House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Josh Frydenberg MP)

Chapter 13 Early release of superannuation

Outline of chapter

13.1 Schedule 13 to the Bill amends the SIS Regulations and RSA Regulations to allow individuals affected by the adverse economic effects of Coronavirus to have up to $10,000 released from their superannuation or retirement savings account on compassionate grounds. Each person is permitted to have up to two releases (meaning they can have up to $20,000 released in total) - one for an application made during the 2019-20 financial year and another for an application made during the 2020-21 financial year. Any applications for this release must be made within six months of the amendments commencing.

13.2 Schedule 13 also amends the ITTP Act 1997 to ensure that any such amounts that are released are not subject to tax.

Context of amendments

13.3 Superannuation benefits are generally required to be 'preserved' in the superannuation system until retirement or until preservation age is reached (between 55 and 60, depending on year of birth). Subject to the governing rules of the fund, early release of 'preserved' benefits is permitted in certain restricted circumstances.

13.4 The rules for the early release of superannuation are set out in the SIS Regulations and the conditions of release are in Schedule 1 to those regulations. The Commissioner has general administration of regulations made in relation to the early release from superannuation and retirement savings accounts on compassionate grounds (see (paragraph 6(1)(g)(iii) of the SIS Act and paragraph 3(1)(g) of the RSA Act).

13.5 Regulation 6.18 of the SIS Regulations provides that a member's benefits in a superannuation fund may be cashed on or after the member satisfies a condition of release set out in Schedule 1, subject to any cashing restriction as to the amount or form of the payment. The trust deed of a superannuation fund may also impose additional conditions for cashing of a member's benefits.

13.6 Items 107 and 207 in Schedule 1 to the SIS Regulations currently provide conditions of release on compassionate grounds. To be eligible for these conditions of release, the Commissioner must make a determination that a person meets one of the grounds for the condition specified in regulation 6.19A of the SIS Regulations.

13.7 The RSA Act and RSA Regulations contain equivalent provisions about the preservation and early release of amounts from retirement savings accounts. In particular, item 109 in Schedule 2 to the RSA Regulations provides the condition of release on compassionate grounds and regulation 4.22A provides for determinations about a person's eligibility.

Summary of new law

13.8 Schedule 13 to this Bill amends the SIS Regulations and RSA Regulations to allow individuals affected by the adverse economic effects of Coronavirus to have up to $10,000 released from their superannuation or retirement savings account on compassionate grounds. Each person is permitted to have up to two releases (meaning they can have up to $20,000 released in total) - one for an application made during the 2019-20 financial year and another for an application made during the 2020-21 financial year. Any applications for this release must be made within six months of the amendments commencing.

13.9 Schedule 13 also amends the ITTP Act 1997 to ensure that any amounts released under this ground are not subject to tax.

Comparison of key features of new law and current law

Detailed explanation of new law

Amendments to the SIS Regulations

Applying for a determination

13.10 A person can apply for a determination to have up to $10,000 released from superannuation on the ground that the amount is required to assist the person to deal with the adverse economic effects of Coronavirus. To apply for the determination, the person must satisfy any one of the following requirements about their employment or business status:

•

at the time the person applies for the determination, they are:

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unemployed;

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eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments) or special benefit under the Social Security Act; or

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eligible to receive the farm household allowance under Farm Household Support Act 2014; or

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on or after 1 January 2020 the person:

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was made redundant;

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their working hours were reduced by 20 per cent or more; or

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if the person is a sole trader - their business was suspended or there was a reduction in their turnover of 20 per cent or more.

[Schedule 13, item 10, subregulation 6.19B(1) of the SIS Regulations]

13.11 These requirements ensure that access to the early release of superannuation on this additional compassionate ground is targeted to those individuals who have been affected by the adverse economic impacts of Coronavirus.

13.12 The amendments do not specify any minimum documentation or evidentiary conditions for meeting these requirements. It is expected that individuals will self-assess their eligibility to apply for a determination. It is also expected that individuals will be able to apply for the determination on-line through their myGov account using the ATO's online services.

13.13 The requirement about a person's eligibility to receive the various payments listed above can be satisfied if the person is receiving such a payment or if they are eligible to receive such a payment. This allows a person to apply for the determination in a timely fashion instead of having to wait for the payments to commence. A person who is unemployed may also be eligible for early release from their superannuation on the ground of severe financial hardship in accordance with items 105 and 205 in Schedule 1 to the SIS Regulations.

