House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General outline and financial impact

Amendment of the Small Superannuation Accounts Act 1995

Amends the Small Superannuation Accounts Act 1995 (SSAA 1995) to tighten the arrangements relating to the early release of monies held in the Superannuation Holding Accounts Reserve (SHAR) in a manner consistent with the arrangements that already apply to superannuation funds and retirement savings accounts (RSAs) by:

•

reducing from $500 to $200 the amount that can be withdrawn from SHAR on the ground that the individual has ceased employment;

•

restricting access to monies in SHAR on the ground that the individual is not an Australian resident, to cases where the individual has reached preservation age (currently age 55); and

•

replacing access to monies in SHAR on the ground of severe financial hardship with a new objective test based on whether the individual has received specified Commonwealth payments for a certain period.

Date of effect: The amendments apply to withdrawal requests (for the withdrawal of money from SHAR) given to the Commissioner of Taxation on or after Royal Assent of the Bill.

Proposal announced: The changes were originally announced in the 1997-98 Budget and modifications were announced by the Assistant Treasurer (Press Release AT/22) on 17 November 1997.

Financial impact: Negligible.

Compliance cost impact: None.

Non-arms length trust distributions etc. to superannuation and similar funds

Amends the Income Tax Assessment Act 1936 so that the special income of a complying superannuation fund, approved deposit fund (ADF) or pooled superannuation trust (PST) will include:

•

distributions from all trusts other than where the superannuation fund, ADF or PST has a fixed entitlement to income from that trust; and

•

non-arms length trust distributions of income where the superannuation fund, ADF or PST has a fixed entitlement to income from that trust.

Date of effect: Subject to a transitional arrangement, the amendments will apply to income derived after 2 pm by standard time in the Australian Capital Territory on 25 November 1997 (ie. the amendments will apply from the time of the Treasurers Press Release).

Proposal announced: Treasurers Press Release No. 123 of 25 November 1997.

Financial impact: Estimated revenue savings of $15 million per annum.

Compliance cost impact: Compliance costs are expected to be minimal as the measure will tighten an existing anti-tax avoidance measure.

Exemption of senior foreign executives from Superannuation Guarantee

Amends the Superannuation Guarantee (Administration) Regulations, to continue from 1 August 1996 an exemption from the Superannuation Guarantee (SG) for employers in respect of certain senior foreign executives who meet the criteria for the former class 413 overseas executive visa.

Date of effect: 1 August 1996.

Proposal announced: By the Assistant Treasurer on 25 June 1997 in Press Release No. AT/10.

Financial impact: Negligible.

Compliance cost impact: Compliance costs are expected to be minimal as the measure will reinstate a former SG exemption for employers.

Chapter 1 - Amendment of the Small Superannuation Accounts Act 1995

Overview

1.1 Schedule 1 to this Bill will change the arrangements governing the early release of monies from the Superannuation Holding Accounts Reserve (SHAR) to individuals on whose behalf the monies are held. Thearrangements will be altered in three aspects:

•

access to monies in SHAR on the ground that the individual has ceased employment will be restricted to cases where the monies are less than $200 (currently this amount is $500);

•

SHAR will be able to release monies to a person who claims to be a non-resident only after that person has reached the preservation age, currently 55; and

•

the severe financial hardship test will be replaced with an objective test of hardship based on whether the individual has received specified Commonwealth payments for a certain period.

Summary of the amendments

Purpose of the amendments

1.2 The amendments will tighten the preservation arrangements relating to monies in SHAR in a manner consistent with arrangements that currently apply to superannuation funds and RSAs. The purpose of the amendments is to ensure that leakage from superannuation funds prior to genuine retirement is kept to a minimum.

Date of effect

1.3 The amendments will apply to withdrawal requests, in respect of monies in SHAR given to the Commissioner of Taxation on or after the Royal Assent of the Bill. [Item 12]

Background to the legislation

1.4 The Government announced in the 1997-98 Budget that it would tighten the arrangements for the early release of superannuation benefits. The decision was made in response to concerns that there is unnecessary leakage of preserved superannuation monies.

1.5 SHAR was established by the Small Superannuation Accounts Act 1995 (SSAA 1995). The SSAA 1995 was part of a legislative package requiring superannuation funds to protect small superannuation amounts by ensuring that fees and charges applying to small amounts are no greater than the interest earned on such amounts.

