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

Temporary residents' superannuation

The Temporary Residents' Superannuation Legislation Amendment Bill 2008 (main Bill) and the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008 (DASPT Bill):

•

implement the Government's proposed temporary residents' superannuation measure (the measure); and

•

amend legislation in respect of superannuation for temporary visa holders.

The Government's temporary residents' superannuation measure

The Australian Government provides substantial taxation concessions for superannuation savings in order to encourage individuals to save for their retirement. However, restrictions are placed on the early withdrawal of superannuation savings prior to the individual reaching their preservation age to ensure that they are used for genuine retirement income purposes. In limited circumstances, such as for terminal medical conditions, severe financial hardship and compassionate grounds, individuals can apply for the early release of their superannuation benefits.

Superannuation contributions, earnings and benefits are concessionally taxed in Australia on the basis that they will be used to meet the retirement income needs of Australians. Accordingly, where those benefits are accessed early prior to reaching preservation age, additional tax is generally imposed to recover the tax concessions.

Individuals who hold an eligible temporary resident visa are currently able to access their superannuation benefits early (prior to reaching preservation age) if their visa has been cancelled or has expired and they have departed Australia, by applying for a departing Australia superannuation payment (DASP). A DASP is subject to a final withholding tax to recoup the tax concessions provided to the superannuation of temporary residents.

Despite the ability to claim their superannuation many temporary residents do not do so and leave amounts of small and lost balances in the superannuation system, thereby contributing to the total amount of lost monies in the system.

Currently, the Superannuation (Unclaimed Money and Lost Members) Act 1999 (S(UMLM) Act) requires superannuation providers to report and pay the superannuation of a member to the Commissioner of Taxation (Commissioner) as unclaimed money where certain conditions relating to the member are met. Broadly speaking, 'unclaimed money' is money which the superannuation provider holds in respect of members who have reached the eligibility age (65) or died and the provider is unable to contact the person entitled to receive it.

Schedule 1 to the main Bill contains amendments to the S(UMLM) Act and other Acts so that when temporary visa holders leave Australia without taking their superannuation with them, relevant amounts are reportable and payable to the Commissioner as unclaimed superannuation.

The main Bill and the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008

In broad terms, the amendments contained in Schedule 1 to the main Bill:

•

include as unclaimed superannuation the superannuation of a person who was previously a holder of a temporary visa, where at least six months have passed since the person's temporary visa ceased to be in effect and they have left Australia;

•

require superannuation providers that hold such unclaimed superannuation for departed temporary visa holders to pay such amounts to the Commissioner; and

•

allow departed temporary visa holders to recover any amounts paid to the Commissioner as unclaimed superannuation where certain conditions have been satisfied (subject to the DASP withholding tax).

The measure is seeking to reduce the number of lost accounts and unclaimed money in the superannuation system that can arise when temporary visa holders leave Australia without taking their superannuation benefits with them.

Date of effect : This measure commences from a day to be fixed by Proclamation, or the first day after a period of six months from when the Bill receives Royal Assent, whichever is earlier.

Proposal announced : A discussion paper on the proposal was released for public consultation on 5 May 2008. The Government's final decision was announced in the Minister for Superannuation and Corporate Law's Press Release No. 050 of 8 August 2008.

Financial impact : This measure will have these positive revenue implications:

Compliance cost impact : Superannuation funds are estimated to, on average, have implementation costs of $33,000 per provider and ongoing annual costs of $2,500 per provider.

Provisions, for costs of $10 million per annum for the Australian Taxation Office (ATO) and $2 million per annum for the Department of Immigration and Citizenship (DIAC) over the forward estimates period, were made in the 2007-08 Mid-Year Economic and Fiscal Outlook.

Summary of regulation impact statement

Regulation impact on business

Impact : This measure will reduce the number of lost accounts in the superannuation system and ensure that superannuation tax concessions are well targeted at individuals who will retire in Australia.

The measure will rely on processes similar to the existing processes used by superannuation funds to transfer unclaimed money to the Commissioner.

Main points :

Individuals

•

In 2006-07 there were over 239,152 temporary resident visas granted with work rights and over 87,300 business long-stay 457 visas issued.

•

Departed temporary residents who do not claim their superannuation within six months of departure will have their superannuation paid to the ATO as unclaimed money.

•

Departed temporary residents will be able to claim, for an indefinite period, their superannuation benefits less the DASP tax, back from the ATO.

Superannuation funds

•

Superannuation funds will pay amounts that are defined as unclaimed for departed temporary residents to the Commissioner.

•

This measure will assist to reduce the number of small and lost accounts that superannuation funds need to manage.

Government agencies

•

The ATO's tasks will include:

-

matching those individuals identified by the DIAC as departed temporary visa holders with account information provided by superannuation funds and then notifying funds;

-

paying amounts to individuals or their legal personal representative where amounts are later claimed; and

-

where directed by an individual in certain circumstances rolling over amounts into a superannuation fund.

•

The DIAC will be required to identify those individuals who the measure may impact upon and provide this information to the ATO.

Chapter 1

Payment of unclaimed superannuation to the Commissioner of Taxation

Outline of chapter

1.1 Part 1 of Schedule 1 to the Temporary Residents' Superannuation Legislation Amendment Bill 2008 (main Bill) amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 (S(UMLM) Act) to implement the Government's temporary residents' superannuation measure, including by inserting Part 3A into the S(UMLM) Act.

1.2 This chapter outlines how the rules in Part 3A require superannuation providers to pay the unclaimed superannuation of departed temporary visa holders to the Commissioner of Taxation (Commissioner). This chapter also defines key concepts used in Part 3A.

1.3 All references to legislative provisions in this chapter are references to the main Bill unless otherwise stated.

Context of amendments

1.4 A superannuation provider of a fund holds unclaimed superannuation for a person if the person has a superannuation interest in the fund and at least six months have passed since they held a temporary visa that ceased to be in effect and left Australia. Under the S(UMLM) Act these amounts may become payable to the Commissioner.

1.5 Part 3A of the S(UMLM) Act contains rules which require the Commissioner to give superannuation providers a notice in certain circumstances, and for providers who receive such notices to give a statement and to pay an amount to the Commissioner by a specified time.

Summary of new law

Key concepts

1.6 For the purposes of Part 3A of the S(UMLM) Act, several new concepts are inserted into the definition provision at section 8.

Notices to superannuation providers

1.7 Under Part 3A of the S(UMLM) Act, the Commissioner must give a superannuation provider for a fund a written notice identifying a person or persons where certain circumstances exist. These circumstances include the person(s) identified being a departed temporary visa holder with a superannuation interest in the fund.

1.8 No notice is required to be given to providers of state or territory public sector superannuation schemes or to providers of unfunded public sector superannuation schemes.

Statement from superannuation providers

1.9 A superannuation provider that receives a notice from the Commissioner must give the Commissioner a statement in the approved form and with the required information, by a specified time. This requirement applies equally to providers of defined benefit funds and providers of accumulation funds.

Payment by superannuation providers

1.10 Broadly speaking, a superannuation provider that receives a notice from the Commissioner must pay to the Commissioner the difference between:

•

the amount that would have been payable from the fund to a person identified in the notice had that person requested payment in connection with their departure (the notional departing Australia superannuation payment (DASP)); and

•

the total of amounts paid or payable from the fund in respect of the person.

The difference (if any) must be paid to the Commissioner by the required time or the provider accrues general interest charge on the unpaid amount and commits an offence.

1.11 This requirement applies equally to providers of defined benefit funds and providers of accumulation funds.

Comparison of key features of new law and current law

Detailed explanation of new law

Key concepts

1.12 For the purposes of administering the rules in Part 3A of the S(UMLM) Act, the following concepts are inserted into the definition provision at section 8 of the S(UMLM) Act:

•

Approved form has the meaning given by section 388-50 in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) [ Schedule 1, item 5 ]. The offence provisions and administrative penalties under the TAA 1953 for giving false or misleading information in the approved form and for failing to give the approved form by the required time, apply with respect to all approved forms under the S(UMLM) Act (ie, to Part 3A as well as to section 16).

•

Engage in conduct means to do an act or to omit to perform an act [ Schedule 1, item 6 ]. This definition is relevant for the purpose of the offence provision that applies if an amount is not paid to the Commissioner by the day it is due and payable [ Schedule 1, item 16, subsection 20F(6 )].

•

General interest charge means the charge worked out under Part IIA of the TAA 1953 [ Schedule 1, item 7 ].

•

Leave Australia (and left Australia) has the same meaning as under the Migration Act 1958 [ Schedule 1, item 8 ].

•

Legal personal representative of a person who has died is an executor or administrator of the person's estate [ Schedule 1, item 9 ].

•

Scheduled statement day is defined as the day specified by the Commissioner by legislative instrument, by the end of which a statement must be given by a superannuation provider to the Commissioner if required to do so under Part 3A of the S(UMLM) Act [ Schedule 1, items 10 and 16, section 20B ].

•

Superannuation interest means an interest in a superannuation fund, an approved deposit fund or a retirement savings account (RSA) [ Schedule 1, item 11 ]. 'Approved deposit fund', 'RSA' and 'superannuation fund' are defined under section 8.

•

Terminal medical condition has the same meaning as under the Income Tax Assessment Act 1997 (ITAA 1997) [ Schedule 1, item 12 ].

Notices to superannuation providers

1.13 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 identifying a person, if the Commissioner is satisfied that all of the following circumstances exist:

•

there are reasonable grounds to believe that the person has a superannuation interest in the fund;

•

the person was previously a holder of a temporary visa, other than a visa prescribed by the Superannuation (Unclaimed Money and Lost Members) Regulations 1999 (Regulations), that has ceased to be in effect;

•

the person left Australia after starting to be the holder of the visa;

•

at least six continuous months have passed since the visa ceased to be in effect and the person left Australia; and

•

the person:

-

is not a holder of a temporary visa or permanent visa;

-

is not an Australian citizen or New Zealand citizen; and

-

has not made a valid application for a permanent visa that has not been finally determined under the Migration Act 1958.

[ Schedule 1, item 16, subsection 20C(1 )]

In general terms, the effect of a provider receiving a notice from the Commissioner under section 20C of the S(UMLM) Act is the requirement to give a statement and make a payment to the Commissioner by a certain time (refer to paragraphs 1.28 and 1.35).

1.14 Regulations could be made to prescribe certain temporary visa holders who must not be identified in a section 20C notice that is given to a provider [ Schedule 1, item 16, subparagraph 20C(1 )( b )( i )]. This reduces the range of temporary visa holders whose unclaimed superannuation is required to be paid to the Commissioner. Prescribing 'excluded' temporary visa holders in the Regulations allows flexibility, for example to respond to changing circumstances (ie, if a new temporary visa class is created) and to cater appropriately for any specific visa classes.

1.15 The Commissioner is not required to give a notice under section 20C of the S(UMLM) Act (even where all the circumstances in paragraph 1.13 exist) to a superannuation provider that is either:

•

the trustee of a state or territory public sector superannuation scheme within the meaning of section 18 of the S(UMLM) Act; or

•

the trustee of an unfunded public sector scheme as defined in the Superannuation Guarantee (Administration) Act 1992.