13.14 The requirements about reductions in a person's working hours or in their turnover as a sole trader are determined by reference to changes that have occurred since 1 January 2020. This requires a comparison of a person's working hours or turnover at the time they make the application and their usual hours prior to 1 January 2020. For example, a person would be eligible to apply for a determination if they had a 20 per cent or more reduction in their usual working hours or turnover relative to the second half of 2019.

Example 13.1: reduction in working hours

Darren is a casual worker in a cafe. In May 2020, Darren seeks to apply for an early release from his superannuation for the 2019-20 financial year.

Due to the adverse economic effects of the coronavirus, Darren's working hours have reduced from 35 hours a week on average in the second half of 2019 to 15 hours a week on average in May. As a result, Darren determines that his hours over the last month have reduced by more than 20 per cent compared to the average of his hours over the last six months of 2019.

Darren self-certifies that he is eligible for early release and applies to have $10,000 released from his superannuation.

Example 13.2: reduction in turnover

Rachel is a sole trader with a catering business. At the end of July 2020, Rachel seeks to apply for an early release from her superannuation for the 2020-21 financial year.

Due to the adverse economic effects of the coronavirus, Rachel's turnover for July is $5,000 compared to $10,000 on average per month for the second half of 2019. Rachel therefore determines that her turnover has reduced by more than 20 per cent compared to her average turnover over the last six months of 2019.

Rachel self-certifies that she is eligible for early release and applies to have $10,000 released from her superannuation.

13.15 In addition to the requirements about a person's employment or business, each person can only make one application for a determination in the 2019-20 financial year, and one application in the 2020-21 financial year. Any such applications must also be made within six months of the amendments commencing. [Schedule 13, item 10, subregulation 6.19B(2) of the SIS Regulations]

13.16 The requirement that the person has made an application within six months of the amendments commencing ensures that there is a time limit on the availability of the new ground. Provided that the application for the determination is made during this period, the Commissioner can make the determination after the period has expired. Further amendments to the regulations can be made to extend this timeframe in the event that it is required for a longer period.

13.17 Individuals are restricted to a single application in a financial year. This means that a person cannot make multiple applications in the same financial year to release more than $10,000 for that year. It also means that a person who requests an amount of less than $10,000 in their application for a financial year cannot make a subsequent application in the same financial year to release the difference between that originally requested amount and the $10,000 limit (for example, a person who has requested that $6,000 be released cannot subsequently request that another $4,000 be released). However, a person with multiple accounts who has less than $10,000 in any one account is able to nominate more than one account from which amounts are to be released when they request the determination.

13.18 It does not matter if the Commissioner makes the determination in response to an application made in the 2019-20 financial year after the end of that year. In such cases, the individual can still apply for the second determination, provided they do so before the end of the six month period.

13.19 A person who applies for the determination may specify the amount they wish to have released. They may also specify the superannuation entity from which the amount is to be released. An individual who has a superannuation account with more than one superannuation entity can also specify the entity or entities from which amounts are to be released, as well as the respective amounts from each entity. [Schedule 13, item 10, subregulation 6.19B(1) of the SIS Regulations]

When the Commissioner must make the determination

13.20 The Commissioner must determine that a person is eligible to have an amount (or amounts) released on compassionate grounds relating to Coronavirus if the Commissioner is satisfied that a determination on compassionate grounds relating to Coronavirus has not already been made in response to an application made by the person in that same financial year. [Schedule 13, item 10, regulations 6.19B(3) of the SIS Regulations]

13.21 The requirement that the Commissioner has not already made a determination for an application lodged in the same financial year complements the related conditions for when a person can make an application. The combined effect of these rules is that each person is permitted to have up to two releases- one for an application made during the 2019-20 financial year and another for an application made during the 2020-21 financial year.

Requirements in relation to the determination

13.22 If the Commissioner makes a determination that a person is eligible to have an amount (or amounts) released on the new compassionate ground, the Commissioner must specify the amount (or amounts) to be released and the superannuation entity (or superannuation entities) from which the amount is to be released. The total amount that the Commissioner may determine cannot exceed $10,000. [Schedule 13, item 10, subregulation 6.19B(5) of the SIS Regulations]

13.23 The Commissioner must also provide a copy of the determination to the person who requested it and any superannuation entity covered by the determination. [Schedule 13, item 10, subregulation 6.19B(6) of the SIS Regulations]

13.24 These requirements about the determination are consistent with the requirements for determinations on existing compassionate grounds. They ensure that superannuation entities obtain information directly from the Commissioner in respect of the amount that they are authorised to release.