1.6 The SSAA 1995 enables SHAR to accept superannuation contributions from employers. This was done to ensure that where an employers superannuation fund did not accept a particular contribution because it had to protect it, the employer had an accessible fund with no contribution restrictions into which they could make contributions. SHAR is administered by the Commissioner of Taxation.

1.7 Consistent with the Governments retirement incomes policy that superannuation savings should be preserved for retirement, SHAR only permits contributions to SHAR to be accessed by the individual for whose benefit they are held in limited circumstances.

1.8 These limited circumstances are set out in Division 5 of Part 7 of the SSAA 1995. Section 62 of the SSAA 1995 provides a simplified outline of these circumstances and provides that the balance of an individuals account may be withdrawn if:

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the balance is less than $500 and the individual has ceased to be employed by all depositors;

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the individual is in severe financial hardship;

•

the individual has retired because of permanent disability;

•

the individual has turned 65; or

•

the individual is not an Australian resident and is not employed in Australia.

Explanation of the amendments

1.9 Schedule 1 to the Bill alters three of the circumstances in which individuals can access money from SHAR so that they are consistent with the arrangements that already apply to superannuation funds and RSAs. The three circumstances altered are:

•

individuals will no longer be able to request payment of their SHAR balance on the basis that their balance is less than $500. The limit will be reduced to $200;

•

the severe financial hardship test will be replaced with an objective test of whether an individual has received specified Commonwealth payments over a certain period of time; and

•

individuals will only be able to request payment of their SHAR balance on the basis that they are not an Australian resident if they have reached 55 years of age.

Balance of less than $200

1.10 Individuals will only be able to request payment of their SHAR balance on the ground that they have ceased employment if their balance is less than $200, instead of the $500 amount which currently applies. Section63 of the SSAA 1995, which allows individuals to access their balance on the ground that they have ceased employment, will be amended to account for the reduction in the amount from $500 to $200. [Item 8]

1.11 This reduction necessitates two consequential amendments. Section 14, which outlines the types of debits that can be made to an individuals SHAR account, and section 62, which provides a simplified outline of Division 5 of Part 7, are both amended to reflect the amendment of section 63. [Items 1 and 5]

Replacing the severe financial hardship test

1.12 The current severe financial hardship test in section 64 essentially allows individuals to access their SHAR balance where the Australian Prudential Regulation Authority (APRA) determines in writing that the individual is in severe financial hardship. This test will be replaced with an objective test that relies on the individual receiving specified Commonwealth payments for a certain period of time.

1.13 To access their SHAR balance under the replacement arrangements, individuals face slightly different tests depending upon their age.

1.14 Where an individual is 55 years of age or older he or she must be able to provide to the Commissioner of Taxation a letter from the Department or agency administering the particular payment or payments, that evidences the individuals receipt of that payment or payments for either:

•

a period of at least 39 weeks or two or more periods that add up to at least 39 weeks, since the person has turned 55 [Item 9, new subparagraph 64(1)(b)(i) and new paragraph 64(1)(c)] ; or

•

a continuous period of at least 26 weeks [Item 9, new subparagraph 64(1)(b)(ii) and new paragraph 64(1)(c)] .

1.15 Where an individual is aged less than 55 years of age, he or she must be able to provide to the Commissioner of Taxation a letter from the Department or agency administering the particular payment or payments they are receiving, that evidences the individuals receipt of that payment or payments for a continuous period of at least 26 weeks. [Item 9, new subparagraph 64(1)(b)(ii) and new paragraph 64(1)(c)]

1.16 The letter is taken to provide evidence that the continuous period of payment or payments has continued for 21 days after the date of the letter unless there is evidence to the contrary [Item 10, new subsection64(6)] . This extends the life of the letter to allow the individual 21 days after the date of the letter to give the Commissioner of Taxation a withdrawal request.

1.17 The Commonwealth payments that are specified for the purposes of the new test are social security benefits (other than an austudy payment or a youth allowance paid to a person undertaking full-time study) or social security pensions, service pensions, drought relief payments, or income support supplements as defined in section 23 of the Social Security Act 1991. In addition, the amendments will provide for additional payments to be prescribed if such a need arises. [Item 10, new subsection 64(7)]

1.18 This change also results in consequential amendments to sections 14 and62 similar to those outlined in paragraph 1.11. [Items 2 and 6]

Examples of the new Commonwealth income support test

1.19 Elise, aged 54, has been in receipt of a service pension from the Department of Veterans Affairs for the last 26 weeks. Elise may access her superannuation money in SHAR by giving the Commissioner of Taxation a withdrawal request and a letter from the Department of Veterans Affairs stating that she has been in receipt of a service pension for at least the last 26 weeks.

