescribe for the purposes of any, or all, of the different elements of unclaimed money. State and territory authorities do not need to be prescribed to be able to transfer superannuation unclaimed money amounts to the Commissioner.

1.21 The simplified outline of the operation of the S(UMLM) Act will be amended to reflect that state and territory public sector superannuation schemes will be permitted to pay superannuation unclaimed money to the Commissioner in the same way as superannuation providers. [Schedule 1, items 1 and 2, section 7]

1.22 Section 8 is amended to revise or insert definitions for the following concepts:

•

Commonwealth public sector superannuation scheme means a superannuation scheme established by or under a Commonwealth law or a municipal corporation or other local governing body or public authority established under the authority of the Commonwealth or under a Commonwealth law [Schedule 1, item 3, section 8] ;

•

Public sector superannuation scheme means either a Commonwealth public sector superannuation scheme or a state or territory public sector superannuation scheme [Schedule 1, item 4, section 8] ;

•

State or territory public sector superannuation scheme has the meaning used for the purposes of section 18 [Schedule 1, item 5, section 8] ; and

•

Unfunded public sector schemes has the meaning given by the Superannuation Guarantee (Administration) Act 1992 [Schedule 1, item 6, section 8] .

1.23 Under Part 3 of the S(UMLM) Act superannuation providers are required to give the Commissioner a statement of unclaimed money and pay unclaimed money amounts to the Commissioner. Under section 18, these requirements do not currently apply in relation to superannuation providers who are trustees of state and territory public sector superannuation schemes provided they comply with a state or territory law which requires their unclaimed money be reported and paid to the relevant state or territory authority. Unregulated public sector schemes, that is, schemes which do not satisfy the definition of superannuation provider, are also not required to pay 'general' unclaimed superannuation moneys to the Commissioner.

1.24 Section 18AA is inserted to extend the application of the 'general' unclaimed money provisions of the S(UMLM) Act to public sector superannuation schemes that are prescribed in the regulations for the purposes of this section.

•

Broadly, 'general' unclaimed superannuation arises when:

-

an individual reaches eligibility age and does not claim their superannuation;

-

the member is deceased and the superannuation provider is unable to ensure that the benefit is received by the person who is entitled to receive it; or

-

a payment split applies and the superannuation provider is unable to ensure that the non-member spouse or their legal personal representative receives the amount.

1.25 Only those schemes that have been nominated by the Commonwealth or the States and Territories will be listed in the regulations. It will be possible, for example, for a particular state to specify that some of the state's schemes, but not others, are prescribed schemes for the purposes of section 18AA.

1.26 Subsection 18AA(1) provides that those public sector schemes that have been prescribed in the regulations and which are not funds, as defined for the purposes of the S(UMLM) Act, will be treated in the same way as other superannuation funds for the purposes of sections 6, 10 to 12,14,16,17, 18A to C and subsections 19(1) to (3), 24C(6), 24E(5) and 25(2) of the S(UMLM) Act. [Schedule 1, item 7, subsection 18AA(1)]

1.27 Subsection 18AA(2) provides that prescribed state and territory public sector superannuation schemes are permitted but not required to give a statement to and pay an amount to the Commissioner provided that such a payment and statement are not prohibited by the governing rules of the scheme. Permitting, rather than requiring, the States and Territories to pay unclaimed superannuation moneys to the Commissioner reflects the voluntary nature of these provisions.

1.28 Prescribed, regulated state and territory public sector superannuation schemes that do not comply with a state or territory law which requires their unclaimed money be reported and paid to the relevant state or territory authority will continue to be subject to section 18 and therefore will not have the option of not giving a statement to and paying an amount to the Commissioner.

1.29 Part 3A of the S(UMLM) Act requires the Commissioner to give a written notice (section 20C notice) to a superannuation provider for a fund if the Commissioner is satisfied that a former temporary resident has a superannuation interest in the fund. The effect of a provider receiving a notice from the Commissioner under section 20C is the requirement to give a statement and make a payment to the Commissioner by a certain time. These requirements do not currently apply in relation to superannuation providers who are trustees of state and territory public sector superannuation schemes or to unfunded public sector schemes.

1.30 Subsection 20C(3) is amended to allow the Commissioner to give a notice under subsection 20C(1) to both prescribed state or territory public sector superannuation schemes and prescribed unfunded public sector schemes [Schedule 1, item 8, subsection 20C(3)] . Only those schemes agreed by the Commonwealth, States and Territories will be prescribed in the regulations.

1.31 Section 20JA is inserted to extend the application of the former temporary resident unclaimed money provisions to public sector superannuation schemes that are prescribed in the regulations for the purposes of this section.

1.32 Subsection 20JA(1) provides that those public sector superannuation schemes that have been prescribed in the regulations for the purposes of this section will be treated in the same way as other superannuation funds for the purposes of section 6, subsections 16(7), 17(2A), 19(1) and (3), Part 3A (other than 20F(5) and (6)) and subsections 24C(6), 24E(5) and 25(2A). [Schedule 1, item 9, subsection 20JA(1)]

1.33 Subsection 20JA(2) provides that where the trustee of a state or territory public sector superannuation scheme receives a 20C notice, they are permitted, but not required, to provide a statement to the Commissioner and permitted but not required to pay amounts to the Commissioner provided that such a payment and statement are not prohibited by the governing rules of the scheme. [Schedule 1, item 9, subsection 20JA(2)]

1.34 Part 4A of the S(UMLM) Act requires superannuation providers to give the Commissioner a statement of small accounts of lost members and inactive accounts of unidentifiable members and to pay these accounts to the Commissioner. Under section 24H, these requirements do not currently apply to state and territory public sector superannuation schemes that report and pay unclaimed moneys to the relevant state or territory authority.