[ Schedule 1, item 16, subsection 20C(3 )]

1.16 Where the Commissioner is required to give a notice under section 20C of the S(UMLM) Act to a provider in respect of a person, the notice must identify the person and must include information prescribed by the Regulations [ Schedule 1, item 16, subsection 20C(2 )]. The notice may contain the tax file number of the person and of the fund [ Schedule 1, item 16, section 25A ]. Where the notice contains the tax file number of the person, it is taken to be quoted (for superannuation purposes) under section 295-615 of the ITAA 1997.

1.17 A notice given by the Commissioner under section 20C of the S(UMLM) Act is not a legislative instrument under section 5 of the Legislative Instruments Act 2003 as it does not have a legislative character which determines or alters the content of the law; it is merely declaratory of the law and causes the law to be applied. [ Schedule 1, item 16, subsection 20C(5 )]

1.18 While the Commissioner is not allowed to amend a notice under section 20C of the S(UMLM) Act given to a provider, the Commissioner is, however, required to revoke the notice where certain conditions have been met (refer to paragraph 1.20). [ Schedule 1, item 16, subsection 20C(4 ) and section 20J ]

1.19 A superannuation provider or person who is dissatisfied with a section 20C notice can make an objection under Part IVC of the TAA 1953. [ Schedule 1, item 16, section 20P ]

Revoking a notice

1.20 The Commissioner must revoke a notice given under section 20C of the S(UMLM) Act to a superannuation provider, if the Commissioner is satisfied that:

•

a notice should never have been given to the provider in respect of a person (ie, the circumstances for giving the notice did not exist in the first place); or

•

the circumstances relating to a person have changed since the time the notice was given (ie, the circumstances for giving the notice no longer exist).

[ Schedule 1, item 16, subsection 20J(1 )]

1.21 For instance, the Commissioner is required to revoke a notice if satisfied that:

•

there were no, or there are no longer, reasonable grounds for believing that the person identified in the notice has a superannuation interest in the provider's fund; or

•

where there are reasonable grounds for believing that the person identified in the notice has a superannuation interest in the fund, that:

-

the person has never held a temporary visa;

-

if the person has held a temporary visa, then the visa is one that is prescribed by the Regulations or the visa has never ceased to be in effect;

-

if the person has held a temporary visa (but is not one prescribed in the Regulations) and it has ceased to be in effect, the person has not left Australia;

-

if the person has held a temporary visa that has ceased to be in effect and the person has left Australia, a period of at least six continuous months has not passed since the later of those two events;

-

the person is an Australian or New Zealand citizen; or

-

the person is the holder of a temporary visa or permanent visa, or has made a valid application for a permanent visa that has not been finally determined under the Migration Act 1958.

[ Schedule 1, item 16, subsection 20C(1 )]

1.22 The revocation must be in the form of a written notice given by the Commissioner to the provider [ Schedule 1, item 16, subsection 20J(2 )]. The revocation notice is not a legislative instrument under item 33 of Part 1 of Schedule 1 to the Legislative Instruments Act 2003.

1.23 If the Commissioner revokes an earlier notice, then the effect of the revocation is that the earlier notice is taken to have never been given [ Schedule 1, item 16, subsection 20J(3 )]. Accordingly, where the Commissioner does revoke an earlier notice, the provider is not required to give a statement nor make a payment to the Commissioner under Part 3A of the S(UMLM) Act in connection with that earlier revoked notice.

1.24 However, a revocation by the Commissioner has no effect where at least one of the following conditions exists [ Schedule 1, item 16, subsection 20J(4 )]:

•

before the revocation, the provider has already made a payment to the Commissioner because of the earlier notice [ Schedule 1, item 16, subsection 20J(5 )]; or

•

the revocation was made less than 28 days before the required time for the provider to give a statement to the Commissioner ('scheduled statement day'), and before the end of that day the provider has either given a statement or made a payment to the Commissioner because of the earlier notice [ Schedule 1, item 16, subsection 20J(6 )].

For both above conditions, an amount that has been paid to the Commissioner can later be claimed back (refer to Chapter 2). The second condition exists to allow providers who have already commenced processes to respond to the Commissioner's earlier notice, to continue with their processing.

1.25 If a provider receives a revocation notice less than 28 days before the scheduled statement day, and before that day the provider has given a statement or made a payment because of a notice under section 20C of the S(UMLM) Act, then the revocation has no effect [ Schedule 1, item 16, subsection 20J(6 )]. That is, the section 20C notice is not taken to have never been given, that notice stands and the statement or payment has been given because of a section 20C notice. The provider is discharged from any further liability in respect of the amount paid [ Schedule 1, item 16, section 20G ]. A payment made in connection with a section 20C notice can later be claimed back (refer to Chapter 2).

1.26 However, a section 20C notice that is revoked by the Commissioner 28 days or more before the scheduled statement day and prior to payment being made by the provider because of that notice, has the effect that the notice was never given to the provider [ Schedule 1, item 16, subsections 20J(3 ) and ( 6 )]. Accordingly, a superannuation provider that gives a statement and/or makes a payment after the revocation, purportedly because of a notice under section 20C of the S(UMLM) Act, cannot rely on the notice for giving the statement and is not discharged from any liability because of the payment.

1.27 Where the revocation of an earlier notice would not have effect (refer to paragraph 1.24), the Commissioner is not required to revoke that earlier notice. [ Schedule 1, item 16, subsections 20J(4 ) and ( 7 )]

Example 1.1

The Commissioner issues a notice under section 20C of the S(UMLM) Act to a superannuation provider in respect of member Catherine. Assume that the next scheduled statement day after the notice is given is 1 May in a year. The Commissioner revokes the earlier notice on 1 March of that year after being satisfied the circumstances for giving that notice no longer exist. The revocation has the effect that the earlier notice is taken to never have been given. Any subsequent payment by the provider because of the earlier notice does not discharge the provider of any liability in respect to that payment because the earlier notice has been revoked (and therefore taken to never have been given). The amount paid can be later claimed back by Catherine.

Assume instead the Commissioner revokes the earlier notice on 10 April in that year (which is less than 28 days before the scheduled statement day). If the provider makes a payment because of the earlier notice by 1 May in that same year (assuming the amount paid was properly worked out and paid in full), the revocation is taken to have no effect and the provider is discharged from further liability in respect to the amount paid. The amount paid can be later claimed back by Catherine.

Superannuation providers to give statements to the Commissioner

1.28 A superannuation provider that receives a notice under section 20C of the S(UMLM) Act from the Commissioner which has not been revoked, must give to the Commissioner a statement in the approved form and by the required time [ Schedule 1, item 16, sections 20D and 20E ]. The statement must be given to the Commissioner by the end of the next scheduled statement day after the notice which the statement relates to was given [ Schedule 1, item 16, paragraph 20E(2 )( a )].

1.29 However, if a notice under section 20C of the S(UMLM) Act is given to a provider less than 28 days before the next scheduled statement day after the notice was given, the provider is required to give the statement to the Commissioner by the end of the following scheduled statement day. [ Schedule 1, item 16, paragraph 20E(2 )( b )]

Example 1.2

Assume the scheduled statement days in each year are 1 May and 1 November. If a notice under section 20C of the S(UMLM) Act was given by the Commissioner to a superannuation provider on 1 April in a year, the provider is required to give the Commissioner a statement in the approved form by the end of 1 May that year.

However, if the notice had been given by the Commissioner to the provider on 10 April in a year, the provider is required to give the statement in the approved form to the Commissioner by the end of 1 November that year.

1.30 The Commissioner may defer the time by which a statement is required to be given by a provider, under section 388-55 in Schedule 1 to the TAA 1953. A provider that fails to give the statement by the required time commits an offence under section 8C of the TAA 1953, and could be subject to an administrative penalty under Division 286 in Schedule 1 to the TAA 1953.

1.31 A provider that receives a notice under section 20C of the S(UMLM) Act from the Commissioner which has not been revoked, is required to give a statement in the approved form to the Commissioner by the required time even where:

•

the person identified in the notice does not have a superannuation interest in the fund at the time the statement is required to be given; or

•

there is no amount payable to the Commissioner by the provider in respect of the person (refer to paragraph 1.35).

[ Schedule 1, item 16, subsection 20E(3 )]

1.32 The provider must give the required information in the statement in the approved form. The nature of the required information must be relevant to the superannuation interest in the fund of the person identified in the notice and/or to the administration of Part 3A of the S(UMLM) Act and related tax legislation [ Schedule 1, item 16, subsection 20E(1 )]. This facilitates, amongst other things, the collection of information on the taxation components of amounts paid to the Commissioner, for the purpose of making payments when the amounts are later claimed from the Commissioner.

1.33 The approved form may require the statement to contain the tax file number of the fund, of the superannuation provider and of the person identified in the notice (if the person has quoted it to the provider or it is in the notice) [ Schedule 1, item 16, subsection 25(2A )]. A notice that contains the tax file number of a person is taken to be quoted to the provider for superannuation purposes under section 295-615 of the ITAA 1997.

1.34 A provider that supplies false or misleading information in the statement commits an offence under sections 8K and 8N of the TAA 1953, and could be subject to an administrative penalty under Division 284 in Schedule 1 to the TAA 1953.

Superannuation providers to make payments to the Commissioner

1.35 Under Part 3A of the S(UMLM) Act, a superannuation provider that receives a section 20C notice from the Commissioner which has not been revoked could be required to pay an amount to the Commissioner in respect of a person identified in the notice [ Schedule 1, item 16, section 20D ]. The amount payable (if any) by the provider to the Commissioner is the difference between the starting amount, and the total of the amounts that have already been paid or are payable by the provider in respect of the person [ Schedule 1, item 16, subsection 20F(1 )].

The starting amount

1.36 The starting amount is the amount that would have been payable from the fund to the person identified in the notice under section 20C of the S(UMLM) Act, if the person could and had requested payment in connection with their departure from Australia (as a DASP). [ Schedule 1, item 16, subsection 20F(2 )]

1.37 The starting amount is a hypothetical amount that would have been payable from the fund if a DASP was payable in respect of the person and a request for payment had been made. The starting amount is the net of any fees and charges that could be applied by the provider on a DASP amount.

1.38 The starting amount must be worked out at the time referred to as 'calculation time'. Calculation time is defined as being the time immediately before the required time for the provider to make a payment to the Commissioner because of the notice under section 20C of the S(UMLM) Act (assuming an amount is payable in respect of the person) [ Schedule 1, item 16, paragraph 20F(2 )( a )]. In other words, the calculation time can be:

•

the time that is immediately before the next scheduled statement day after the notice was given [ Schedule 1, item 16, subsection 20F(1 ) and paragraph 20F(2 )( a )];

•

if the notice is given less than 28 days before the next scheduled statement day, the time that is immediately before the following scheduled statement day [ Schedule 1, item 16, subsection 20F(1 ) and paragraph 20F(2 )( a )]; or

•

if the Commissioner has deferred the time the payment is due and payable (ie, deferred the next scheduled statement day or the following scheduled statement day), the time that is immediately before the deferred day [ Schedule 1, item 16, subsection 20F(1 ) and paragraph 20F(2 )( a )].

However, if the provider makes a payment before the required time the payment is due and payable, the calculation time is the time that is immediately before the payment is to be made [ Schedule 1, item 16, subparagraph 20F(2 )( a )( ii )].

