House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

First Home Saver Accounts

The First Home Saver Accounts Act 2008, the First Home Saver Accounts (Consequential Amendments) Act 2008 and the Income Tax (First Home Saver Accounts Misuse Tax) Act 2008 implemented the Government's election commitment to introduce First Home Saver Accounts (FHSAs).

Context

The First Home Saver Accounts (Further Provisions) Amendment Bill 2008 (FHSA (Further Provisions) Bill) implements further aspects of the Government's FHSA policy.

The First Home Saver Account Providers Supervisory Levy Imposition Bill 2008 (FHSA Supervisory Levy Bill) introduces a framework for imposing a levy on FHSA providers to provide funding for the Australian Prudential Regulation Authority (APRA) to carry out its supervision of financial institutions which offer FHSAs.

Overview of arrangements

The FHSA (Further Provisions) Bill deals with a number of areas, including the following.

Secrecy and the exchange of information

Amendments are being made to ensure the secrecy provisions enable Commonwealth agencies to share information they require in order to fulfil their statutory obligations, while also ensuring the privacy of account holders is protected.

Unclaimed money

A scheme for dealing with unclaimed money in FHSAs will be established. This will be similar to the way other non-superannuation investments are currently administered. FHSAs which have been inactive for seven years, and where the provider has been unable to contact the account holder, will be paid to the Commonwealth. Individuals who later identify themselves to the FHSA provider will be able to reclaim their money.

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The unclaimed money provisions will ensure that FHSA providers are not required to service small, inactive accounts. This is expected to ease the compliance burden for providers.

Supervisory levy

The FHSA Supervisory Levy Bill introduces a framework for imposing a levy on FHSA providers to provide funding for APRA to carry out its supervision of financial institutions which offer FHSAs. This is consistent with the existing financial sector levy framework that funds APRA's supervisory activities on a user-pays basis.

Outline

Chapter 1 describes the operation of the unclaimed money scheme.

Chapter 2 describes the secrecy and exchange of information provisions.

Chapter 3 describes the operation of the FHSA providers supervisory levy.

Chapter 4 describes the various other amendments made by the FHSA (Further Provisions) Bill.

Date of effect : The amendments in Schedule 1 to the FHSA (Further Provisions) Bill apply from 1 October 2008. These provisions deal primarily with taxation issues and ensure FHSAs operate as intended.

The amendments in Schedule 2 to the FHSA (Further Provisions) Bill commence and apply from the day after Royal Assent.

The amendments in Schedule 3 to the FHSA (Further Provisions) Bill and the FHSA Supervisory Levy Bill commence and apply from 1 July 2009.

The commencement of the amendments in Schedule 4 to the FHSA (Further Provisions) Bill is contingent on the commencement of Schedule 1 to the Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008.

Proposal announced : FHSAs were announced in the 2007 Federal election campaign. On 4 February 2008, the Treasurer and the Minister for Housing announced that the Government had formally approved the establishment of FHSAs. A detailed proposal for public consultation was released on 8 February 2008 in First Home Saver Accounts - Outline of proposed arrangements. The Government's final decisions were announced as part of the 2008-09 Budget in the Treasurer's Media Release No. 040 of 13 May 2008.

Financial impact : The amendments in the FHSA (Further Provisions) Bill will not have a financial impact. The FHSA Providers Supervisory Levy Bill is designed to recover the cost of APRA's supervision of FHSA providers and therefore has no net financial impact.

Compliance cost impact : There are likely to be medium implementation costs for providers who choose to offer FHSAs. However, the design of the initiative as reflected in the law has sought to minimise compliance costs for account providers.

Chapter 1 - Unclaimed money

Outline of chapter

1.1 This chapter explains the operation of the unclaimed money provisions in relation to First Home Saver Accounts (FHSAs).

Context of amendments

1.2 FHSAs can be offered by three different types of provider:

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authorised deposit-taking institutions (ADIs);

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life insurance companies; and

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registrable superannuation entity (RSE) licensees which can provide public offer superannuation funds and are authorised by the Australian Prudential Regulation Authority (APRA) to offer FHSAs (authorised trustees).

1.3 The Life Insurance Act 1995 (section 216) and the Banking Act 1959 (section 69) provide for the treatment of money, in a life insurance company and bank account respectively, which become unclaimed.

1.4 These Acts generally provide that a policy or account which is inactive for seven years becomes unclaimed money and is to be paid to the Commonwealth. The Australian Securities and Investments Commission (ASIC) administer these provisions.

1.5 Without amendments, these Acts would apply to FHSAs provided by life insurance companies and banks. However, because of the particular requirements in those Acts, it is doubtful whether the Commonwealth would be able to pay unclaimed moneys back to the bank or life insurance company unless the account holder had satisfied the FHSA withdrawal rules (including the four-year rule in the main case of a home acquisition payment).

1.6 For superannuation, the Superannuation (Unclaimed Money and Lost Members) Act 1999 provides for the treatment of unclaimed money within superannuation. These rules will not apply to FHSAs held by authorised trustees, as they are not 'funds' within the meaning of that Act.

1.7 For these reasons, the First Home Saver Accounts (Further Provisions) Amendment Bill 2008 inserts into the First Home Saver Accounts Act 2008 (FHSA Act) separate unclaimed money provisions which will deal specifically with FHSAs offered by all types of providers. This will ensure a consistent framework and make it easier for FHSA holders to understand what happens to their account if it becomes unclaimed.

Summary of new law

1.8 At the end of each financial year, account providers must provide ASIC with a statement of any unclaimed money held in FHSAs they provide.

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An FHSA balance will be unclaimed money if it has not had any withdrawals or contributions for at least seven years, and the FHSA provider has been unable to contact the FHSA holder after the end of that seven-year period.