13.25 The amendments make it clear that a determination that has been revoked does not prevent the Commissioner from making a subsequent determination. [Schedule 13, item 10, subregulation 6.19B(4) of the SIS Regulations]

13.26 The Commissioner might revoke a previous determination where it was made in error, or it was made because of an incorrect or misleading statement.

13.27 Although the determination would generally constitute protected information that is prohibited from being disclosed under section 355-25 of Schedule 1 to the TAA 1953, disclosure of the determination by a taxation officer to the superannuation entity or entities specified in the determination is permitted under the performance of duties exception in section 355-50 of Schedule 1 to the TAA 1953. This exception is relevant because the amendments require the disclosure of the determination to the specified superannuation entity or entities.

Other amendments

13.28 The amendments introduce new conditions of release in Schedule 1 to the SIS Regulations for determinations made in respect of the new compassionate ground. These conditions of release authorise superannuation entities covered by such determinations to release the amount specified in the determination. [Schedule 13, items 11 and 12, items 107A and 207AA in Schedule 1 to the SIS Regulations]

13.29 The amendments also update the definition of compassionate ground in regulation 6.01 of the SIS Regulations to include the ground specified in the new determination. [Schedule 13, item 8, definition of 'compassionate ground' in regulation 6.01 of the SIS Regulations]

13.30 This ensures that releases on the new compassionate ground relating to Coronavirus are characterised in the same way as other releases on existing compassionate grounds. It also ensures that the Commissioner has administrative responsibility for the regulations in accordance with paragraph 6(1)(g)(iii) of the SIS Act (which relates to regulations made in relation to the early release from superannuation).

13.31 The amendments also insert a new operating standard for regulated superannuation funds and approved deposit funds. This new standard requires funds to release an amount specified in relation to them in a determination they receive from the Commissioner about a member. In such cases, the superannuation entity is required to release the amount to the member as soon as practicable without requiring any additional application from the member. [Schedule 13, item 9, subregulation 6.17D of the SIS Regulations]

13.32 However, this new operating standard does not apply to amounts that would otherwise be required to be released from defined benefit interests (which are separately defined in regulations 1.03AA of the SIS Regulations). This reflects that members' entitlements under defined benefit interests are calculated on a different basis to other interests and is consistent with other rules for releasing amounts from superannuation (for example, the obligations on superannuation funds under section 131-35 of Schedule 1 to the TAA 1953 to comply with certain release authorities). Superannuation funds that are able to release amounts from defined benefit interests continue to have the discretion to do so.

Amendment to the RSA Regulations

13.33 Amendments equivalent to those described above to the SIS Regulations are also made to the RSA Regulations. [Schedule 13, items 2, to 4, 6 and 7, definition of 'compassionate ground' in subregulation 4.01(2), regulation 4.19, regulation 4.20B, regulation 4.22B and item 109AA in Schedule 2 to the RSA Regulations]

13.34 These amendments ensure that individuals may apply for a determination to have up to $10,000 released from their retirement savings accounts on the ground that the amount is required to assist the person to deal with the adverse economic effects of the Coronavirus.

13.35 These amendments apply in exactly the same way as amendments to the SIS Regulations, with minor wording changes to account for the differences between the respective regulations. For example, the amendments to the RSA Regulations refer to the release of amounts from a person's retirement savings account instead of a person's preserved benefits, or restricted non-preserved benefits, in a specified superannuation entity.

13.36 The amendments also correct an incorrect cross-reference in existing subregulation 4.22A(2). The provision relates to determinations made for particular conditions of release. However, one of the existing cross-references erroneously refers to a provision about the amount that may be cashed under a condition rather than the actual condition. The amendments correct this error by updating the reference so that it correctly refers to the relevant condition of release. [Schedule 13, item 5, subregulation 4.22A(2) of the RSA Regulations]

Tax treatment of released amounts

13.37 The amendments ensure that any superannuation lump sum amounts released to an individual because of the new condition of release on compassionate grounds relating to the Coronavirus are non-assessable non-exempt income. [Schedule 13, item 1, sections 303-15 of the ITTP Act 1997]

13.38 This ensures that individuals are not taxed on any lump sums that they receive from a superannuation fund or retirement savings account. As such amounts do not count as income and are not taken into account under any income or means tests.

Application and transitional provisions

13.39 The amendments in Schedule 13 to this Bill will commence on the day after this Bill receives Royal Assent.