1.39 If the provider has already paid an amount in respect of the person before the 'calculation time', then that amount paid is not included in the starting amount. This is because the amount already paid would not have been included in a DASP for the person at the calculation time.

1.40 In working out the starting amount the provider must assume a DASP request could be made and is made before the calculation time [ Schedule 1, item 16, paragraph 20F(2 )( b )] and that the person has not died [ Schedule 1, item 16, paragraph 20F(2 )( c )].

1.41 Further, when working out the starting amount, the provider must not notionally withhold the DASP tax that would otherwise apply. [ Schedule 1, item 16, paragraph 20F(4 )( a )]

Example 1.3

Assume a provider receives a notice under section 20C of the S(UMLM) Act from the Commissioner identifying Jay as a departed temporary visa holder. The provider is required to work out the notional DASP amount in respect of Jay (assuming Jay could make and has made a DASP request) at the time immediately before it makes the payment to the Commissioner. The notional DASP amount excludes amounts already paid by the provider in respect of Jay. The notional DASP tax should not be subtracted from the notional DASP amount, although this amount is net of fees and charges that would apply to the DASP.

Reduce the starting amount by amounts that are paid / payable in respect of the person

1.42 Broadly speaking, the provider must reduce the starting amount in respect of a person, by the total of any amounts that have already been paid or become payable in respect of the person. That is, the starting amount must be reduced by the total of the following amounts:

•

the amount (if any) that is payable by the provider in respect of the person where the provider is required or permitted to pay the amount under the Superannuation (Industry) Supervision Regulations 1994 (SIS Regulations) or Retirement Savings Accounts Regulations 1997 (RSA Regulations);

•

the amount (if any) paid by the provider because the person has actually died;

•

the amount (if any) of the person's superannuation interest that supports a superannuation income stream; and

•

the amount (if any) worked out under the Regulations.

[ Schedule 1, item 16, subsection 20F(3 )]

1.43 The time at which the provider must work out the above amounts is at the 'calculation time'. [ Schedule 1, item 16, subsection 20F(3 )]

Amount that is payable under the Superannuation Industry (Supervision) Regulations 1994 or the Retirement Savings Accounts Regulations 1997

1.44 The provider is required to subtract from the starting amount, an amount where:

•

the person has met a condition of release under the SIS Regulations or the RSA Regulations which requires (compulsory cashing) or permits (voluntary cashing) the amount to be paid in respect of the person; and

•

there is a requirement on the provider to pay that amount.

[ Schedule 1, item 16, paragraph 20F(3 )( a )]

1.45 For instance, if the person has met a compulsory cashing condition under the SIS Regulations or the RSA Regulations (eg, DASP) and the provider has received a request for payment, then there is a requirement on the provider to pay that amount. The starting amount is reduced by the amount that is payable.

1.46 Also, if the person has met a voluntary cashing condition under the SIS Regulations or the RSA Regulations, the provider has received a request for payment and the rules of the fund allow an amount to be paid in these circumstances, then there is a requirement on the provider to pay that amount. The starting amount is reduced by the amount that is payable.

1.47 Before the starting amount can be reduced by an amount, the provider must be more than merely aware that the person has met a condition of release under the SIS Regulations or the RSA Regulations, and there must be more than a mere option, in the circumstances, for the provider to pay the amount in respect of the person.

1.48 If, at the calculation time, a provider is in the process of making a payment in accordance with a condition of release under the SIS Regulations or the RSA Regulations in respect of the person, then the starting amount is reduced by the amount of the payment. In practice, the starting amount would only normally be reduced when the fund has been requested to make a payment that it is entitled to make under SIS Regulations or the RSA Regulations and the fund is in the process of making that payment.

Amounts paid because of death

1.49 When working out the starting amount, the provider is required to assume the person in question has not died before the calculation time [ Schedule 1, item 16, paragraph 20F(2 )( c )]. Accordingly, if the person has actually died before this time, the starting amount must be reduced by any amount paid by the provider because of the person's death [ Schedule 1, item 16, paragraph 20F(3 )( b )].

Amounts in the Regulations

1.50 Regulations could be made to specify other amounts that are to be reduced from the starting amount [ Schedule 1, item 16, paragraph 20F(3 )( d )]. Where other amounts are specified in the Regulations, this could result in the remaining amount that is payable (if any) to the Commissioner being less than the starting amount.

1.51 In working out how much of the starting amount is to be reduced, the provider must not notionally withhold the DASP tax that may otherwise apply [ Schedule 1, item 16, paragraph 20F(4 )( a )]. For instance, if the provider has received a DASP request from the person, then the starting amount is to be reduced by the gross DASP amount and not by the net DASP amount (after the DASP tax has been withheld).

Example 1.4

A provider of a regulated superannuation fund (that is not an unfunded public sector superannuation scheme) has received a DASP request in respect of Catherine (who has been identified in a section 20C notice). The starting amount for Catherine at the calculation time is $5,000. This is to be reduced by the amount that is required to be paid to Catherine in accordance with the SIS Regulations, without subtracting the notional DASP tax amount.

The remainder is the amount payable to the Commissioner

1.52 Where there is an amount remaining, after the starting amount for a person has been reduced by the total amount paid or payable (if any) in respect of the person, the provider must pay the remainder to the Commissioner. [ Schedule 1, item 16, subsection 20F(1 )]

1.53 The remaining amount must be paid to the Commissioner by the end of the next scheduled statement day after the notice under section 20C of the S(UMLM) Act was given to the provider [ Schedule 1, item 16, subsection 20F(1 )( a )]. However, if the notice was given to the provider less than 28 days before that day, the payment is due and payable to the Commissioner by the end of the following scheduled statement day [ Schedule 1, item 16, subsection 20F(1 ]( b )].

Example 1.5

Assume the scheduled statement days for each year are 1 May and 1 November. A superannuation provider works out that an amount is payable in respect of Jay who has been identified in a section 20C notice given to the provider on 25 September in a year. The provider is required to pay the amount by the end of 1 November of that year.

However, if the notice was given by the Commissioner to the provider on 18 October in that year, the provider must pay the amount to the Commissioner by the end of 1 May of the following year.

1.54 The Commissioner can defer the time at which amounts are due and payable under section 255-10 in Schedule 1 to the TAA 1953.

1.55 A provider that fails to pay an amount that is payable to the Commissioner by the time required, is liable for a general interest charge on the unpaid amount [ Schedule 1, item 16, subsection 20F(5 )]. As well, the amount payable by a provider to the Commissioner is a tax-related liability under the TAA 1953 with the associated administrative penalties under Division 284 in Schedule 1 to the TAA 1953.

1.56 In addition, an offence is committed if, as a result of an act or omission, an amount that is payable (refer to paragraph 1.52) to the Commissioner is not paid by the required time [ Schedule 1, item 16, section 8 and subsection 20F(6 )]. Where the act or omission is engaged by an individual, the maximum penalty for the offence is 100 penalty units (and five times greater if the act or omission is engaged by a body corporate under the Crimes Act 1914).

1.57 In working out whether there is an amount payable to the Commissioner, in respect of a person where their superannuation interest is subject to a payment split under the Family Law Act 1975, the provider can only take into account the person's entitlement to payment after the payment split. [ Schedule 1, item 16, paragraph 20F(4 )( b )]

1.58 A provider that pays the whole amount that is payable by the time required under Part 3A of the S(UMLM) Act is discharged from any further liability in respect to the amount paid. [ Schedule 1, item 16, section 20G ]

1.59 Where the revocation of a notice under section 20C of the S(UMLM) Act has effect (refer to paragraph 1.20), no amount becomes payable to the Commissioner in respect of the person identified in connection with the notice. [ Schedule 1, item 16, subsection 20J(3 )]

Refund of overpayments made by superannuation providers

1.60 If a superannuation provider has made a payment because of a notice under section 20C of the S(UMLM) Act in respect of a person, and the Commissioner is satisfied that the amount paid exceeded the amount that was payable (if any) in connection with the notice in respect to the person, then the Commissioner must pay the excess to the provider of the originating fund (or to the provider of the successor fund if the original fund no longer exists). [ Schedule 1, item 16, section 20K ]

1.61 For instance, if a provider has paid too much in respect of a person and the Commissioner is satisfied that the provider was not required to pay the excess amount in respect of the person (ie, the provider worked out the wrong amount that was payable), then the Commissioner must refund that excess to the provider.

1.62 Similarly, if the amount paid by a provider in respect of a person is not the person in fact identified in the notice (ie, the provider has made a payment in respect of the wrong person), then the Commissioner must refund that payment to the provider if satisfied the provider was not required to make a payment in respect of that person.

Example 1.6

A provider paid $150,000 in respect of member Catherine who was identified in a notice under section 20C of the S(UMLM) Act given by the Commissioner. However, the amount payable to the Commissioner in respect of Catherine was in fact only $100,000, and the Commissioner is satisfied that the provider was not required to pay the additional $50,000 in respect of Catherine, the Commissioner must pay the $50,000 to the provider (or to the provider of the successor fund if the original fund no longer exists).

Assume a provider paid $150,000 in respect of member Lola to the Commissioner because of a section 20C notice. However, the notice in fact identified a different member of the fund, Lili. If the Commissioner is satisfied that the provider was not required to pay the $150,000 in respect of Lola, the Commissioner must pay the $150,000 to the provider (or the provider of the successor fund if the original fund no longer exists).

1.63 If a notice given under section 20C of the S(UMLM) Act wrongly identifies a person as someone that such a notice must be given in respect of, and the provider makes a payment to the Commissioner because of the notice, the Commissioner can refund that payment to the provider if the Commissioner is satisfied the person was someone in respect of who such notice should not have been given.

1.64 Money is appropriated under section 16 of the TAA 1953 to refund overpayments made to the Commissioner.

Application and transitional provisions

1.65 A notice from the Commissioner under section 20C of the S(UMLM) Act can identify a person who, before, on or after the commencement of Schedule 1 to the main Bill, has held a temporary visa (which is not a visa prescribed by the Regulations) that has ceased to be in effect and who has left Australia.

1.66 The requirements for a statement and a payment to be given by a provider to the Commissioner, apply from the commencement of Schedule 1 to the main Bill.

Chapter 2

Payment of unclaimed superannuation from the Commissioner of Taxation

Outline of chapter

2.1 This chapter outlines the rules in Part 3A of the Superannuation (Unclaimed Money and Lost Members) Act 1999 (S(UMLM) Act) (inserted by Part 1 of Schedule 1 to the Temporary Residents' Superannuation Legislation Amendment Bill 2008 (main Bill)) which allow departed temporary visa holders to claim back their unclaimed superannuation from the Commissioner of Taxation (Commissioner).

2.2 All references to legislative provisions in this chapter are references to the main Bill unless otherwise stated.

Context of amendments

2.3 Where the Commissioner has received an amount in respect of a person from a superannuation provider under the S(UMLM) Act, the amount can be later claimed back in respect of the person (subject to any withholding tax that may apply).

