SENATE

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

Chapter 7 - Withdrawal of account balances

Overview

7.1 This chapter deals with the methods and circumstances in which account balances can be withdrawn from the Superannuation Holding Accounts Reserve.

Purpose of the provisions

7.2 The provisions set out the manner, type and circumstances in which account balances may be withdrawn from the Reserve.

7.3 The provisions cover the following areas:

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the timing of withdrawals from the Reserve;

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transfers to regulated superannuation funds;

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withdrawals where the account balance is less than $500 and the individual is not in employment;

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withdrawals due to severe financial hardship of the individual;

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withdrawals where the individual has retired on grounds of disability;

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withdrawals where the individual has turned 65 years of age;

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withdrawals where the individual is not an Australian resident;

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withdrawals upon the death of the individual; and

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the recovery of account balances.

Explanation of the provisions

Timing of a request for a withdrawal

7.4 Where an individual makes a request to withdraw the balance of their account with the Reserve the request will have no effect until after the expiration of 14 days after the amount had been credited to the employee's account with the Reserve. [Clause 58 of Part 7]

7.5 This provision together with clause 59 is to enable employers and the Commissioner of Taxation a period of 14 days to action a refund of an amount that had been incorrectly deposited with , or credited to, the Reserve. Further detailed discussions of the circumstances in which an employer may request a refund of amounts incorrectly deposited with the Reserve are contained in chapter 8.

Example

7.6 Jane's employer makes a deposit to the Reserve of $1,000 on 27 July. Jane ceases employment with that employer on 28 July. On 1 August Jane requests that her account balance with the Reserve be transferred to a superannuation fund of her choice. On 5 August Jane's employer discovers that there has been a clerical error in that the amount that should have been deposited for Jane should only have been $100. If there was no time limit before a request would be effective the total amount of Jane's account balance would be transferred to her superannuation fund. This provision enables the employer to have 14 days in which to identify the error and request a refund of the over payment.

7.7 Applications for withdrawals may be frozen where the Commissioner's decision on an employer's request for refund is subject to review [clause 59 of Part 7]. The review procedures are contained in chapter 11.

7.8 Where a request is made to withdraw an account balance the Commissioner must wait at least 24 hours before actioning the request. This is to enable interest to be credited to the account balance as at the close of business of the day of the request for withdrawal. [Clause 60 of Part 7]

Withdrawals to be for the whole account balance

7.9 All withdrawals from the Reserve are to be for the whole of the account balance. This ensures that there are no partial withdrawals. Where a withdrawal is made from an account with the Reserve the whole of that account is debited and the account balance with the Reserve is reduced to zero.

Transfers to superannuation funds

7.10 An individual may, at any time, request the Commissioner to pay the balance of the individual's account balance with the Reserve (irrespective of the account balance) to a complying superannuation fund or an exempt public sector superannuation scheme of the individual's choice. [Clause 61 of Part 7]

7.11 The fund, acting on the individual's behalf, may also request the Commissioner to transfer the balance of the individual's account to that complying superannuation fund. Such a request however must be accompanied by a copy of the individual's authority allowing the fund to make such a request. The copy of the authority must be legible and contain all the information that is required on the form provided by the Commissioner. [Subclause 61(7) of Part 7]

7.12 At the time of the request the Commissioner must have obtained a statement by the trustee of the fund that it is a regulated superannuation fund that is capable of accepting employer contributions. [Subclause 61(1)(b) of Part 7]

7.13 These requests must be in writing and in a form approved by the Commissioner. Where such an application is made the Commissioner must comply with the request unless the Commissioner is satisfied that the trustee of the superannuation fund is unwilling to accept the amount. [Subclauses 60(3) and (4) of Part 7]

Withdrawal where the account balance is less than $500 and the individual has ceased employment

7.14 Where the individual satisfies the Commissioner that they are no longer in employment with any employer that had made a deposit to the Reserve and the individual's account balance is less than $500, the individual may request the Commissioner to pay their account balance direct to them. The balance of the individual's account balance must be less than $500 at the time the Commissioner complies with the request. A request will not be complied with where, for example, the employee's account balance is $490 at the time of the request and before the Commissioner complies with the request a further amount of $300 is credited to the employee's account. [Clause 63 of Part 7]

7.15 Such a request may only be made where the total balance of the individual's account balance represents amounts deposited by that former employer. As mentioned in paragraph 7.9 above, withdrawals from the Reserve must be for the whole account. Where the account is made up of deposits from more than one employer the individual cannot withdraw an amount that represents one employer's deposit because they have ceased employment with that particular employer.

Example of a withdrawal where employment has ceased

7.16 Robert worked as a casual friut picker during his college vacation and his employer made a deposit to the Reserve of $80. Robert returned to college and had no subsequent employment. Robert is able to request the Commissioner to pay the balance of his account with the Reserve ($80) to him as he has ceased employment and the total balance of his account represents the $80 deposited by his employer.

7.17 Sarah has worked as a casual shop assistant and her employer has deposited $80 to the Reserve during the year. Sarah leaves that employer and obtains employment in another shop and that employer has contributed $20 to the Reserve during the year. Sarah cannot request the Commissioner to pay the $80 that her first employer deposited to the Reserve because her account balance ($100) consists of the $80 (from her first employer) plus $20 contributed by her new employer. This is because it is not possible to make partial withdrawals from the Reserve and in Sarah's case she is still currently employed.