1.20 Chantilly, age 64, received social security pension payments from Centrelink for 20 weeks when she was 61 and for another 20 weeks when she was 62. Chantilly may access her superannuation money in SHAR by giving the Commissioner of Taxation a withdrawal request and a letter from Centrelink stating that Chantilly has been in receipt of a social security pension for at least 39 weeks since she reached 55.

1.21 Simon, age 30, ceases to be in receipt of social security benefits. Simon had been in continuous receipt of social security benefits for twoyears prior to that date but had not applied to withdraw his superannuation money from SHAR before that time. Simon is unable to now withdraw his superannuation money because he is no longer in receipt of social security benefits.

Not an Australian resident

1.22 The current test effectively allows persons who intend to permanently depart Australia to have access to their account balance. TheBill changes this test to only allow non-residents access to their SHAR balances where they have reached 55 years of age. [Item 11]

1.23 This change also results in consequential amendments to sections 14 and 62 of the SSAA 1995 similar to those outlined in paragraph 1.11. [Items 3, 4 and7]

Chapter 2 - Non-arms length trust distributions etc. to superannuation and similar funds

Overview

2.1 Schedule 2 to the Bill will amend section 273 of the Income Tax Assessment Act 1936 (ITAA 1936) so that the special income of a complying superannuation fund, approved deposit fund (ADF) or pooled superannuation trust (PST) will include:

•

distributions from all trusts other than where the superannuation fund, ADF or PST has a fixed entitlement to income from that trust; and

•

non arms length trust distributions of income where the superannuation fund, ADF or PST has a fixed entitlement to income from that trust.

Summary of the amendments

Purpose of the amendments

2.2 To tighten section 273, an existing anti-avoidance measure, to close a loophole which allows certain distributions of trust income to superannuation funds made under non-arms length arrangements to be taxed at the concessional rate of 15%.

Date of effect

2.3 The amendments will apply (subject to the transitional arrangements discussed in paragraphs 2.5 2.10) to income derived by a complying superannuation fund, ADF or PST (a superannuation entity) after 2pm by standard time in the Australian Capital Territory on 25 November 1997 (ie., the amendments will apply from the time of the Treasurers Press Release). [Item 3]

2.4 The amendments are strictly anti-avoidance in nature. The amendments were originally introduced on 2 July 1998 in Taxation Laws Amendment Bill (No. 5) 1998. The Bill lapsed on the announcement of the Federal Election.

Transitional Arrangements

2.5 The amendments are different in form to the measures announced on 25 November 1997. The announcement stated that the tax law would be amended so that trust distributions made from all trusts, other than unit trusts, to a superannuation entity would be treated as special income of the fund and taxed at the non-concessional rate of 47%. It was also announced that the law would be clarified to ensure that distributions from unit trusts to superannuation entities made in excess of an arms length amount would also be taxed at 47%.

2.6 There will be cases of genuine arms length investments by superannuation entities in fixed trusts that are not unit trusts. Under the announcement income from such investments would automatically be treated as special income. It is more appropriate that investments of these kinds, involving a return by virtue of holding a fixed entitlement, be subject to the arms length test. The amendments will apply in this way.

2.7 The majority of investments by superannuation entities in unit trusts will be held as fixed entitlements. However, there may be circumstances where investments in unit trusts could be held other than as a fixed entitlement.

2.8 Consequently, a transitional arrangement will apply from the date of the announcement until the end of the day of introduction of the legislation into the Parliament which first occurred on 2 July 1998. This will ensure that superannuation entities that relied on the details contained in the announcement and which would otherwise be adversely affected under the amendments will be treated in accordance with the details as announced.