2.4 A person who used to be the holder of a temporary visa that expired or was cancelled (ie, their visa ceased to be in effect) and has left Australia, is able to withdraw their superannuation from a fund in connection with their departure by requesting a departing Australia superannuation payment (DASP). The superannuation provider for the fund is required to pay the benefits to the person within 28 days of the request (less the relevant amount of DASP withholding tax). The DASP withholding tax recovers some of the superannuation tax concessions provided to the departed temporary visa holder. As explained in Chapter 1, Part 3A of the S(UMLM) Act requires the superannuation provider to pay the departed temporary visa holder's superannuation to the Commissioner in certain circumstances.

2.5 Part 3A of the S(UMLM) Act also requires the Commissioner to pay back the unclaimed superannuation it has received from a provider in respect of a person (subject to any withholding tax that may apply).

Summary of new law

Payments from the Commissioner

2.6 Generally, if the Commissioner has received an amount under the S(UMLM) Act for a person and the person was a departed temporary visa holder, then those amounts can be claimed back (subject to any withholding tax that may apply).

2.7 The Commissioner must pay an amount in respect of a person under Part 3A of the S(UMLM) Act if the Commissioner is satisfied that all of the following conditions have been met:

•

the Commissioner has received an amount from a superannuation provider in respect of the person under the S(UMLM) Act;

•

the person was identified in a notice under section 20C of the S(UMLM) Act, or was previously a holder of a temporary visa (apart from a visa prescribed in the Superannuation (Unclaimed Money and Lost Members) Regulations 1999 (Regulations)) that ceased to be in effect at least six months earlier and they had left Australia at least six months earlier after starting to be the holder of the visa; and

•

the amounts received under the S(UMLM) Act in respect of the person exceed the total of any amount that has already been paid by the Commissioner in respect of the person under the S(UMLM) Act.

2.8 Where the Commissioner is satisfied that an amount is payable in respect of a person, the Commissioner can pay the amount to the person, to the person's legal personal representative (if the person has died), or to a single fund (if the person so directs and if the Commissioner is satisfied they are an Australian citizen, New Zealand citizen or the holder of a permanent visa or a visa prescribed by the Regulations).

2.9 The excess paid by the Commissioner is generally a DASP and the DASP tax is withheld by the Commissioner at the time of payment.

Recovering and returning payments made by the Commissioner

2.10 The Commissioner can recover the amount that was paid under Part 3A of the S(UMLM) Act in respect of a person if it exceeds the amount that should have been paid in respect to that person under that Part.

2.11 The whole or part of the overpayment can be recovered from the person ('debtor') to whom the payment was made. That 'debtor' may include the departed temporary visa holder, their legal personal representative, a beneficiary, the superannuation provider of the fund the overpayment was made to or another fund which received a transfer of the amount. The Commissioner must give a notice of recovery to the debtor.

2.12 A provider that receives a payment from the Commissioner under Part 3A of the S(UMLM) Act in respect of a person and has not credited the amount into an account for that person within 28 days of the Commissioner's payment, is liable to return the payment to the Commissioner.

Detailed explanation of new law

Payment by the Commissioner

2.13 The Commissioner is required to pay an amount in respect of a person if satisfied, on application in the approved form or on the initiative of the Commissioner (refer to paragraph 2.14), that both of the following preconditions have been met:

•

the person has [ Schedule 1, item 16, paragraph 20H(1 )( a )]:

-

been identified in a notice under section 20C of the S(UMLM) Act; or

-

held a temporary visa (except a visa prescribed in the Regulations) and at least a continuous period of six months has passed since both the visa ceased to be in effect and the person left Australia (after starting to hold the visa); and

•

the sum of the amounts received by the Commissioner in respect of the person under the S(UMLM) Act, exceeds the sum of the amounts paid by the Commissioner in respect of the person under the S(UMLM) Act [ Schedule 1, item 16, paragraph 20H(1 )( b )].

Preconditions for making a payment

Upon application or on the Commissioner's own initiative

2.14 An application for payment in respect of a person can be made by the person or on behalf of the person (for instance, by the person's legal personal representative where the person has died). While the application should be made in the approved form, it can also be made in a form that contains the necessary information to enable the Commissioner to determine if there is an amount payable in respect of the person and where the payment is to be made. [ Schedule 1, item 16, subsection 20H(1 )]

2.15 Alternatively, if the Commissioner is satisfied there is enough information to determine an amount is payable in respect of a person, and where that payment is to be made, the payment can be made on the Commissioner's own initiative without an application in the approved form being made. [ Schedule 1, item 16, subsection 20H(1 )]

The person has been identified in a section 20C notice or was a departed temporary visa holder

2.16 For a payment to be made by the Commissioner under Part 3A of the S(UMLM) Act in respect of a person, the person must [ Schedule 1, item 16, paragraph 20H(1 )( a )]:

•

be identified in a notice under section 20C of the S(UMLM) Act; or

•

have held a temporary visa (except a visa prescribed in the Regulations) and at least a continuous period of six months has passed since both the visa ceased to be in effect and the person left Australia after starting to hold the visa.

The inclusion of the second dot point ensures that DASP tax may be applied to any unclaimed superannuation of a person who is a departed temporary visa holder even if they have not been identified in a notice under section 20C of the S(UMLM) Act. [ Schedule 1, item 16, subparagraph 20H(1 )( a )( ii )]

2.17 The Regulations could prescribe certain classes of temporary visa holders who would then be able to claim back their unclaimed superannuation under section 17 of the S(UMLM) Act rather than under Part 3A as a DASP [ Schedule 1, item 16, subparagraph 20H(1 )( a )( ii )]. A person who has superannuation paid to the Commissioner under section 17 of the S(UMLM) Act and who is not able to claim it back under Part 3A (because they do not fall under one of the dot points in paragraph 2.16), can claim back their money under section 17 of the S(UMLM) Act.

There is an excess amount for the person

2.18 The Commissioner is only required to make a payment in respect of a person if there is an excess amount worked out under section 20H of the S(UMLM) Act. There is an excess amount if the total amount paid to the Commissioner for the person exceeds the total amount paid by the Commissioner in respect of the person. [ Schedule 1, item 16, paragraph 20H(1 )( b )]

2.19 The excess amount is worked out by first calculating the total amount received by the Commissioner under the S(UMLM) Act in respect of the person [ Schedule 1, item 16, paragraph 20H(1 )( b )]. This total amount could have been paid to the Commissioner under:

•

section 17 of the S(UMLM) Act, before, on or after the commencement of Part 3A of the S(UMLM) Act;

•

Part 3A of the S(UMLM) Act; or

•

both section 17 and Part 3A of the S(UMLM) Act.

2.20 The total amount paid to the Commissioner under the S(UMLM) Act in respect of the person, must then be reduced by the total amount paid by the Commissioner in respect of the person under the S(UMLM) Act [ Schedule 1, item 16, paragraph 20H(1 )( b )]. These amounts could have been paid by the Commissioner in respect of the person under:

•

section 17 of the S(UMLM) Act, before, on or after the commencement of Part 3A of the S(UMLM) Act;

•

Part 3A of the S(UMLM) Act (as a payment and/or as a refund for overpayment); or

•

both section 17 and Part 3A of the S(UMLM) Act.

The excess amount (if any) is payable by the Commissioner in respect of the person.

2.21 The Commissioner must take account of payments made by the Commissioner under the S(UMLM) Act in respect of the person (the departed temporary visa holder), including a payment made to a claimant (such as the person's legal personal representative or a beneficiary), when determining whether there is an excess amount payable in respect of the person.

Subject to any withholding tax

2.22 A payment from the Commissioner in respect of a person under section 20H of the S(UMLM) Act is generally a DASP (refer to paragraph 3.34). The DASP tax is withheld by the Commissioner from the excess amount at the time of payment [ Schedule 1, item 16, subsection 20H(6 )]. If applicable, the excess untaxed roll-over amount tax is withheld by the Commissioner from the excess amount at the time of payment to a fund (refer to paragraph 3.48) [ Schedule 1, item 16, subsection 20H(6 )]. The amount withheld from the payment is taken to have been paid by the Commissioner [ Schedule 1, item 16, subsection 20H(5 )].

Interaction with section 17 of the Superannuation ( Unclaimed Money and Lost Members ) Act 1999

2.23 An amount of unclaimed money which the Commissioner has paid under Part 3A of the S(UMLM) Act, or has taken into account in determining whether an amount is payable under Part 3A in respect of a person, cannot be paid under section 17 of the S(UMLM) Act in respect of that person. [ Schedule 1, item 16, subsection 17(2A )]

2.24 That is, where the Commissioner is required to make a payment under Part 3A in respect of a person, then the Commissioner must make that payment under Part 3A and not under section 17. The requirement for the Commissioner to make a payment under Part 3A overrides the requirement for the Commissioner to make a payment under section 17 in respect to that person.

Example 2.1

Catherine has not been identified in a notice under section 20C of the S(UMLM) Act from the Commissioner but her superannuation has been paid to the Commissioner by her fund as unclaimed money under subsection 12(1) of the S(UMLM) Act. Catherine had previously entered into Australia on a temporary visa and departed Australia after her visa had expired for more than six months. Catherine has applied to claim back her unclaimed superannuation from the Commissioner (assume that no previous application has been made on her behalf). The Commissioner is required to pay the unclaimed superannuation for Catherine under Part 3A of the S(UMLM) Act. The payment is a DASP and the Commissioner is required to withhold the DASP tax from the payment.

Destination of the payment

2.25 Where an excess amount is payable by the Commissioner in respect of a person, the Commissioner must pay the excess (as a single lump sum payment) to one of the following:

•

the person;

•

the person's legal personal representative if the person has died; or

•

to a single fund that is a complying superannuation plan, if the person so directs and the person is an Australian or New Zealand citizen or the holder of a permanent visa or visa prescribed in the Regulations.

[ Schedule 1, item 16, subsection 20H(2 )]

2.26 However, if the person has died and the Commissioner is satisfied that a superannuation provider would have been required to pay the person's superannuation to their death beneficiaries (had the amount not been paid by the provider to the Commissioner under the S(UMLM) Act), then the Commissioner must pay the amount to the death beneficiaries if the Commissioner has the necessary information to make the payment. [ Schedule 1, item 16, subsection 20H(3 )]

2.27 The amount payable by the Commissioner to each death beneficiary is equal to the amount the Commissioner is satisfied that a provider would have been required to pay each death beneficiary if the benefits had remained in the fund. If this amount is more than the excess amount payable in respect of the deceased person (as worked out under section 20H of the S(UMLM) Act - refer to paragraph 2.18), then the amount payable by the Commissioner to each death beneficiary is to be worked out according to the following formulae [ Schedule 1, item 16, subsection 20H(4 )]:

Excess amount × [Amount payable from provider to the death beneficiary / Total amount payable from provider to all death beneficiaries]


Example 2.2

Unclaimed money has been paid by a provider to the Commissioner in respect of Mika under subsection 12(1) of the S(UMLM) Act. Assume Mika has died before the Commissioner is required to make a payment in respect of him under Part 3A of the S(UMLM) Act. The Commissioner must pay the amount to Mika's nominated death beneficiaries (if the Commissioner has this information) or to Mika's legal personal representative (if no beneficiary has been nominated or the Commissioner does not have information about the nominated beneficiaries). The amount payable to a nominated death beneficiary is worked out according to the formula in paragraph 2.27, whilst the amount payable to the legal personal representative is the excess amount.