1.9 Account providers must pay this unclaimed money to ASIC at the same time they provide ASIC with the statement.

1.10 If an individual later identifies themselves to the FHSA provider, the provider will apply to ASIC to have the money returned. The account holder will be required to declare to their provider whether or not they are still eligible to have an FHSA.

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If the account holder is still eligible to have an FHSA, the provider will be able to reopen an FHSA.

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If the account holder is not eligible to have an FHSA, the provider must contribute the money to a superannuation account of the individual.

Comparison of key features of new law and current law

Detailed explanation of new law

1.11 FHSAs will be excluded from the unclaimed money provisions in both the Banking Act 1959 and the Life Insurance Act 1995. Notes will be added to the relevant sections to ensure that readers are aware that unclaimed FHSAs are dealt with in the FHSA Act. [Schedule 2, items 2 and 3, subsection 69(3) of the Banking Act 1959 and Schedule 2, items 39 and 40, subsection 126(1) of the Life Insurance Act 1995]

1.12 ASIC will have the general administration of the unclaimed money provisions of the FHSA Act. [Schedule 2, item 4, subsection 3(3) of the FHSA Act]

Definition of unclaimed money

1.13 FHSAs will be unclaimed money where:

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no contributions have been made to, and no payments have been made from, the FHSA for a period of at least seven years; and

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after the end of that period, the FHSA provider has been unable to contact the person after making reasonable efforts.

[Schedule 2, items 12 and 14, sections 17A and 18 of the FHSA Act]

1.14 The payment of fees to the FHSA provider or amounts paid to the Commonwealth in respect of overpayments of Government FHSA contributions or tax on earnings, will not count as payments for the purposes of determining whether an account is unclaimed. [Schedule 2, item 12, section 17A of the FHSA Act]

Payment of unclaimed money to the Commonwealth

1.15 Account providers are required to provide ASIC with a statement, in the form approved by ASIC, of all unclaimed money held in FHSAs they provide as at the end of each calendar year. This statement must be provided to ASIC within three months after the end of each calendar year. Consistent with other unclaimed money regimes, failure to provide a statement to ASIC as required is an offence and a penalty of up to 50 penalty units applies. [Schedule 2, item 25, subsections 51A(1) and (2) of the FHSA Act]

1.16 The statement must contain the FHSA holder's name and address; the amount of unclaimed money; the name of the FHSA provider and any identifying account/policy number. Other information may also be required by the approved form to be included in the statement. [Schedule 2, item 25, subsections 51A(3) and (5) of the FHSA Act]

1.17 Where payments have been made from an FHSA between the end of the calendar year and the date on which the provider gives the statement to ASIC, the statement must contain information relating to the amounts paid. Payments of fees to the FHSA provider or amounts owing to the Commonwealth in respect of overpayments of Government FHSA contributions or tax on earnings do not need to be contained in the statement. [Schedule 2, item 25, subsection 51A(4) of the FHSA Act]

1.18 When an FHSA provider gives such a statement to ASIC, it must also pay to ASIC, on behalf of the Commonwealth, an amount to be worked out in accordance with subsection 51B(2) of the FHSA Act. Also consistent with other unclaimed money regimes, failure to pay the amount to ASIC is an offence and a penalty of up to 50 penalty units applies. [Schedule 2, item 25, subsection 51B(1) of the FHSA Act]

1.19 The amount is the amount in the statement less money which was paid from FHSAs during the period between the end of the year and the statement date less any balance remaining in an FHSA after such a payment has been made during the period between the end of the year and the statement date. [Schedule 2, item 25, subsection 51B(2) of the FHSA Act]

1.20 Subject to the obligation to repay money which later becomes 'found', an FHSA provider is discharged from any further liability in respect of an account where the money has been paid to ASIC. [Schedule 2, item 25, subsection 51B(3) of the FHSA Act]

Recovery of unclaimed money paid to the Commonwealth

1.21 Where unclaimed money has been paid to ASIC and:

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a person (or their legal personal representative) has made an application to reclaim their money to their provider in the form approved by ASIC; and

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the FHSA provider applies to ASIC stating it has approved the person's application and will deal with the money in accordance with the law,

ASIC must repay the amount. Account holders will also be able to apply to a different provider if their original provider no longer provides FHSAs. [Schedule 2, item 25, subsection 51C(1) of the FHSA Act]

1.22 FHSA providers are limited in how they can deal with unclaimed money repaid to them by ASIC to ensure they only reopen an FHSA where the 'found' FHSA holder continues to meet the eligibility requirements to hold an FHSA. FHSA providers have 30 days in which to appropriately deal with the unclaimed money [Schedule 2, item 25, subsection 51C(2) of the FHSA Act].

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Where the application states the person wants the money contributed to an FHSA, and that they meet the FHSA eligibility requirements (in section 15 of the FHSA Act), the FHSA provider must repay the money to an FHSA opened or issued to the person [Schedule 2, item 25, subparagraph 51C(2)(a)(i) of the FHSA Act].

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Where the application states the person wants the money to be contributed to a superannuation interest in a particular superannuation plan, the FHSA provider must pay the money into that plan [Schedule 2, item 25, subparagraph 51C(2)(b)(ii) of the FHSA Act].

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Where the person is over age 60 and they want the money paid to them, the FHSA provider must pay the money to the person [Schedule 2, item 25, subparagraph 51C(2)(b)(iii) of the FHSA Act].

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In other circumstances, the FHSA provider must pay the money to a superannuation interest for the benefit of the person in the provider's default superannuation fund [Schedule 2, item 25, subparagraph 51C(2)(b)(iv) of the FHSA Act].

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If the person is deceased, the FHSA provider may pay the money to the person's legal personal representative [Schedule 2, item 25, subparagraph 51C(2)(b)(v) of the FHSA Act].