1.35 Section 24HA is inserted to extend the application of the lost member account provisions to public sector superannuation schemes prescribed in the regulations for the purposes of this section.

1.36 Subsection 24HA(1) provides that those public sector superannuation schemes that have been prescribed in the regulations for the purposes of this section, will be treated in the same way as other superannuation funds for the purposes of section 6, subsections 19(1) to (3), Part 4A (other than section 24F and 24HA) and subsections 25(3) and (4). [Schedule 1, item 13, subsection 24HA(1)]

1.37 Subsection 24HA(2) provides that the trustee of a state or territory public sector superannuation scheme is permitted, but not required, to provide a statement of lost member accounts and pay those accounts to the Commissioner provided that such a payment and statement are not prohibited by the governing rules of the scheme. [Schedule 1, item 13, subsection 24HA(2)]

1.38 Subsection 24HA(3) is inserted to ensure that a state or territory scheme that is prescribed for the purposes of this section, but which is also required to report and pay unclaimed superannuation to the Commissioner because it does not report and pay unclaimed superannuation moneys to the relevant state or territory authority, continues to be required to make a statement of unclaimed money and pays an amount to the Commissioner in accordance with subsections 16(1) and 17(1). [Schedule 1, item 13, subsection 24HA(3)]

1.39 Section 49A is inserted to enable state and territory authorities to transfer unclaimed superannuation moneys to the Commissioner.

1.40 Where unclaimed superannuation moneys have been paid to a state or territory authority (from either public sector or private sector sources) the authority will be treated as if it were the trustee of a prescribed state or territory public sector superannuation scheme, thus enabling state and territory authorities to transfer all unclaimed superannuation moneys to the Commissioner. [Schedule 1, item 14, section 49A]

Consequential amendments

1.41 There are also amendments tidying up assorted references, notes and other matters that need to be changed because of the changes made to enable the transfer of unclaimed superannuation moneys from state and territory authorities and public sector superannuation schemes to the Commissioner. [Schedule 1, items 10 to 12, subsection 24C(1) (note 1), subsection 24E(1) (note 1), section 24H]

Amendments to the Income Tax Assessment Act 1997

1.42 Section 306-20 of the ITAA 1997 specifies that an unclaimed money payment paid to the Commissioner paid in accordance with the S(UMLM) Act is not assessable and is not exempt income. This section is amended to extend its application to capture unclaimed money payments paid to the Commissioner by state and territory public sector schemes and authorities. [Schedule 1, item 15, section 306-20 of the ITAA 1997]

1.43 Subsection 307-5(1) of the ITAA 1997 currently defines a 'superannuation benefit' as including unclaimed money payments paid to an individual under specified sections of the S(UMLM) Act.

1.44 Subsection 307-5(1) of the ITAA 1997 is amended to extend the definition of superannuation benefit to also include an unclaimed money payment paid to a state or territory public authority and amounts paid by a state or territory authority as mentioned in, respectively, subsections 18(4) and (5) of the S(UMLM) Act. [Schedule 1, item 16, subsection 307-5(1) (item 5 in the table)]

1.45 The rules to work out the tax-free and taxable components of a superannuation benefit that is a payment by the Commissioner under the S(UMLM) Act are set out in section 307-142 of the ITAA 1997. Like any other superannuation benefit, a payment from the Commissioner can consist of a 'tax-free' component and a 'taxable component'.

1.46 Subsection 307-142(1) is amended to ensure the rules for working out the tax components of a superannuation benefit apply to payments by a state or territory authority as mentioned in subsection 18(5) of the S(UMLM) Act. [Schedule 1, item 17, subsection 307-142(1) of the ITAA 1997]

1.47 The rules to calculate the tax-free components of a superannuation benefit that is an unclaimed money payment are set out in subsection 307-142(3). This section is amended to include superannuation benefits that are unclaimed money payments by state and territory authorities. [Schedule 1, items 18 and 19, subsection 307-142(3) of the ITAA 1997]

1.48 Subsection 307-142(3A) is inserted to set the tax-free component of an unclaimed money payment by the Commissioner as nil if the unclaimed money payment is an amount paid to the Commissioner by a state or territory public sector superannuation scheme or authority and the Commissioner has not been provided with sufficient information to work out the tax-free component of the payment. [Schedule 1, item 20, subsection 307-142(3) of the ITAA 1997]

1.49 Where state and territory public sector schemes and authorities provide the Commissioner with details of the tax-free and taxable components of transferred unclaimed superannuation moneys, those components will be determined in accordance with that information.

1.50 If a taxpayer is able to produce information that shows that the tax-free amount should be an amount other than nil, the Commissioner is able to use the information provided to determine the tax-free component of the unclaimed money payment.

Application provision

1.51 Changes relating to the transfer of unclaimed superannuation moneys to the Commissioner by state and territory authorities will apply in relation to transfers occurring, before, on or after the commencement of this item. [Schedule 1, item 21, subparagraph 49A(1)(b)(i)]

1.52 Changes to section 307-142 of the ITAA 1997 will apply in relation to payments made on or after the commencement of this item. [Schedule 1, item 21, section 307-142 of the ITAA 1997]