2.28 A person who is dissatisfied with a decision of the Commissioner relating to a payment made under section 20H of the S(UMLM) Act, including the amount paid by the Commissioner and/or the destination of the payment, can object to the decision under Part IVC of the Taxation Administration Act 1953 (TAA 1953) [ Schedule 1, item 16, section 20P ]. A 'person' includes the person to whom the amount belongs, the person's legal personal representative or a beneficiary.

2.29 Money is appropriated under section 16 of the TAA 1953 for the Commissioner to make payments under Part 3A of the S(UMLM) Act.

Recovery of overpayments by the Commissioner

2.30 The Commissioner is able to recover a payment made in respect of a person under Part 3A of the S(UMLM) Act which exceeds the amount that should have been paid in respect of the person under that Part [ Schedule 1, item 16, subsection 20L(1 )]. The Commissioner is also able to recover the payment if no amount should have been paid in respect of the person under Part 3A.

Example 2.3

Assume the Commissioner made a payment in respect of Jay under Part 3A of the S(UMLM) Act, of $20,000 (after the DASP tax is withheld). However, the actual amount payable in respect of Jay is in fact $15,000 (after the DASP tax is withheld). The Commissioner can recover the excess amount of $5,000.

Assume the Commissioner made a payment in respect of Catherine under Part 3A of the S(UMLM) Act, of $20,000 (after the DASP tax is withheld). However, no amount was in fact payable in respect of Catherine under Part 3A. The Commissioner can recover the entire amount of $20,000.

2.31 The Commissioner can recover the overpayment from any 'debtor'. A debtor is defined as:

•

a person (this includes the person the payment is made in respect of, their legal personal representative or their beneficiary);

•

the superannuation provider of the fund the payment was directed to by the person; and/or

•

the superannuation provider which the whole or part of the payment was transferred to by another provider.

[ Schedule 1, item 16, subsection 20L(3 )]

2.32 Before recovering the overpayment the Commissioner must give the debtor a written notice about the proposed recovery and specify the amount to be recovered [ Schedule 1, item 16, paragraph 20L(4 )( a )]. The Commissioner must allow at least 28 days after the notice is given before taking action to recover the overpayment [ Schedule 1, item 16, paragraph 20L(4 )( b )].

2.33 The notice is not a legislative instrument within the definition of section 5 of the Legislative Instruments Act 2003 because it does not have a legislative character which determines or alters the content of the law; it is merely declaratory of the law and causes the law to be applied. [ Schedule 1, item 16, subsection 20L(8 )]

2.34 The Commissioner is able to revoke a notice about a proposed recovery. [ Schedule 1, item 16, subsection 20L(6 )]

2.35 The Commissioner can only recover the whole or part of an overpayment from a provider if the provider still holds an amount attributable to the overpayment at the time the notice was given to them. [ Schedule 1, item 16, subsection 20L(5 )]

2.36 An amount that is sought to be recovered by the Commissioner from the debtor is a debt due to the Commonwealth [ Schedule 1, item 16, subsection 20L(2 )]. The Commissioner may commence debt recovery action against a debtor or debtors.

2.37 While the total amount which the Commissioner can seek to recover from different debtors can be more than the actual amount of the overpayment, the total amount that is actually recovered by the Commissioner cannot be more than the actual amount of the overpayment [ Schedule 1, item 16, subsection 20L(7 )]. Further, the amount which is actually recovered cannot be more than the amount specified in the notice of recovery [ Schedule 1, item 16, paragraph 20L(4 )( c )].

Return of payments by superannuation providers

2.38 If the Commissioner makes a payment in respect of a person on the direction of the person to a fund, and the superannuation provider of that fund has not credited the payment to an account within 28 days after the payment was made, then the provider must return that payment to the Commissioner. [ Schedule 1, item 16, subsections 20M(1 ) and ( 2 )]

2.39 The provider is liable to repay the payment to the Commonwealth by the end of 28 days after the day the Commissioner had made the payment to the provider. [ Schedule 1, item 16 . subsection 20M(2 )]

2.40 When repaying the payment, the provider must provide certain information relating to the payment, in the approved form, to the Commissioner [ Schedule 1, item 16, subsection 20M(3 )]. For instance, the information can relate to the tax components of the payment. The provider commits an offence and could be subject to administrative penalties under the TAA 1953 if it fails to do so.

2.41 A superannuation provider that does not repay the whole amount of the payment to the Commissioner by the end of the 28th day after the Commissioner has made the payment to the provider, is liable to pay a general interest charge on the unpaid amount. [ Schedule 1, item 16, subsection 20M(4 )]

Application and transitional provisions

2.42 Payments from the Commissioner, the recovery of overpayments by the Commissioner and the return of payments to the Commissioner under Part 3A of the S(UMLM) Act, all apply from the commencement of Schedule 1 to the main Bill.

Chapter 3

Other changes

Outline of chapter

3.1 This chapter outlines other amendments to the Superannuation (Unclaimed Money and Lost Members) Act 1999 (S(UMLM) Act) and the amendments to related tax legislation, under Schedule 1 to the Temporary Residents' Superannuation Legislation Amendment Bill 2008 (main Bill) and Schedule 1 to the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008 (DASPT Bill). These amendments are necessary to administer the key rules in Part 3A of the S(UMLM) Act (as outlined in Chapters 1 and 2).

3.2 All references to legislative provisions in this chapter are references to the main Bill unless otherwise stated.

Context of amendments

3.3 Part 1 of Schedule 1 to the main Bill contains amendments to the S(UMLM) Act (including the inserting of Part 3A) to implement this measure.

3.4 For the purposes of administering Part 3A of the S(UMLM) Act, and for purposes related to temporary visa holders' superannuation, Part 2 of Schedule 1 to the main Bill amends the Taxation Administration Act 1953 (TAA 1953) while Part 3 of Schedule 1 to the main Bill amends the Income Tax Assessment Act 1997 (ITAA 1997).

3.5 Schedule 1 to the DASPT Bill amends the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007 to implement this measure and to facilitate the administration of Part 3A of the S(UMLM) Act.

Summary of new law

Other changes to the Superannuation ( Unclaimed Money and Lost Members ) Act 1999

3.6 Amendments are made to the S(UMLM) Act to facilitate the administration of the rules contained in Part 3A, including the quotation and use of tax file numbers, the disclosure of information between central agencies to administer the measure, and the interaction between Part 3 and Part 3A.

3.7 The S(UMLM) Act also clarifies that amounts paid to the Commissioner of Taxation (Commissioner) under the S(UMLM) Act are not held on trust by the Commissioner and are not special public money under the Financial Management and Accountability Act 1997.

Changes to related tax legislation

3.8 A payment from the Commissioner under section 20H of the S(UMLM) Act is a superannuation benefit under the ITAA 1997. The ITAA 1997 sets out how to work out the tax-free component and the taxable component of the payment that is a superannuation benefit.

3.9 Under the TAA 1953, amounts that are payable or repayable to the Commissioner by a provider under Part 3A of the S(UMLM) Act, are a tax-related liability. Further, a general interest charge accrues on any unpaid amount after the time it becomes due and payable.

3.10 The departing Australia superannuation payment (DASP) withholding tax rates on elements of the taxable component are raised by five percentage points to recover some of the superannuation tax concessions provided to departed temporary visa holders. The DASP withholding tax is not applied on amounts which are subject to the excess untaxed roll-over amounts tax.

Detailed explanation of new law

Other changes to the Superannuation ( Unclaimed Money and Lost Members ) Act 1999

Preliminaries

3.11 The long title of the S(UMLM) Act is amended to more accurately reflect what the legislation broadly aims to achieve. The legislation provides a register of unclaimed money and a register of lost members, and provides for certain payments relating to superannuation and for related purposes.

3.12 The objects provision at section 6 and the outline at section 7 of the S(UMLM) Act are amended to include a summary of the key rules in Part 3A of the S(UMLM) Act.

Interaction between Part 3 and Part 3A of the S(UMLM ) Act

Statements from superannuation providers

3.13 A superannuation provider is currently required under section 16 of the S(UMLM) Act to give the Commissioner a statement of 'unclaimed money' it holds for a member as described under sections 12 or 14 of the S(UMLM) Act. If, at the end of a half-year reporting period, a provider holds unclaimed money for a person under subsection 12(1) of the S(UMLM) Act (member reached age 65) and the provider is also required to give a statement under Part 3A of the S(UMLM) Act in respect of that person, then the provider is not required to give a statement under section 16 of the S(UMLM) Act to the Commissioner in respect of the person [ Schedule 1, item 13, subsection 16(7 )]. The provider does not commit an offence under subsection 16(5) of the S(UMLM) Act in complying with Part 3A of the S(UMLM) Act.

3.14 However, a provider that holds unclaimed money for a person under subsection 12(2) (splittable payments) or section 14 (death) of the S(UMLM) Act, is still required to comply with the reporting requirements under section 16 of the S(UMLM) Act. This is necessary because Part 3A of the S(UMLM) Act should not apply to a non-member spouse entitled to the splittable payments as the non-member spouse is not a person with an interest in the fund for the purposes of Part 3A of the S(UMLM) Act.

3.15 Further, the Commissioner is unlikely to be aware of the death of a departed temporary visa holder. If a provider is aware of a departed temporary visa holder member's death, the provider is required to deal with the deceased person's superannuation under Part 3 of the S(UMLM) Act (ie, the deceased member's benefits are paid to the Commissioner as unclaimed money if section 14 of the S(UMLM) Act is met).

Payments from superannuation providers

3.16 A provider who is not required to give a statement under section 16 of the S(UMLM) Act in respect to a person is not required to specify an amount in a statement for the purposes of section 17 of the S(UMLM) Act. Accordingly, the provider is not required to pay that unclaimed money amount to the Commissioner under section 17 of the S(UMLM) Act in these circumstances [ Schedule 1, item 14, subsection 17(1 )]. The provider does not commit an offence under subsection 17(6) in complying with Part 3A of the S(UMLM) Act.

3.17 However, a provider that holds unclaimed money for a person under subsection 12(2) (splittable payments) or section 14 (death) of the S(UMLM) Act, is still required to comply with its payment obligations under section 17 of the S(UMLM) Act.

Example 3.1

A superannuation provider has unclaimed money for member Shaz under subsection 12(1) of the S(UMLM) Act for the half year ending on 31 December. The provider receives a notice under section 20C of the S(UMLM) Act on 25 February of the following year in respect of Shaz. The provider is required to give a statement in the approved form with the required information, to the Commissioner by the end of 1 May of that year (assuming that the next scheduled statement day after the notice was given is 1 May). The provider is also required to work out the amount (if any) payable in respect of Shaz under Part 3A of the S(UMLM) Act, and pay this amount to the Commissioner by the end of 1 May. The provider is not required to also give a statement and make a payment in respect of Shaz under sections 16 and 17 of the S(UMLM) Act in these circumstances.

Statements and payments from superannuation providers where Part 3A does not apply

3.18 A provider that holds unclaimed money for a person under sections 12 or 14 of the S(UMLM) Act and has not been given a notice under section 20C of the S(UMLM) Act in respect of the person, is required to comply with the requirements under Part 3 of the S(UMLM) Act. This includes giving a statement and paying unclaimed money to the Commissioner in respect of the person under sections 16 and 17 of the S(UMLM) Act.