1.23 Failure to pay an amount as required is an offence and a penalty of up to 50 penalty units applies. [Schedule 2, item 25, subsection 51C(2) of the FHSA Act]

1.24 Where an FHSA provider satisfies ASIC that an amount paid to ASIC under section 51B exceeded the amount that was properly payable, ASIC must repay the excess to the provider. [Schedule 2, item 25, subsection 51C(3) of the FHSA Act]

1.25 The Consolidated Revenue Fund is appropriated for the purposes of returning unclaimed money. This is consistent with the practice adopted under the Banking Act 1959 (subsection 69(8)) and the Life Insurance Act 1995 (subsection 216(12)). [Schedule 2, item 25, subsection 51C(4) of the FHSA Act]

Consequential amendments

1.26 Some other amendments are needed to ensure the appropriate treatment of unclaimed money.

1.27 Where an individual has had an FHSA closed because it became unclaimed and the balance was paid to ASIC, they will not be prohibited from opening another FHSA. When opening another FHSA on reclaiming their money, they must declare that the initial contribution will be a reclaimed amount paid under paragraph 51C(2)(a) of the FHSA Act. [Schedule 2, item 9, paragraph 15(2)(d), and item 16, subparagraph 19(1)(b)(iv) of the FHSA Act]

1.28 An amount repaid to an FHSA under paragraph 51C(2)(a) of the FHSA Act is not a personal contribution. This ensures a Government FHSA contribution is not payable on an amount returned to an FHSA. [Schedule 2, item 7, paragraph 11(3)(e) of the FHSA Act]

1.29 An amount reclaimed and paid to a subsequent FHSA will be excluded from the prohibition on accepting contributions which will result in the account balance cap being breached. This recognises that an FHSA may grow beyond the account balance cap due to earnings or interest and then be paid to ASIC. This amendment allows the entire balance in these situations to be repaid to a subsequent FHSA. [Schedule 2, item 19, subparagraph 27(1)(b)(iv) of the FHSA Act]

1.30 In order to ensure the correct taxation treatment applies to a reclaimed amount, an amount the provider pays to the former account holder will be treated as being paid from an FHSA. [Schedule 2, item 25, subsection 51C(5) of the FHSA Act]

1.31 This amendment is required because in certain situations, money repaid under subsection 51C(2) will be repaid directly from an FHSA provider, and not necessarily from an FHSA. For example, where an FHSA provider pays an amount directly to an individual under paragraph 51C(2)(c).

1.32 ASIC may publish information about unclaimed money to allow individuals to search for their money which has become unclaimed and been paid to ASIC. [Schedule 2, item 25, section 51D of the FHSA Act]

1.33 The provisions relating to unclaimed money in FHSAs operate to the exclusion of any law of a State or Territory which requires unclaimed money to be paid to a State or Territory, or lodgment of a notice of unclaimed money with an authority of a State or Territory. [Schedule 2, item 25, section 51E of the FHSA Act]

1.34 An amendment is made to section 31 of the FHSA Act to allow FHSA providers to make a payment from an FHSA for a compulsory payment of unclaimed money under subsection 51B(1). [Schedule 2, item 22, subparagraph 31(1)(b)(iv) of the FHSA Act]

Chapter 2 - Secrecy and disclosure of information

Outline of chapter

2.1 This chapter outlines the provisions which deal with protected information and how it may be exchanged between Commonwealth agencies and between the Commonwealth and the States and Territories.

Context of amendments

2.2 The First Home Saver Accounts Act 2008 (FHSA Act) has a number of provisions which deal with protected information and how it can be disclosed.

2.3 The First Home Saver Accounts (Further Provisions) Amendment Bill 2008 makes a number of amendments to ensure the secrecy provisions enable agencies to share information they require to properly administer their statutory obligations, while also ensuring the privacy of account holders is protected.

Detailed explanation of new law

Protected information

2.4 The secrecy provisions in the FHSA Act are intended to apply only to the information that is obtained by the Commissioner of Taxation (Commissioner) under the FHSA Act. Notably, this is consistent with the approach taken in the Superannuation Industry (Supervision) Act 1993 (SIS Act), which is another Act in which administration is shared by the Commissioner, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).

2.5 As both APRA and ASIC have a role in administering the FHSA Act and will receive FHSA information in the course of performing their functions in relation to FHSAs, the definition of 'protected information' in the FHSA Act is being amended to ensure that information obtained directly by APRA and ASIC is excluded. Such information will instead be protected by ASIC and APRA's own secrecy provisions contained in section 56 of the Australian Prudential Regulation Authority Act 1998 (APRA Act) and section 127 of the Australian Securities and Investment Commission Act 2001 (ASIC Act). [Schedule 2, item 13, section 18 of the FHSA Act]

2.6 This exclusion, however, does not apply to information that APRA and ASIC receive from the Commissioner which will continue to be protected under the FHSA Act. This is consistent with other taxation secrecy and disclosure provisions which ensure that information obtained by the Commissioner continues to be protected under the same rules even where this information has been disclosed to other Commonwealth Government agencies. [Schedule 2, item 13, paragraph 18(b) of the FHSA Act]

2.7 To ensure that secrecy provisions in the ASIC Act and the FHSA Act do not both apply to information obtained by ASIC from the Commissioner, the secrecy provision in the ASIC Act is being amended to ensure it does not capture information disclosed to ASIC by the Commissioner under the FHSA Act. This amendment ensures that such information is not captured by section 127 of the ASIC Act. [Schedule 2, item 1, subsection 127(1AA) of the ASIC Act]

2.8 The same result in respect of information disclosed to APRA is achieved by amending the definition of 'prudential regulation law' in the Australian Prudential Regulation Authority Regulations 1998.