2.9 Accordingly, Item 4 ensures that assessable income derived by a superannuation entity in the capacity of holder of a unit in a trust estate, during the period beginning from the time of the Treasurers Press Release to the end of 2 July 1998, the day on which the legislation was first introduced, is included as special income of the entity if, and only if:

•

there was an arrangement in relation to which some or all of the parties were not dealing with each other at arms length, which relates either to the acquisition of the unit, or to the derivation of the assessable income [Item 4(1)(a)] ; and

•

the amount of that income is higher than might have been expected to have been derived by the entity if those parties had been dealing with each other at arms length in relation to the arrangement. [Item 4(1)(b)]

2.10 The word arrangement has the same meaning as in new subsection 273(8). [Item 4(2)]

Background to the legislation

2.11 The taxation treatment of the income of a superannuation entity is governed by Part IX of the ITAA 1936. In general terms the trustee of a superannuation entity is taxed on the taxable income of the entity at the concessional rate of 15% where there is no special component of the taxable income.

2.12 Where a superannuation entity derives assessable income that is included in the special component of the taxable income of the entity, the trustee of the entity is taxed on that income at the rate of 47%. The assessable income that is included in the special component is termed special income and is income derived from certain types of non-arms length transactions (including the payment of certain private company dividends) that fall within the provisions of section 273 of the ITAA 1936.

2.13 Section 273 is designed to prevent income from being unduly diverted into superannuation entities as a means of sheltering that income from the normal rates of tax applying to other entities, particularly the marginal rates applying to individual taxpayers.

2.14 The ATO has become aware of arrangements which circumvent section 273. Under the arrangements, pre-tax income of a trust (usually a discretionary trust) is distributed to a complying superannuation fund set up for the benefit of the beneficiaries of that trust rather than to the beneficiaries themselves. The effect of the arrangements is that the income is taxed at only 15% as income of the superannuation fund rather than at the marginal rate of tax applicable to other beneficiaries.

2.15 It is doubtful whether subsection 273(4) of the ITAA 1936, which seeks to tax income derived by a superannuation entity from a non-arms length transaction at the non-concessional rate of 47%, would catch these discretionary trust distributions.

Explanation of the amendments

2.16 Item 2 will insert new subsections 273(6)-(8) to tighten subsection 273(4) to close a loophole which allows certain distributions of trust income to superannuation entities made under non-arms length arrangements to be taxed at the concessional rate of 15%. Item 1 makes an amendment to subsection 273(4) as a consequence of the amendments made by Item 2 .

What trust distributions will be treated as special income?

Superannuation entity receives income from a discretionary trust.

2.17 Assessable income that is derived by a superannuation entity, in the capacity of beneficiary of a trust estate, other than through the holding of a fixed entitlement to income, will be regarded as special income of the entity under new subsection 273(6) . That is, new subsection 273(6) will include as special income any assessable income derived by a superannuation entity in the capacity of beneficiary of a discretionary trust.

Example

A husband and wife are principals of a business. A discretionary trust is established to carry on the business, the beneficiaries of which are the principals, other family members and the superannuation fund. A superannuation fund is also established with the principals as the members of the fund. The trustees of both the discretionary trust and the superannuation fund are corporate trustees 100% owned by the principals. This ensures that the husband or wife has effective control over the activities of both the discretionary trust and the superannuation fund.

The trustee of the trust exercises its discretion to distribute an amount of trust income to the trustee of the superannuation fund in preference to the other beneficiaries who would otherwise be taxable on the income at their applicable marginal rate in accordance with Division 6 of Part III of the ITAA 1936. New subsection 273(6) would include any distribution made by the trustee to the superannuation fund as special income of the fund.

Superannuation entity receives income from a fixed trust under non-arms length arrangements

2.18 Assessable income that is derived by a superannuation entity in the capacity of beneficiary of a trust estate with a fixed entitlement to income will be regarded as special income of the entity under new subsection 273(7) if both of the following tests are satisfied:

•

the entity acquired the fixed entitlement under an arrangement, or the income was derived under an arrangement, in relation to which some or all of the parties were not dealing with each other at arms length [new paragraph 273(7)(a)] ; and

•

the amount of that income is higher than might have been expected to have been derived by the entity if those parties had been dealing with each other at arms length in relation to the arrangement [new paragraph 273(7)(b)] .

2.19 New subsection 273(8) provides that for the purposes of new subsection 273(7) , the word arrangement means:

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any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

•

any scheme, plan, proposal, action, course of action or course of conduct.

Examples of situations that would be covered by the amendments

Example One

At the beginning of the 1998-99 financial year, the trustee of a superannuation fund acquired 20 $1 units in a unit trust. The directors and shareholders of the trustee company of the unit trust are members of the superannuation fund. Each unit conferred a fixed entitlement to distributions of income from the unit trust.