Payments from the Commissioner

3.19 Where the Commissioner has received an amount under both section 17 and Part 3A of the S(UMLM) Act in respect of a person, and the Commissioner is required to make a payment in respect of the person, the Commissioner is then required to make the payment under Part 3A and not under section 17 of the S(UMLM) Act. [ Schedule 1, item 15, subsection 17(2A )]

Disclosure of information

3.20 In broad terms, Part 3A of the S(UMLM) Act allows for the disclosure of migration and citizenship information by central agencies for the purposes of administrating the measure. More specifically, Part 3A of the S(UMLM) Act contains a provision which permits the disclosure of certain information (refer to paragraph 3.21), by certain persons (refer to paragraph 3.22), for certain purposes (refer to paragraph 3.23) [ Schedule 1, item 16, section 20N ].

3.21 The information that can be disclosed can relate to any of the following matters:

•

whether a person is or was the holder of a visa at a particular time or during a particular period;

•

whether a person is or was an Australian or New Zealand citizen at a particular time or during a particular period;

•

whether a person left Australia at a particular time or during a particular period;

•

whether at a particular time or during a particular period a person has made a valid application for a permanent visa; and/or

•

confirmation, by reference to any employment of, or work done by, a person, that they are the same person as a particular person who is or was the holder of a temporary visa at a particular time or in a particular period.

[ Schedule 1, item 16, subsection 20N(4 )]

3.22 Persons who are permitted to disclose relevant information (refer to paragraph 3.21) are the Secretary and Australian public service employees of a department administered by a Minister responsible for administering a provision in the Migration Act 1958 or the Australian Citizenship Act 2007. [ Schedule 1, item 16, subsection 20N(2 )]

3.23 A permitted person (refer to paragraph 3.22) must only disclose relevant information (refer to paragraph 3.21) for the purposes of administering the S(UMLM) Act and/or related tax legislation (the TAA 1953, the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007 and the ITAA 1997). [ Schedule 1, item 16, subsection 20N(3 )]

3.24 For instance, it allows a department (administered by a Minister responsible for administering a provision in the Migration Act 1958 or the Australian Citizenship Act 2007) to disclose information relating to the employment of a temporary visa holder to the Commissioner. The Commissioner can then compare this information with information the Commissioner has obtained from other sources to confirm that the person is the same person to be identified in a notice under section 20C of the S(UMLM) Act, before sending out the notice to a superannuation provider.

3.25 Part 6 of the S(UMLM) Act allows certain persons (which includes the Commissioner and officers and employees of an agency responsible for administering the S(UMLM) Act) to obtain and disclose information for the purposes of administering the S(UMLM) Act in the course of their duties. This includes disclosure to superannuation providers to facilitate the operation of Part 3A of the S(UMLM) Act.

3.26 For instance, this may involve the Commissioner obtaining migration and citizenship information from another department (which is responsible for administering a provision in the Migration Act 1958 or the Australian Citizenship Act 2007) and including that information in a notice under section 20C of the S(UMLM) Act to a superannuation provider.

Tax file numbers

3.27 A notice from the Commissioner under section 20C of the S(UMLM) Act to a superannuation provider may contain the tax file number of a person and of the fund. [ Schedule 1, item 18, section 25A ]

3.28 A statement in the approved form from a provider to the Commissioner under Part 3A of the S(UMLM) Act may contain the tax file number of the provider, of the fund and of the person identified in a notice under section 20C of the S(UMLM) Act (if it is quoted to the provider or in the notice) [ Schedule 1, item 17, subsection 25(2A )]. A notice containing the tax file number of a member is taken to be quoted for superannuation purposes under section 295-615 of the ITAA 1997.

3.29 The Commissioner can request the tax file number of a person to be quoted (for the purposes of administering the S(UMLM) Act or the Superannuation (Unclaimed Money and Lost Members) Regulations 1999 (Regulations)) from the following:

•

someone who claims to be entitled to a payment under the S(UMLM) Act;

•

someone who claims to be a lost member; or

•

someone who claims to be entitled to a payment under the S(UMLM) Act and a lost member.

[ Schedule 1, item 20, paragraph 29(1 )( aa )]

However, a person who refuses to quote their tax file number to the Commissioner is not prevented from being paid an amount (if any) that is payable under Part 3A of the S(UMLM) Act. [ Schedule 1, item 21, subsection 29(4 )]

3.30 For clarification, an amount paid to the Commissioner under the S(UMLM) Act is not held on trust by the Commissioner and it is not special public money under the Financial Management and Accountability Act 1997. [ Schedule 1, item 22, section 49 ]

Changes to the Income Tax Assessment Act 1997

Nature of payments from the Commissioner

3.31 A payment from the Commissioner under section 20H of the S(UMLM) Act is:

•

a 'superannuation benefit' under section 307-5 of the ITAA 1997 [ Schedule 1, items 31 and 32, subsection 307 - 5(1 ), item 5 in the table ];

•

an 'unclaimed money payment' under section 307-5 of the ITAA 1997 [ Schedule 1, items 31 and 32, subsection 307 - 5(1 ), item 5 in the table ]; and

•

in some circumstances, a 'departing Australia superannuation payment' (DASP) under section 301-170 of the ITAA 1997 [ Schedule 1, item 30, subsections 301 - 170(2 ) to ( 4 )].

Payment is a superannuation benefit

3.32 A payment from the Commissioner under section 20H of the S(UMLM) Act is a 'superannuation member benefit' under the ITAA 1997 if it is paid otherwise than because of the death of a person, and it is a 'superannuation death benefit' under the ITAA 1997 if it is paid because of the death of a person. [ Schedule 1, items 31 and 32, subsection 307 - 5(1 ), item 5 in the table ]

3.33 A payment from a provider to the Commissioner because of a notice under section 20C of the S(UMLM) Act is also a superannuation benefit because of sections 307-5 and 307-15 of the ITAA 1997 [ Schedule 1, item 31, subsection 307 - 5(1 ), item 5 in the table ]. However, this payment is not a 'roll-over superannuation benefit' as defined under section 306-10 of the ITAA 1997 because the benefit is not paid to a complying superannuation plan nor is it paid to an entity to purchase a superannuation annuity from the entity. The payment is non-assessable and non-exempt income because of section 306-20 of the ITAA 1997.

Payment is a departing Australia superannuation payment

3.34 Generally, a payment from the Commissioner under section 20H of the S(UMLM) Act can be a DASP under the ITAA 1997 [ Schedule 1, item 30, subsection 301 - 170(2 )]. This is because the payment is made in respect of a person who is or was a departed temporary visa holder. Under section 301-175 of the ITAA 1997, the payment is subject to the DASP withholding tax. The DASP withholding tax is withheld by the Commissioner at the time of payment.

3.35 However, a payment by the Commissioner under section 20H of the S(UMLM) Act is not a DASP (and therefore not subject to the DASP withholding tax), if the Commissioner is satisfied at the time of the payment, that:

•

the person has not held a temporary visa;

•

at least a continuous period of six months have not passed since both the person's temporary visa ceased to be in effect and they left Australia; or

•

the payment is prescribed by the Regulations as not a DASP.

[ Schedule 1, item 30, subsections 307 - 170(3 ) and 301 - 170(4 )]

This allows, for example, the Commissioner, who is required by the S(UMLM) Act to make a payment under section 20H (refer to Chapter 2) but is also satisfied that the person should not have been originally identified in a notice under section 20C of the S(UMLM) Act, to still make a payment in respect of the person and not have to apply the DASP withholding tax.

Components of a payment that is a superannuation benefit

3.36 The rules to work out the tax components of a superannuation benefit that is a payment from the Commissioner under section 20H of the S(UMLM) Act, are set out under Subdivision 307-C of the ITAA 1997 [ Schedule 1, item 34, paragraph 307 - 120(2 )( e )]. Like any other superannuation benefit, a payment from the Commissioner can consist of a 'tax-free component' and a 'taxable component' [ Schedule 1, item 35, subsection 307 - 142(1 )].

3.37 The tax-free component of the payment is the total of the tax-free components of the amounts paid to the Commissioner (that are included in the Commissioner's payment) by superannuation providers under the S(UMLM) Act [ Schedule 1, item 35, subsection 307 - 142(2 )]. The amounts paid to the Commissioner can be under section 17 and/or under Part 3A of the S(UMLM) Act.

3.38 The taxable component of the payment is the total of the taxable components of the amounts paid to the Commissioner (that are included in the Commissioner's payment) by superannuation providers under the S(UMLM) Act [ Schedule 1, item 35, subsection 307 - 142(3 )]. The amounts paid to the Commissioner can be under section 17 and/or under Part 3A of the S(UMLM) Act.

Example 3.2

Assume an amount of $10,000 has been paid to the Commissioner in respect of Jay under Part 3A of the S(UMLM) Act, with the tax-free component of the amount equal to $3,000 and the taxable component equal to $7,000. A further amount of $8,000 was earlier paid to the Commissioner in respect of Jay under section 17 of the S(UMLM) Act, with the tax-free component of that amount equal to $2,000 and the taxable component equal to $6,000. Assume the Commissioner is required to make a payment in respect of Jay and there is an amount payable under Part 3A of the S(UMLM) Act. Further, assume no previous amount has been paid by the Commissioner for Jay. The gross amount payable in respect of Jay is $18,000. The tax-free component of the payment is equal to $5,000 ($3,000 + $2,000) and the taxable component of the payment is equal to $13,000 ($7,000 + $6,000). The payment is a DASP and is subject to the DASP withholding tax on the taxable component of the payment ($13,000).

Payment from the Commissioner to a fund

3.39 A payment from the Commissioner to a fund under the S(UMLM) Act is a 'roll-over superannuation benefit' for income tax purposes under section 306-10 of the ITAA 1997. The rules to work out the 'element taxed in the fund' and the 'element untaxed in the fund' of the taxable component of a superannuation benefit that is a payment from the Commissioner under section 20H of the S(UMLM) Act, are set out under Subdivision 307-E of the ITAA1997 [ Schedule 1, item 37, subsection 307 - 300(1 )].

3.40 The element taxed in the fund of the taxable component of a superannuation benefit that is a payment from the Commissioner, is the total of the elements taxed in the fund of the taxable component of the amounts paid to the Commissioner under the S(UMLM) Act (to the extent they are included in the Commissioner's payment) [ Schedule 1, item 37, subsection 307 - 300(2 )]. The amounts paid to the Commissioner can be made under section 17 and/or Part 3A of the S(UMLM) Act.

3.41 The element untaxed in the fund of the taxable component of a superannuation benefit that is a payment from the Commissioner, is the total of the elements untaxed in the fund of the taxable component of the amounts paid to the Commissioner by providers under the S(UMLM) Act (to the extent they are included in the Commissioner's payment) [ Schedule 1, item 37, subsection 307 - 300(3 )]. The amounts paid to the Commissioner can be made under section 17 and/or Part 3A of the S(UMLM) Act.