Persons captured by the secrecy provision

2.9 Currently the secrecy provisions in the FHSA Act apply to, amongst others, a person who is or has been 'appointed or employed by, or a provider of services for, the Commonwealth'. To overcome some uncertainty as to whether this applies to employees of APRA and ASIC who may receive protected information, this definition is being amended to apply to persons who acquire protected information in the course of their employment, or because of their employment. However this does not include employees of entities to whom the information relates. [Schedule 2, item 28, paragraph 70(1)(c) of the FHSA Act]

Disclosing protected information

Disclosure to APRA and ASIC

2.10 As noted above, both APRA and ASIC perform functions in relation to FHSAs. APRA is responsible for the prudential regulation of FHSA providers and ASIC is responsible for the Australian Financial Services Licence regime under the Corporations Act 2001 (Corporations Act) as it applies to FHSA providers, as well as Product Disclosure Statements and other disclosure obligations which apply to FHSAs. In carrying out these responsibilities, APRA and ASIC may require information from the Commissioner.

2.11 While subsection 70(6) of the FHSA Act currently permits the Commissioner to disclose protected information to anyone for the purposes of carrying out functions in relation to the FHSA Act, the role for APRA and ASIC in relation to FHSAs are not confined to the FHSA Act. APRA and ASIC must also exercise functions under other Acts that they administer (for instance, the Banking Act 1959 and the Life Insurance Act 1995 for APRA and the Corporations Act for ASIC). Therefore, to ensure that APRA and ASIC can obtain the necessary information to carry out these functions, these amendments allow the Commissioner to disclose protected information (within the meaning of the FHSA Act) to APRA and ASIC:

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in relation to APRA - for the purpose of APRA performing its functions in relation to FHSAs; and

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in relation to ASIC - for the purpose of ASIC performing its functions in relation to FHSAs.

[Schedule 2, item 33, subsection 70(7A) of the FHSA Act]

2.12 The term 'in relation to FHSAs' is intended to be broad enough to cover a reference to 'FHSA providers' or any other aspect of the FHSA system.

2.13 As the Commissioner will also collect information relating to FHSAs under the Income Tax Assessment Act 1936 (ITAA 1936), the Income Tax Assessment Act 1997 and Schedule 1 to the Taxation Administration Act 1953 (TAA 1953), the relevant secrecy provision relating to these Acts (section 16 of the ITAA 1936) is being amended to permit the disclosure of information to ASIC and APRA for the purpose of performing their functions in relation to FHSAs. [Schedule 2, item 38, paragraph 16(4)(hca) of the ITAA 1936]

2.14 This is consistent with the approach taken in relation to the SIS Act which is another Act in which all three agencies share administration. Paragraph 16(4)(hca) of the ITAA 1936 currently allows the Commissioner to disclose income tax information to 'the Australian Prudential Regulation Authority or the Australian Securities and Investments Commission, for the purpose of [their] administration of the [SIS Act]'.

2.15 The reference to protected document is removed from the provision relating to disclosure to a court as it is superfluous. [Schedule 2, item 32, subsection 70(5) of the FHSA Act]

2.16 To ensure consistency, a definition of FHSA is included in the ITAA 1936 which gives FHSA the same meaning as in the FHSA Act. [Schedule 1, item 5, subsection 6(1) of the ITAA 1936]

'On-disclosure' of information by APRA and ASIC

2.17 As described in paragraph 2.9, the secrecy provisions in section 70 of the FHSA Act apply to employees of APRA and ASIC.

2.18 As a result of other amendments in the FHSA (Further Provisions) Bill, once ASIC and APRA receive information from the Commissioner under section 70 they will continue to be bound by section 70 of the FHSA Act.

2.19 In addition, other amendments in the FHSA (Further Provisions) Bill allow the Commissioner to disclose information to APRA and ASIC for purposes of their administration of FHSAs.

2.20 However, under the current law, irrespective of the reason for which APRA and ASIC receive the information, they can only then 'on-disclose' the information (even internally) in accordance with subparagraphs 70(2)(b)(i) and (ii) - that is, under or in relation to the FHSA Act or in the performance of their duties under the FHSA Act.

2.21 To ensure that APRA and ASIC can use protected information for the purpose for which they received the information from the Commissioner under section 70, an amendment is being made so that once APRA or ASIC receive information from the Commissioner they can use that information for the purposes of performing their respective duties. [Schedule 2, item 31, subparagraph 70(2)(b)(ii) of the FHSA Act]

Example 3.1

Michael, an authorised ATO officer involved in administering the FHSA Act, discloses protected information obtained under the FHSA Act to Sam, an employee of APRA for the purposes of enabling Sam to administer provisions in the Banking Act 1959 incidental to the prudential regulation of a particular FHSA provider. It is not an offence for Michael to disclose that information, nor for Sam to on-disclose the information in the performance of his duties as an APRA employee.

2.22 Amendments are also being made to make the prohibition on the use of protected information clearer. These amendments ensure that information can be disclosed in either of the situations mentioned in paragraph 70(2)(b). [Schedule 2, items 29 and 30, subparagraphs 70(2)(b)(i) and (ii) of the FHSA Act]

Disclosure to the States and Territories

2.23 In each State and Territory, the Commissioner of State or Territory Taxation administers the State or Territory's First Home Owner Grant Acts. State or Territory Commissioners do extensive compliance work in relation to the grants, including whether home buyers do actually live in the homes that they buy.

2.24 Access to this information by the Commissioner would greatly assist in the administration of FHSAs and, in particular, in conducting effective compliance work. In order to facilitate information sharing, these amendments put in place provisions that will enable the Commissioner to provide FHSA information to State and Territory taxation officers in instances where First Home Owner Grant information can be provided in return.