7.18 Kevin, like Robert, also worked as a fruit picker but he worked for the whole season for two separate employers. The first employer deposited $450 to the Reserve during the year. Kevin ceased employment with that employer and commenced work with a new employer. The new employer deposited $80 to the Reserve during the year. Kevin has ceased employment with that second employer. Kevin is unable to have the $450 deposited by his first employer paid to him because Kevin's account balance with the Reserve stands at $530 which exceeds the limit of $500.

Withdrawal of account balance due to severe financial hardship

7.19 An individual may apply to the Commissioner for a payment of their account balance with the Reserve on the grounds that the individual is suffering severe financial hardship.

7.20 Upon receipt of such a request the Commissioner will refer the individual's request to the Insurance and Superannuation Commissioner for consideration. Where the Insurance and Superannuation Commissioner is satisfied that the individual is entitled to be paid the balance of their account with the Reserve because of the individual's severe financial hardship, the Commisioner of Taxation will make the payment of the individual's account balance with the Reserve to the individual.

7.21 There is no dollar limit in relation to a request on the grounds of severe financial hardship. If for example an individual's account balance with the Reserve is $876.58 the Commissioner of Taxation will pay that amount to the individual where the Insurance and Superannuation Commissioner has determinied in writing that the individual is in severe financial hardship.

7.22 The Insurance and Superannuation Commissioner is required to make the determination regarding an individual's financial circumstances because the Insurance and Superannuation Commissioner is required to make such determinations for the superannuation industry under Schedule 1 of the Superannuation Industry (Supervision) Regulations and is consequently experienced in making such determinations. [Clause 64 of Part 7]

Withdrawal of account balance due to disability

7.23 An individual may apply to the Commissioner for a payment of their account balance with the Reserve on the grounds that the individual has retired from employment due to disability. The individual must not be currently in employment. An individual will be considered to have retired on grounds of disability if 2 legally qualified medical practictioners have certified that the disability is likely to result in the individual being unable ever to be employed in a capacity for which the individual is reasonably qualified because of education, training or experience. [Clause 65 of Part 7]

Example of retirement due to disability

7.24 John has been employed as an abalone diver. John's employer has deposited $983 to the Reserve. During the year John suffers from the bends and is advised by his doctors never to subject himself to the pressures required in diving for abalone. John is able to withdraw the balance of his account with the Reserve as he has ceased his previous employment due to disability and has not commenced any new employment.

Withdrawal due to the attainment of age 65

7.25 Where an individual attains the age of 65 they may request the Commissioner to pay the balance of their account with the Reserve to them. There is no dollar limit on the account balance where the individual has attained the age of 65. [Clause 66 of Part 7]

Withdrawal due to the individual no longer being a resident of Australia

7.26 Where an individual satisfies the Commissioner that they are no longer a resident of Australia (for the purposes of the Income Tax Assessment Act 1936 ) the individual may ask the Commissioner to pay to them an amount equal to their account balance with the Reserve. The individual must also satisfy the Commissioner that they are not in employment, or where they are in employment the duties of that employment are performed wholly or principally outside Australia. There is no dollar limit on the account balance for this type of withdrawal. [Clause 67 of Part 7]

Example of non-residence

7.27 Roger has been in Australia for the past 5 years completing his schooling and tertiary education. Roger's parents and family live in Singapore. During Roger's time in Australia he has obtained casual work in various areas. Roger's employer's have, over the years, deposited $1,187 to the Reserve. Upon completion of his studies Roger obtains employment as a teacher in Singapore. Roger arranges to move back with his parents and commence teaching in Singapore. As Roger satisfies the Commissioner that he no longer intends to be resident of Australia he can request the Commissioner to pay the balance of his account with the Reserve.

Withdrawal of account balance as a result of the individual's death

7.28 An individual's legal personal representative may ask the Commissioner to pay to the representative an amount equal to the individual's account balance wth the Reserve. There is no dollar limit on this type of withdrawal. [Clause 68 of Part 7]

Consequences of withdrawal requests

7.29 All withdrawal requests discussed in paragraphs 7.10 to 7.28 above must be made in writing and in a form approved by the Commissioner. Where the requirements of the relevant circumstances are satisfied (eg. disability, non-residence etc) the Commisioner must comply with the request.

7.30 All requests are to be for the whole of the account balance. This ensures that there are no partial withdrawals. Where a withdrawal is made from an account with the Reserve the whole of that account is debited and the account balance with the Reserve is reduced to zero.

7.31 All payments of account balances made direct to individuals or their legal personal representatives will constitute eligible termination payments (ETP) from an untaxed source and as such will also be subject to deduction of tax at source under the pay as you earn (PAYE) system of tax collection.

Notification of Commissioner's refusal of requests

7.32 Where a person makes a request for a withdrawal of their account balance with the Reserve and the Commissioner refuses the request, the Commissioner must provide the person with a written notice of refusal. [Clause 69 of Part 7]

Recovery of account balances

7.33 Where an individual is entitled to be paid an amount by the Commissioner and that amount is not paid the amount may be recovered as a debt due to the person by the Commonwealth by an action in a court of competent jurisdiction. This enables the individual to take action to recover the amount due to them directly through the courts rather than through other administrative processes. This will provide an additional avenue for individuals to recover amounts to which they are entitled. [Clause 70 of Part 7]