3.42 The entire amount that is paid by the Commissioner to a fund as a roll-over superannuation benefit is included in the 'contributions segment' of the superannuation interest in the receiving fund and is therefore part of the tax-free component of the interest [ Schedule 1, item 36, subsection 307 - 220(4 )]. No part of an amount of a DASP paid by the Commissioner to a fund as a roll-over superannuation benefit under Part 3A of the S(UMLM) Act is included in the assessable income of the receiving fund [ Schedule 1, item 27, subsection 295 - 190(1A )]. This ensures that an amount which is already subject to the DASP withholding tax is not further taxed when it is paid by a fund as a superannuation benefit from the interest.

Payment from the Commissioner to a person

3.43 Generally, a payment from the Commissioner to a person under section 20H of the S(UMLM) Act is a DASP under section 301-170 of the ITAA 1997 [ Schedule 1, item 30, subsection 301 - 170(2 )]. A DASP is non-assessable income and non-exempt income under section 301-175 of the ITAA 1997, however, at the time of making the payment the relevant amount of DASP tax is withheld by the Commissioner.

Changes to the Superannuation ( Departing Australia Superannuation Payments Tax ) Act 2007

Departing Australia superannuation payment withholding tax rates

3.44 Generally, a payment from the Commissioner under section 20H of the S(UMLM) Act (and therefore made in respect of a departed temporary visa holder) is a DASP under section 301-170 of the ITAA 1997 [ Schedule 1, item 30, subsection 301 - 170(2 )]. Accordingly, the payment is subject to the DASP withholding tax and the relevant amount of tax is withheld by the Commissioner at the time of making the payment (refer to paragraph 2.22).

3.45 Schedule 1 to the DASPT Bill raises the DASP tax rates in the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007 by five percentage points. This increase is aimed at recovering some of the superannuation tax concessions provided to departed temporary visa holders.

3.46 The final withholding tax rate on the element taxed of the DASP is 35 per cent (raised from 30 per cent) while the final withholding tax rate on the element untaxed of the payment is 45 per cent (raised from 40 per cent). [ Schedule 1, items 4 and 5, paragraphs 5(1 )( b ) and 5(1 )( c ) of the DASPT Bill ]

Excess untaxed roll - over amounts

3.47 The part of the element untaxed of a DASP that is paid from the Commissioner to a fund (as a roll-over superannuation benefit) which is below the 'untaxed plan cap amount' (as defined in the ITAA 1997), is subject to the DASP withholding tax rate of 45 per cent [ Schedule 1, item 6, paragraph 5(2 )( a ) of the DASPT Bill ]. The amount of tax is withheld by the Commissioner at the time of the payment (refer to paragraph 2.22).

3.48 The part of the element untaxed of a DASP that is paid from the Commissioner to a fund (as a roll-over superannuation benefit) which exceeds the untaxed plan cap amount, is subject to the excess untaxed roll-over amounts tax (under section 306-15 of the ITAA 1997). No DASP withholding tax is payable on the excess amount to avoid double taxation on the excess amount [ Schedule 1, item 6, paragraph 5(2 )( b ) of the DASPT Bill ]. The excess untaxed roll-over amounts tax is withheld by the Commissioner at the time of payment to a fund (refer to paragraph 2.22).

Example 3.3

Assume the Commissioner is required to pay an amount in respect of Faleesha under section 20H of the S(UMLM) Act. Faleesha is able to and directs for the payment to be made to a complying superannuation plan. The total amount payable is $1.02 million. Assume Faleesha's untaxed plan cap amount for the year is $1 million. Of the payment, the amount of $1 million is subject to the DASP withholding tax and the remaining $20,000 is subject to the excess untaxed roll-over amounts tax.

Changes to the Taxation Administration Act 1953

Penalties

3.49 Under the TAA 1953, a superannuation provider that does not pay an amount that is payable under Part 3A of the S(UMLM) Act to the Commissioner is liable to pay a general interest charge on the unpaid amount after the time the amount becomes due and payable. [ Schedule 1, item 23, subsection 8AAB(5 ), item 13B ]

3.50 A superannuation provider that does not return the amount paid to it by the Commissioner under Part 3A of the S(UMLM) Act (which was not credited by the provider within 28 days of receiving the payment), is liable to pay a general interest charge on any unpaid amount after the time the amount is required to be repaid. [ Schedule 1, item 23, subsection 8AAB(5 ), item 13C ]

3.51 If a provider fails to pay an amount payable in respect of a person under Part 3A of the S(UMLM) Act to the Commissioner, it is a tax-related liability under the TAA 1953. [ Schedule 1, item 25, subsection 250 - 10(2 ) in Schedule 1, item 68 ]

3.52 An amount a provider is liable to repay to the Commissioner, because it was not credited to a person's account within 28 days of receiving the payment, is a tax-related liability under the TAA 1953. [ Schedule 1, item 25, subsection 250 - 10(2 ) in Schedule 1, item 69 ]

3.53 A superannuation provider could be liable to an administrative penalty under the TAA 1953 if it gives a statement to the Commissioner under the S(UMLM) Act that is false or misleading and which results in the amount specified in the statement being less than what it would have been if the statement had not contained false or misleading information. [ Schedule 1, item 26, subsection 284 - 80(1 ) in Schedule 1, item 1 ]

Taxation objections

3.54 A person, who is not a superannuation provider, can lodge a taxation objection against a notice under section 20C of the S(UMLM) Act. This includes the person identified in the notice or their legal personal representative. The objection is required to be made within two years (instead of the usual 60 days) of the notice being given to the provider. [ Schedule 1, item 24, paragraph 14ZW(1 )( bd )]

3.55 A person who is not a superannuation provider and who is dissatisfied with a decision made by the Commissioner under the relevant provisions in Part 3A of the S(UMLM) Act, can lodge a taxation objection against that decision. For instance, the decision may relate to making a payment, refunding an overpayment or recovering an overpayment. The taxation objection must be lodged within two years of receiving notice of the decision [ Schedule 1, item 24, paragraph 14ZW(1 )( be )]. A person who can lodge a taxation objection includes the departed temporary visa holder, a legal personal representative or a beneficiary.

3.56 Under paragraph 14ZW(1)(c) of the TAA 1953, superannuation providers who are dissatisfied with a notice given under section 20C of the S(UMLM) Act or a decision made by the Commissioner under the relevant provisions in Part 3A of the S(UMLM) Act, have the usual 60 days from when the notice under section 20C of the S(UMLM) Act was given, or when the notice of the decision was given, to lodge a taxation objection.

Application and transitional provisions

3.57 Changes to the TAA 1953 and the ITAA 1997 apply from the commencement of Schedule 1 to the main Bill.

3.58 Increases to the DASP withholding tax rates apply from the commencement of Schedule 1 to the DASPT Bill.

3.59 A request for a DASP that is made before the commencement of Schedule 1 to the DASPT Bill is subject to the DASP withholding tax rates that apply before that commencement [ Schedule 1, item 7 of the DASPT Bill ]. That is, a 30 per cent or 40 per cent withholding tax rate applies to a request for DASP that is made before the commencement of Schedule 1 to the DASPT Bill.

Chapter 4

Regulation impact statement

Background

4.1 Under the Superannuation Guarantee (Administration) Act 1992, all employers are required to make a prescribed minimum level of superannuation contributions to a complying superannuation fund on behalf of their eligible employees or else incur the superannuation guarantee (SG) charge. The minimum level of employer superannuation support required under the SG is 9 per cent of an eligible employee's earnings base. Eligible employees include foreign workers on temporary working visas in Australia who earn more than $450 in a month and are under the age of 70.

4.2 Superannuation is a concessionally taxed savings vehicle. SG contributions are generally concessionally taxed at the rate of 15 per cent and are tax deductible to the employer. Earnings are also generally concessionally taxed at 15 per cent. These tax concessions are estimated to be around $26.8 billion in 2007-08 and are designed to encourage citizens to save for their retirement thereby boosting retirement incomes and reducing reliance on the age pension.

4.3 The Government is concerned by the growing amount of superannuation which has been identified as lost over the last decade. Superannuation funds are required to report details of lost members to the Australian Taxation Office (ATO). These details are recorded on the Lost Members' Register to assist individuals in locating their accounts. The ATO's 2006-07 annual report shows the number of superannuation accounts reported on the Lost Members' Register grew from 5.7 million to 6.1 million in that income year. These inactive accounts total approximately $12 billion in assets. Temporary residents who depart Australia (after their visa has expired or been cancelled) and do not claim their superannuation contribute to the number of lost accounts.

4.4 Lost and inactive accounts impose operational costs on both the ATO and superannuation funds. The ATO manages the Lost Members' Register which requires supporting IT systems. In this role the ATO contacts individuals encouraging them to consolidate their lost accounts. The Lost Members' Register also places reporting obligations on funds. Funds are required to manage lost accounts. Member protection rules generally prevent superannuation funds deducting fees and charges on a member's account where the account balance is less than $1,000.

4.5 Since 1 July 2002 eligible temporary residents who have departed Australia have been able to access their superannuation benefits through the departing Australia superannuation payment. In most cases, a 30 per cent final tax is withheld from the payment.

4.6 The policy objective behind the introduction of the departing Australia superannuation payment system was to reduce the administrative and compliance costs that superannuation funds incur in preserving the superannuation benefits of temporary residents who have departed Australia and who will not be retiring in Australia. It was anticipated that the departing Australia superannuation payment entitlement would reduce the likelihood that temporary residents would lose track of their superannuation savings once they have departed Australia.

4.7 Despite the ability to claim their superannuation upon departing Australia and having an expired or cancelled visa, most temporary residents do not do so, thereby leaving behind significant amounts of small and lost account balances in Australia's superannuation system.

4.8 The previous government announced in the 2007-08 Mid-Year Economic and Fiscal Outlook a measure to require the future superannuation contributions and existing balances for temporary residents to be paid to the Australian Government, with effect from 1 July 2008.

4.9 The Government issued a public consultation paper on the proposal and sought submissions and comments from stakeholders by 26 May 2008.

Policy objectives

4.10 The policy objectives are to:

•

ensure that superannuation tax concessions are well targeted at individuals who will retire in Australia; and

•

reduce the number of lost superannuation accounts.

4.11 Reflecting these considerations the Government does not consider it appropriate for temporary residents who have departed Australia (and whose visa has expired or been cancelled) to retain benefits in Australian superannuation funds. The Government considers amounts in superannuation funds that are unlikely to be claimed should be transferred to the Australian Government with the ability for individuals to claim amounts if later identified.

Implementation options

4.12 Following consideration of consultation outcomes, the Government considered two implementation options, detailed below.

Option 1 : Annual transfer and five - year claim period

4.13 Superannuation held on behalf of temporary residents (herein defined as temporary resident superannuation) will be paid to the Australian Government (through the ATO) on an annual basis.

4.14 The ATO will data match information provided by the Department of Immigration and Citizenship (DIAC) to identify superannuation funds that hold balances on behalf of current and former temporary residents. The ATO will notify funds of members who are temporary residents, and funds will pay superannuation they hold for those persons to the ATO within a specified time frame.

4.15 Employers would also be given the option to pay their SG contributions directly to the ATO.

4.16 Temporary residents who depart Australia and whose visas have expired or been cancelled will be able to claim amounts paid to the ATO, if they make a valid application within five years of departing, subject to the existing withholding tax arrangements. No interest will be paid on these amounts. Amounts not claimed within five years will be forfeited to the Commonwealth (including for previously departed temporary residents).