2.25 To achieve this, the TAA 1953 is being amended to allow the Commissioner to disclose FHSA information to a State taxation officer for the purposes of the administration of a First Home Owner Grant Act if the officer is authorised by law to communicate information to the Commissioner. A State taxation officer, for the purposes of these provisions, includes a Territory taxation officer. [Schedule 2, item 42, subsection 13J(9) of the TAA 1953]

2.26 The current law provides that information can only be provided to State and Territory taxation officers where 'similar information' can be provided in return. While this was intended to ensure that any exchange of information was on a reciprocal basis, the ambiguity of what constitutes 'similar' information created significant uncertainty and problems in administering this provision. Therefore, to overcome this ambiguity and maintain some requirement for reciprocity, these amendments will remove the requirement that the information be 'similar' but will require that information can be disclosed to the Commonwealth under the State tax law. [Schedule 2, item 41, subsection 13J(1) of the TAA 1953]

2.27 The States and Territories have agreed to put in place arrangements by which they can share their First Home Owners Scheme information with the Commonwealth and vice versa.

Chapter 3 - First Home Saver Accounts Supervisory Levy

Outline of chapter

3.1 This chapter outlines the structure of the prudential supervisory levy that will be imposed on First Home Saver Accounts (FHSA) providers.

Context of amendments

3.2 The Australian Prudential Regulation Authority (APRA) is funded by its regulated entities on a user-pays basis through financial sector levies. Certain operations of the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO) are also funded by the financial sector levies.

3.3 The Financial Institutions Supervisory Levies Collection Act 1998 (Financial Institutions Levy Collection Act) establishes the administrative framework for collecting levies.

3.4 Separate levy imposition Acts establish the framework for imposing levies on each industry. These include authorised deposit-taking institutions (ADIs), general insurers, life insurers, retirement savings account (RSA) providers, superannuation entities and non-operating holding companies. The First Home Saver Accounts Providers Supervisory Levy Imposition Bill 2008 (FHSA Supervisory Levy Bill) will mirror these arrangements for FHSA providers.

3.5 This framework for imposing the FHSA providers supervisory levy is modelled on the framework for the RSA providers supervisory levy. All FHSA providers will be subject to this new levy.

3.6 Consistent with the financial institutions levy collection framework, the amount of levy for providers from each industry will be set through a ministerial determination. The levy determinations may make different provisions for different classes of providers.

Summary of new law

3.7 This new levy imposition framework will apply to all FHSA providers.

3.8 For trustees, their FHSA trusts would be a separate levy-paying entity. For ADIs and life insurance companies, liability for the levy would be calculated according to the aggregate balance of their FHSAs.

3.9 The FHSA providers supervisory levy would be administered under the existing financial institutions levy collection framework. That is, the Treasurer would make a determination under each levy imposition Act that specifies how to determine assets as well as the amount of levy payable.

Comparison of key features of new law and current law

Detailed explanation of new law

3.10 The Financial Institutions Levy Collection Act establishes the framework for administering and collecting financial institutions supervisory levies. The levy imposition Acts establish the framework for imposing levies on each industry. These include ADIs, general insurers, life insurers, RSA providers, superannuation entities and non-operating holding companies.

3.11 These levy imposition Acts create the framework for imposing levies on each sector, by defining the methodology for calculating levies. This enables the Treasurer to make determinations, one for each sector, that specify the parameters for calculating each levy. Additionally, the Treasurer makes another determination under paragraph 50(1)(b) of the Australian Regulation Authority Act 1998, to recoup the cost to the Commonwealth of providing, through ASIC and the ATO, relevant market integrity and consumer protection functions.

3.12 The new supervisory levy imposition framework for FHSA providers is modelled on the RSA providers supervisory levy imposition framework.

Amendments to the Financial Sector Levy Collection Act

3.13 The FHSA Supervisory Levy Bill will be administered as part of the financial institutions levy collection framework. The term 'leviable FHSA entity' will be added to the list of leviable bodies in the Financial Institutions Levy Collection Act. [Schedule 3, items 2 and 3 of the FHSA (Further Provisions) Bill]

3.14 A leviable FHSA entity will be an ADI or life insurance company that has notified APRA of its intention to offer FHSAs or a trustee that has become authorised as an FHSA provider. [Schedule 3, item 5 of the FHSA (Further Provisions) Bill]

3.15 These amendments enable APRA to administer and collect FHSA levies following the same process as other financial institutions levies. The processes include issuing invoices to leviable bodies, enforcing late payments and imposing penalties for late payment or non-payment. [Schedule 3, item 4 of the FHSA (Further Provisions) Bill]

The FHSA Supervisory Levy Bill

3.16 The FHSA Supervisory Levy Bill will apply to all leviable FHSA entities and is modelled on existing financial institutions levy imposition Acts. [Definition of 'leviable FHSA entity', section 5 of the FHSA Supervisory Levy Bill]

3.17 This levy will be collected from the 2009-10 financial year. [Section 2 of the FHSA Supervisory Levy Bill]

3.18 The FHSA supervisory levy will have two components: the restricted component (related to the cost of supervision) and the unrestricted component (related to potential system impact and vertical equity considerations). Both components are determined as a proportion of assets, with minimum and maximum limits for the restricted component. [Definition of 'statutory upper limit' in section 5 and section 7 of the FHSA Supervisory Levy Bill]

3.19 The FHSA Supervisory Levy Bill will give the Treasurer the flexibility to make a determination that has different provisions for different classes of leviable FHSA entities, such as providers from different industries, where this is appropriate. [Subsection 7(9) of the FHSA Supervisory Levy Bill]

3.20 For leviable FHSA entities that are trustees, the FHSA levy will be calculated on the assets in the FHSA trust. For leviable FHSA entities that are ADIs and life insurers, the assets value that is equivalent to the aggregate balance of their FHSAs (FHSA providers are already required to report the total balance of their FHSAs in reporting standards issued by APRA). [Subsection 7(7) of the FHSA Supervisory Levy Bill]

3.21 The term levy imposition day is defined as the date on which the ADI or life insurer notifies APRA of its intention to offer FHSAs, or the date on which the trustee becomes authorised to offer FHSAs. This clarifies when FHSA providers begin to be liable to pay a levy without imposing an additional reporting requirement. [Definition of 'levy imposition day' in section 5 of the FHSA Supervisory Levy Bill]

3.22 Consistent with the other financial institutions levy imposition Acts, the FHSA Supervisory Levy Bill establishes the calculation of the indexation factor used to establish the statutory upper limits applying to the restricted levy component in later years. This indexation factor allows the statutory upper limit to increase at three percentage points annually in excess of movements in the Consumer Price Index. [Section 8 of the FHSA Supervisory Levy Bill]

Amendments to other Levy Imposition Acts

3.23 ADIs and life insurers' assets that are used in calculating the FHSA providers supervisory levy will not be used in calculating the ADI supervisory levy or the life insurance supervisory levy. [Schedule 3, items 1 and 6 of the FHSA (Further Provisions) Bill]

3.24 In other words, an ADI's assets equivalent to its aggregate FHSA deposit balance would be excluded from calculations of the ADI supervisory levy. Likewise, a life insurer's assets equivalent to its aggregate FHSA policy liabilities would be excluded from calculations of the life insurance supervisory levy.

Amendment to the FHSA Act

3.25 FHSA providers that are ADIs and life insurance companies would be able to notify APRA when they have ceased to provide, and to offer to provide, FHSAs. On giving this notice, the entities would cease to be a leviable FHSA entity and would no longer be liable to pay FHSA levies. [Schedule 2, item 36 of the FHSA (Further Provisions) Bill]

3.26 This notice may be given when the balances of all FHSAs have been paid out according to the payment rules in section 31 of the FHSA Act and all accounts have been closed, or when the entity has transferred all of its FHSA business to another provider.

Chapter 4 - Other amendments

Outline of chapter

4.1 This chapter outlines some of the other amendments being made in relation to First Home Saver Accounts (FHSAs).

Context of amendments

4.2 A number of minor changes are being made to the FHSA Scheme to ensure it operates as intended.

4.3 A number of minor consequential amendments are also being made to ensure that existing laws will interact with FHSAs appropriately.

Detailed explanation of new law

Anti-money laundering and counter-terrorism financing

4.4 To ensure consistency between various legislation, an amendment to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 is being made to align the definition of 'contribution' to an FHSA in that Act with the definition of 'contribution' in the First Home Saver Accounts Act 2008 (FHSA Act). [Schedule 1, item 1, subsections 70(7A) and (7B) of the FHSA Act]

First Home Saver Accounts without a tax file number

4.5 In order to make post-tax contributions to superannuation, a valid tax file number (TFN) must be quoted. Various amendments are being made to ensure FHSAs without a valid TFN cannot be contributed to superannuation.

4.6 The requirement to close an inactive FHSA and contribute the balance to superannuation is being removed when the Commissioner of Taxation (Commissioner) is satisfied the FHSA holder does not have a valid TFN. [Schedule 2, items 17 and 18, paragraph 22(1)(a) of the FHSA Act]

4.7 An FHSA provider will not be able to contribute the balance of an FHSA to superannuation where the provider has received a notice from the Commissioner under section 67 of the FHSA Act (where the notice has not been revoked) that the FHSA holder does not have a valid TFN. [Schedule 2, item 24, paragraph 34(1)(c) of the FHSA Act]

4.8 Amendments are being made so that no-TFN notices that the Australian Taxation Office (ATO) gives to FHSA providers no longer need to refer to the requirement to close inactive accounts. [Schedule 2, items 26 and 27, subparagraphs 67(2)(c)(i) and (ii) of the FHSA Act]

Family law related amendments

Account balance cap

4.9 Currently, if an FHSA provider accepts a contribution which breaches the account balance cap, it can be returned to the FHSA holder within 30 days, and the FHSA provider will not commit an offence. This is not an appropriate outcome where the contribution is a result of a family law obligation.

4.10 An amendment is being made to allow the FHSA provider in such cases to return the contribution to the FHSA provider from which the contribution came. [Schedule 2, item 20, subsection 27(2) of the FHSA Act]

Treatment of family law payments

4.11 To ensure payments and contributions to superannuation made under a family law obligation are treated the same as other payments and contributions, a number of provisions are being modified to refer only to payments or contributions from an FHSA, rather than referring to the sections under which the payments or contributions are made. [Schedule 1, items 17 and 18, paragraphs 290-5(d) and 295-171(a) and item 23, subparagraph 7(1)(c)(v) of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003]

Provision of information

4.12 In order to assist a spouse of an FHSA holder enter into a financial agreement under Part VIIIA or VIIIAB of the Family Law Act 1975 (Family Law Act), or to assist the spouse in connection with obtaining a court order under the Family Law Act, a spouse of an FHSA holder can make an application to the FHSA provider for information regarding the balance of the FHSA holder's FHSA. [Schedule 2, item 37, subsection126A(1) of the FHSA Act]

4.13 An application must be in the form approved by the Commissioner and must be accompanied by a declaration stating that the information will be used only for the purposes of:

•

entering into a financial agreement under Part VIIIA or VIIIAB of the Family Law Act; or

•

assisting the spouse in connection with obtaining a court order under the Family Law Act.

[Schedule 2, item 37, subsection 126A(2) of the FHSA Act and Schedule 4, item 1, paragraph 126A(2)(a) of the FHSA Act]

4.14 An FHSA provider must comply with such an application. Failure to do so is an offence and a penalty of up to 50 penalty units applies. [Schedule 2, item 37, subsection 126A(3) of the FHSA Act]

4.15 In order to protect the privacy of the FHSA holder and their spouse, an FHSA provider who receives an application must not:

•

provide to the spouse any address of the FHSA holder; or

•

notify the FHSA holder that such an application has been made.