4.17 Temporary residents who become permanent residents would have their superannuation (with interest) transferred to a superannuation fund.

Option 2 : Departure model - transfer only if unclaimed after departure and unlimited claim period

4.18 The superannuation of departed temporary residents whose visas have expired or been cancelled will be paid to the Australian Government (through the ATO). That is, the payment of temporary residents' superannuation to the ATO will not occur until six months has elapsed after they have departed Australia and their visa has been cancelled or expired.

4.19 The ATO will data match information provided by DIAC to identify superannuation funds that hold balances for departed temporary residents. The ATO will notify these funds to enable them to pay any superannuation balances they hold for departed temporary residents to the ATO within a specified time frame.

4.20 Employers will not be given the option to pay any superannuation contributions directly to the ATO.

4.21 Temporary residents who depart Australia will be able to claim amounts paid to the ATO, less applicable tax.

4.22 Temporary residents who become permanent residents would have amounts paid to the ATO transferred into a superannuation fund. No interest will be paid under this option.

Table 4.1 : Comparison of the key features

Impact analysis

Impact group identification

4.23 Key stakeholders affected by the proposal include temporary residents, employers, superannuation funds and government agencies.

Temporary residents

4.24 Temporary residents with amounts in superannuation will be affected.

4.25 The majority of temporary residents in employment comprise working holiday makers (such as backpackers) and students. However, there are a growing number of business visa categories that encompass highly paid and highly skilled temporary residents. These may include company executives, university appointments and individuals with unique skills such as artistic directors, and those in high demand skill categories such as doctors.

4.26 In 2006-07 there were over 134,000 working-holiday maker visas granted with work rights and 228,592 temporary student visas granted. Of the student visas 46 per cent went on to apply for Permission to Work. Since 26 April 2008, all student visa holders are granted permission to work with their initial student visa, no longer requiring students to apply separately for work rights.

4.27 There were over 87,300 business long-stay 457 visas issued. The average annual salary of a temporary resident on a business long-stay 457 visa is estimated to be $71,600.

4.28 Some 60 per cent of temporary residents on 457 visas who arrived five years ago are still in Australia, either on renewed 457 visas or having transitioned to permanent residency. This is in contrast to the approximately 5 per cent of working holiday makers who have not departed in the last five years.

4.29 Holders of retirement visas (subclasses 405 and 410) may also be affected as these visas are classified as temporary visas.

4.30 New Zealanders are excluded from the measure. This recognises the close economic relationship between Australia and New Zealand, including the ongoing work between the two countries to harmonise their superannuation systems via portability arrangements. New Zealanders are exempt from the existing arrangements for departing Australia superannuation payments.

Employers of temporary residents

4.31 Employers of temporary residents may be affected by the measure.

Superannuation funds

4.32 Superannuation funds that hold superannuation on behalf of temporary residents will be affected by the measure.

4.33 As there is no obligation on superannuation providers to report which members are temporary residents, there is no data available to indicate which funds hold benefits on behalf of temporary residents. However, it is expected that the vast majority of the estimated 550 large to medium funds would have members who are a current or departed temporary resident.

4.34 The great majority of self-managed superannuation funds are not expected to be affected by the measure as it is unlikely that they are established and maintained by temporary residents, given the residency requirements which must be satisfied in order to gain complying status.

The Australian Taxation Office and the Department of Immigration and Citizenship

4.35 The ATO will be responsible for the administration of this measure. DIAC will be required to provide information on temporary resident visa holders to the ATO.

Impact of options

Option 1 : Annual transfer and five - year claim period

4.36 This option meets the policy objective of reducing the number of lost accounts. However, there is potential that this model would exacerbate the problem of small accounts as account balances could be paid to the ATO while the accounts are still active. Small accounts can increase costs for superannuation funds. For example, funds may have to close and reopen accounts for the same member in order to continue to receive contributions for them in later periods. In addition, transferring amounts to the ATO annually would keep the balances low in perpetuity, therefore being more likely to trigger the member protection provisions which limit funds from charging fees on small accounts.

4.37 This option also meets the policy objective of ensuring that superannuation taxation concessions are targeted at those retiring in Australia.

4.38 However, this measure may not address the Government's concerns to minimise the impact on skilled labour shortages, and it may also increase the compliance burden on employers who elect to pay SG contributions direct to the ATO. It also imposes significant compliance costs on superannuation providers and the ATO and could have potential unintended impacts on holders of some visa classes.

4.39 The potential loss of benefits, interest and insurance cover for temporary residents, could affect employers ability to attract and retain qualified foreign staff under existing remuneration packages that feature superannuation benefits.

4.40 In order to take advantage of being able to pay their SG obligations directly to the ATO and not having to offer choice of fund to temporary residents, employers would need to be able to identify temporary residents. If employers incorrectly paid SG to the ATO they would risk incurring SG penalties. Given this risk, it is expected few employers would use this method. However the ATO would need to inform employers of this option, for example by amending their information products, and ensure their IT systems have the capability to accept employer payments.

4.41 This option does not include transitional arrangements for temporary residents who departed more than five years ago. That is, these amounts are immediately forfeited even where previously departed temporary residents had consciously decided to leave their superannuation in Australia.

4.42 This option, as originally announced, included no exemptions aside from New Zealand citizens. Temporary residents holding a retirement visa (subclasses 405 and 410) would be subject to the annual transfer and therefore would lose access to all of the savings they are expected to use to self fund their stay in Australia (at least until their visa expired, or was cancelled, and the individual left the country). These individuals cannot readily become permanent residents and generally do not depart Australia on a permanent basis.

4.43 This measure introduces significant implementation costs and ongoing costs for superannuation providers.

4.44 The implementation costs are estimated by the ATO as potentially $100,000 per superannuation provider. These costs represent the required IT systems changes to track temporary residents and report and make annual payments to the ATO and amendments to their product disclosure statements. This represents an estimated implementation cost to industry of potentially $90 million.

4.45 The ongoing costs are estimated by the ATO as $3,612 per superannuation provider. The ongoing costs represent the costs of closing and reopening accounts and remitting payment to the ATO. There may also be increased contact from members who query the fund's action of transferring their balances to the ATO. This represents an estimated annual ongoing cost to industry of almost $3.3 million.

4.46 Implementation and ongoing costs would also be significant under this option for the ATO and DIAC. The ATO and DIAC would be required to establish new processes to share information. The ATO would maintain records for superannuation held on behalf of temporary residents and pay amounts to departed temporary residents and temporary residents who become permanent residents. The ATO will face ongoing administrative costs associated with data matching and advising superannuation funds where they hold benefits on behalf of temporary residents. The ATO will also need to process the annual transfer from superannuation funds.

4.47 Provisions for costs of $10 million per annum for the ATO and $2 million per annum for DIAC over the forward estimates period were made in the 2007-08 Mid-Year Economic and Fiscal Outlook.

Option 2 : Departure model

4.48 This option achieves the policy objectives of reducing the number of small and lost accounts more effectively than option 1 as temporary resident superannuation is only transferred to the ATO after the temporary resident has departed Australia, which is when the likelihood of becoming a lost member is greatest.

4.49 This option also meets the policy objective of ensuring that superannuation taxation concessions are targeted at those retiring in Australia. However, temporary residents may have access to superannuation tax concessions while they work in Australia.

4.50 This option is not likely to have the unintended adverse impacts in relation to insurance and remuneration as outlined in option 1, and is estimated to be implemented at lower costs to superannuation providers and at no cost to employers.

4.51 Temporary residents would maintain their connection with their superannuation fund while in Australia and therefore have control over their superannuation and continued insurance coverage. The impact on the employment of foreign workers is likely to be negligible.

4.52 There would be lower implementation costs for superannuation providers. These are estimated by the ATO to be potentially $33,333 per superannuation provider. This represents an estimated implementation cost to industry of potentially $30 million.

4.53 Option 2 has lower annual ongoing compliance costs for superannuation funds as there would be approximately half the number of transactions per annum of option 1. The ongoing costs are estimated by the ATO as $2,508 per superannuation provider. This represents an estimated annual ongoing cost to industry of almost $2.3 million.

4.54 Implementation and ongoing costs for the ATO and DIAC are estimated to be the same under each option. The ATO and DIAC would be required to establish new processes to share information. Under this option the temporary resident retains the right to claim the benefit at anytime. Therefore, the ATO has an obligation to implement and maintain an information and payment system for the temporary resident to claim their entitlements. The ATO will also need to process transfers from superannuation funds under both options, however, option 2 will require the transfer of fewer amounts.

4.55 Provisions for costs of $10 million per annum for the ATO and $2 million per annum for the DIAC over the forward estimates period were made in the 2007-08 Mid-Year Economic and Fiscal Outlook.

Consultation

4.56 On 5 May 2008, the Government released a consultation paper titled Temporary Residents and Superannuation seeking comments and submissions to assist in settling the final administrative and legislative design features of the measure. Submissions closed on 26 May 2008. As part of the consultation process, Treasury officials also conducted meetings with several industry groups from 19 to 22 May 2008 in Canberra, Sydney and Melbourne.

4.57 The Government received 47 written submissions through the consultation process. The overwhelming majority of submissions expressed strong concerns with the measure and its application. A number of submissions contended that the policy was inconsistent with the Government's broader policy agenda, particularly in relation to addressing skills shortages and encouraging private savings through superannuation.

4.58 Several submissions questioned the extent to which the measure under option 1 would achieve its stated policy rationale of minimising the proliferation of lost accounts. While many submissions acknowledged the importance of attending to the problem of lost superannuation, a number challenged the measure's effectiveness in this regard. Submissions also indicated that compliance costs for the measure were expected to be high.

4.59 Specifically, submissions expressed strong concern at the different treatment of temporary residents under the measure, including moving benefits to the ATO when the temporary resident was still an active member, the removal of choice of fund and the lack of interest on amounts held by the ATO. Also of concern was the potential loss of insurance coverage for temporary resident employees under option 1, particularly with industry funds supporting individuals working in high-risk industries such as mining, building and construction.

4.60 A number of industry associations proposed alternative models that reduced fund compliance costs and avoided the loss of insurance cover for temporary residents while working in Australia. Option 2 is based on the common features of the models put forward by industry.

Conclusion and recommended option

4.61 Option 2 better reduces lost and small accounts than option 1. Option 1 is marginally better at limiting temporary residents' access to superannuation tax concessions than option 2. However, option 2 imposes lower compliance costs on superannuation funds than option 1. Both options impose similar implementation and ongoing costs on the ATO and the DIAC.

4.62 Option 2 only applies after the temporary resident departs and their visa has expired or been cancelled where they have not taken their superannuation benefits within six months after departing Australia. It is at this time that the likelihood of becoming a lost member is greatest. This model allows temporary residents to maintain a connection with their superannuation while in Australia, thereby avoiding concerns about the loss of insurance and investment options. In addition, this model avoids imposing potential difficulties on employers recruiting foreign workers.

Index

Temporary Residents' Superannuation Legislation Amendment Bill 2008

Schedule 1 : Amendments

Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008

Schedule 1 : Amendments