Doing so is an offence and a penalty of up to 50 penalty units applies. [Schedule 2, item 37, subsections 126A(4) and (5) of the FHSA Act)]

Protection of First Home Saver Account providers

4.16 An amendment is made to ensure FHSA providers who act in good faith in relation to a family law obligation will not be liable for loss or damage. [Schedule 1, item 3, section 126C of the FHSA Act]

Tax amendments

Taxation of authorised deposit - taking income

4.17 An amendment is being made to ensure FHSA providers which are authorised deposit-taking institutions (ADIs) are unable to claim a deduction for amounts they credit to FHSAs. [Schedule 1, items 19 and 22, sections 295-495 (after item 4 in the table) and 345-25 of the ITAA 1997]

4.18 This change makes it clear that an ADI does not deduct FHSA interest credited as it would bank interest credited to an ordinary account. Although the assessable income of an ADI that provides FHSAs is determined in the normal way, earnings (or other returns) credited to FHSAs are not deductible to the ADI. The taxable income of the ADI is then split into the FHSA component and the standard component. The FHSA component is the amount credited to FHSAs less any fees charged by the ADI.

4.19 The standard component is determined by subtracting the FHSA component from the taxable income of the ADI. The standard component is taxed at 30 per cent. The FHSA component is taxed at 15 per cent.

4.20 This special tax treatment reflects the different tax treatment of FHSAs. Unlike interest on ordinary bank accounts for which the account holder pays tax, the ADI pays tax on the earnings of FHSAs (at concessional rates). If the ADI recouped this tax from FHSAs the recoupment would not be assessable income to the ADI.

Example 4.1

An ADI that provides FHSAs has total revenue of $1,110 million, which is the assessable income of the ADI. This includes fees charged to FHSA depositors of $10 million. The ADI also has expenses of $910 million which includes amounts credited to FHSAs of $410 million. This amount of $410 million is not an allowable deduction to the ADI. Therefore, assuming the remaining expenses are deductible, the deductions of the ADI are $500 million (ie, $910 million less $410 million).

As a consequence of the modification made by proposed section 345-25, the ADI's taxable income is $610 million, (ie, $1,110 million reduced by $910 million less $410 million).

The FHSA component is $400 million, (ie, $410 million less $10 million). The tax payable by the ADI on the FHSA component (at 15 per cent) is $60 million.

The standard component, which is derived by subtracting the FHSA component from the ADI's taxable income, is $210 million, (ie, $610 million less $400 million). The company tax payable by the ADI on the standard component (at 30 per cent) is $63 million.

4.21 An amendment is also being made to allow for the payment of tax from an FHSA. Amounts recouped from an FHSA for the payment of tax will be non-assessable non-exempt income in the hands of the ADI FHSA providers and will not need to be included in the FHSA activity statement given to the Commissioner. [Schedule 1, item 2, paragraph 31(1)(h) of the FHSA Act and Schedule 1, item 22, section 345-30 of the ITAA 1997 and Schedule 1, item 25, paragraph 391-5(1)(e) of the Taxation Administration Act 1953]

4.22 Generally, the tax paid by an Australian resident company is allocated to its shareholders by way of franking credits attached to the dividends the shareholders receive. This ensures the income of an ADI is not taxed twice. Amendments are being made so that ADIs which are FHSA providers will not receive a franking credit (or debit) for tax paid in relation to the FHSA component of their income. This ensures shareholders of the ADI do not get a refundable tax offset for tax paid in relation to FHSAs. To ensure parity between FHSAs and retirement savings accounts (RSAs), the same amendment is being made in relation to the RSA component for ADIs which are RSA providers. [Schedule 1, item 14, subsection 205-15(3), item 15, subsection 205-30(1) and item 16, subsection 205-30(2) of the ITAA 1997]

Fringe benefits tax

4.23 Amendments are made to ensure:

•

a reimbursement by an employer in respect of an employee's personal FHSA contribution; and

•

a contribution to an FHSA by an employer on behalf of an employee,

are not fringe benefits but are included in the assessable income of the employee. [Schedule 1, item 4, paragraph 136(1)(hd) of the Fringe Benefits Tax Assessment Act 1986, item 13, section 15-80 of the ITAA 1997 and item 24, paragraph 12-1(3)(b) of the Taxation Administration Act 1953]

Separate net income

4.24 An amendment is being made to the definition of 'separate net income' in subsection 159J(6) of the Income Tax Assessment Act 1936 (ITAA 1936) to exclude returns on FHSAs and the Government FHSA contribution. Separate net income is used as an income test for a small number of tax offsets including the dependant spouse tax offset. [Schedule 1, item 6, paragraphs 159J(6)(aae) and (aaf) of the ITAA 1936]

Tax file number and Australian investment income reports

4.25 As FHSA income is not the assessable income of the holder, account providers will not need to report account holder details on the quarterly TFN report or Australian investment income report to the Commissioner. To achieve this result, the definitions of 'interest-bearing account', 'interest-bearing deposit' and 'unit trust' are amended to exclude FHSAs. [Schedule 1, items 7 to 9, section 202A of the ITAA 1936]

4.26 Amendments are also made to various tables to take into account the modifications elsewhere in the First Home Saver Accounts (Further Provisions) Amendment Bill 2008 (FHSA (Further Provisions) Bill). [Schedule 1, items 10 to 12, sections 10-5 and 11-55 of the ITAA 1997]

Deemed quotation of tax file number

4.27 An amendment is made to section 295-615 of the ITAA 1997 to ensure that where an FHSA provider quotes an individual's TFN to a superannuation provider in connection with a contribution from an FHSA, the quotation will also be made for the purposes of determining the provider's no-TFN contributions income. [Schedule 1, items 20 and 21, section 202A of the ITAA 1936]

Prohibition of certain uses of a First Home Saver Account

4.28 Similarly to superannuation, in order to ensure FHSAs are used to purchase a first home, and are not used as a means of financing other expenditure, FHSAs will be unable to be used as security for a borrowing.

4.29 Any term of a contract or other agreement which purports to provide for a charge over an FHSA will have no effect. Rights to the income of an FHSA are also unable to be assigned. In addition, providers are unable to recognise, encourage or otherwise sanction a charge being put over an FHSA. Doing so is an offence and a penalty of up to 50 penalty units applies. [Schedule 2, item 37, section 126B of the FHSA Act]

Amendments to the payment conditions

4.30 Amendments are being made to provide greater protection to individuals who are unable to meet the payment conditions due to circumstances which are genuinely beyond their control.

4.31 The amendments will provide that where the payment conditions have not been met, a person will not be subject to the misuse tax if:

•

the failure to meet the conditions is reasonable in the circumstances; and

•

it is reasonable to require the ex-FHSA holder do so, an amount equal to the payment or a reasonable lesser amount is recontributed to an FHSA as soon as is practicable.

[Schedule 2, item 10, paragraph 17(3)(b) of the FHSA Act]

4.32 In considering whether a failure to meet the payment conditions is reasonable, regard must be had to factors in subsection 17(4) of the FHSA Act. These are whether the circumstances were beyond control of the individual, whether the failure was reasonably foreseeable, whether the individual has failed the conditions on a previous occasion and any other relevant factor. [Schedule 2, item 11, subsection 17(4) of the FHSA Act]

4.33 When considering whether it is reasonable to recontribute money to an FHSA, a significant factor is whether the individual has lost a significant portion of the amount withdrawn because of the actions of a third party or some other circumstance which is out of the control of the individual. If they are able to recontribute, the expectation is that they would recontribute an amount within six months. If the six months has expired and an acquisition payment has been made, but perhaps settlement does not occur through no fault of the individual, then as soon practicable the individual should recontribute to another FHSA.

Example 4.2

Tracy withdraws her FHSA money to purchase a home. Tracy is unable to find a home she likes. She does not therefore acquire a home within the six months as required by the FHSA payment conditions. Tracy also does not recontribute the funds. Later that year the ATO identifies that Tracy has not purchased a home. Tracy has no reason beyond her control for not recontributing the FHSA funds and meeting the payment rules. In this example Tracy would be in breach of the FHSA payment rules as it would have been reasonably possible for Tracy to recontribute to a new FHSA within six months.

4.34 Also, it will be relevant to consider whether it is reasonable for the person to be able to reopen an FHSA, that is, whether they meet the eligibility requirements.

Example 4.3

Amanda did purchase a home within six months of withdrawing her FHSA money. Shortly after Amanda moves into her home it is destroyed by a natural disaster. Amanda is therefore unable to meet the six-month occupancy rule. For financial reasons, Amanda was unable to rebuild and she sold the land. She is ineligible to recontribute to an FHSA as she has already lived in a dwelling that she has owned. In this case it would be unreasonable for Amanda to recontribute to an FHSA and she will be deemed to have met the payment rules.

4.35 A significant factor would be where an individual incurs expenses associated with acquiring a qualifying interest in a dwelling which were unavoidable. In such cases it would be reasonable for them to contribute the amount withdrawn less the unavoidable expenses.

4.36 An individual may also lose some of the amount withdrawn due to fraud or theft in relation to acquiring an interest in a dwelling. It may therefore be reasonable for them to recontribute the balance of their FHSA, less the amount lost.

4.37 Losses or expenses not associated with acquiring an interest in a dwelling are not intended to be taken into account when assessing whether contributing a lesser amount is reasonable.

Example 4.4

John finds a new apartment development project he likes and withdraws his FHSA money to pay the deposit. The developer has asked for a long settlement period. However, six months later the developer goes in to liquidation and is unable to fulfil the contract. John's full deposit is returned to him. John decides to use some of the deposit money on an overseas holiday. John then decides to recontribute to an FHSA several months after receiving his refund. The amount recontributed is the deposit less his holiday expenses.

In this case it would not be reasonable for John to recontribute a lesser amount to an FHSA. John did not act as soon as practicable and had no reason to recontribute a lesser amount to the new FHSA. John would be in breach of the FHSA payment rules.

4.38 When recontributing an amount, an individual must declare they meet the conditions described above. A recontribution will not be a personal FHSA contribution. [Schedule 2, items 6 and 15, subparagraphs 11(3)(c)(ii) and 19(1)(b)(iii) of the FHSA Act]

4.39 The term 'recontribution of FHSA home acquisition payment after failure to occupy a dwelling' is being removed from a number of sections to reflect the fact that FHSA home acquisition payments can be recontributed in a wider range of cases (eg, failure to meet the occupancy rules). [Schedule 1, items 5, 8 and 21, subparagraph 11(3)(c)(ii), paragraph 15(2)(a) and paragraph 28(2)(b) of the FHSA Act]

4.40 An amendment is also being made to ensure individuals who transfer from one FHSA provider to another are unable to make use of the various provisions in the Corporations Act 2001 mentioned in subparagraph 31(1)(d)(ii) which allow individuals to access their money in certain limited circumstances. These circumstances will now only apply to the first FHSA which an individual opens. [Schedule 2, item 23, paragraph 31(1)(da) of the FHSA Act]

Unauthorised trustees

4.41 APRA would be able to seek court injunctions against unauthorised trustees to prevent them from purporting to issue FHSAs. This provision protects would-be account holders from unauthorised trustees. [Schedule 2, item 34 of the FHSA (Further Provisions) Bill]

4.42 The Superannuation Industry (Supervision) Act 1993 (SIS Act) regulatory framework has been applied to FHSA trustees and their trusts where it is appropriate to do so. In addition, APRA's power to seek court injunctions under section 315 of the SIS Act would be applied to unauthorised trustees, purported FHSA trusts and purported FHSAs. This provision is consistent with APRA's powers to seek injunctions under the SIS Act.

Application and transitional provisions

4.43 The tax-related amendments and the protection for FHSA providers in relation to family law obligations in Schedule 1 to the FHSA (Further Provisions) Bill apply from 1 October 2008. [Schedule 1, item 26 of the FHSA (Further Provisions) Bill]