There was a mutual understanding between the parties that subsequent to the acquisition of the units in the unit trust by the superannuation fund, $100,000 would be distributed each year to the unit trust from a discretionary trust of which the unit trust was a beneficiary. Adistribution from the discretionary trust to the unit trust was made prior to the end of the financial year.

Units in the trust were purchased during the financial year by an arms length party for $10,000 each.

At the end of the financial year the trustee of the unit trust resolves to distribute the income of the trust to unit holders.

In these circumstances, the purchase of the units, the subsequent injection of funds from the discretionary trust and the distributions of trust income to the superannuation fund, being within the contemplation of the trustee of the superannuation fund and the trustee of the unit trust (whether or not it is in the contemplation of the trustee of the discretionary trust), would fall within the definition of arrangement in new subsection 273(8) , being an arrangement that relates to the acquisition of a fixed entitlement to the income of the trust.

As the parties are not involved in real bargaining in relation to the arrangement, they are not dealing at arms length with each other in relation to that arrangement. This would be demonstrated by the fact the trustee of the superannuation fund acquired the units in the unit trust for less than market value consideration. The first test in new paragraph 273(7)(a) would be satisfied.

The income of the unit trust has increased as a result of the distribution received from the discretionary trust under an arrangement some of the parties to which were not dealing at arms length. As a result the unit trust has more income available to be distributed to unit holders. If the parties were dealing at arms length no distribution to the unit trust from the discretionary trust could be expected and less income would have been available for distribution to unit holders.

Accordingly, the amount of income derived by the superannuation fund from the arrangement is greater than might have been expected to have been derived by the fund if the parties had been dealing with each other at arms length. The test in new paragraph 273(7)(b) would be satisfied.

The income derived by the superannuation fund will be treated as special income.

Example Two

On 20 October 1992, the trustee of a superannuation fund acquired 20,000 $10 units in a unit trust. Each unit conferred a fixed entitlement to distributions of income from the unit trust. The members of the superannuation fund are the 100% owners of the corporate trustees of both the superannuation fund and the unit trust. The unit trust paid an arms length distribution to the superannuation fund and other unit holders for the 1993-98 financial years.

During the 1998-99 financial year, the trustees of the superannuation fund, the unit trust and the ABC discretionary trust agree that before the end of the financial year the discretionary trust will distribute $100,000 to the unit trust. The trustee of the discretionary trust is also a corporate trustee 100% owned by the members of the superannuation fund. Also in that year, a private company which the members of the superannuation fund control lends $100,000 interest free to the unit trust. At the end of that financial year the trustee of the unit trust resolves to distribute the income of the trust to the unit holders.

The distribution received by the unit trust from the discretionary trust increases the income of the unit trust, which impacts on the amount available for distribution to unit holders. Therefore, the agreement between the trustee of the unit trust, the trustee of the superannuation fund and the trustee of the discretionary trust would be an arrangement that relates to the income derived by the superannuation fund within the meaning of new subsection 273(8) . As the parties are not involved in real bargaining in relation to the arrangement, they are not dealing at arms length with each other in relation to that arrangement. The test in new paragraph 273(7)(a) would be satisfied.

As the trustee of the unit trust would not have to pay interest on the loan received from the private company the income of the unit trust would be increased, which would have an impact on the amount available for distribution to unit holders. Therefore the arrangement between the trustee of the unit trust and the private company would be an arrangement that relates to the income derived by the superannuation fund within the meaning of new subsection 273(8) . As the parties are not involved in real bargaining in relation to the arrangement, they are not dealing at arms length with each other in relation to that arrangement. The test in new paragraph 273(7)(a) would be satisfied.

The amount of income derived by the superannuation fund from the arrangement is greater than might have been expected to have been derived by the fund if the parties had been dealing with each other at arms length due to:

•

the increase in income of the unit trust as a result of the distribution of income from the discretionary trust to the unit trust (if the parties were dealing at arms length no distribution could be expected); and

•

the increase in the income of the unit trust as a result of the trustee not having to pay interest on the loan from the private company.

The test in new paragraph 273(7)(b) would be satisfied.

The income derived by the superannuation fund will be treated as special income.

Chapter 3 - Exemption of senior foreign executives from Superannuation Guarantee

Overview

3.1 Schedule 3 to this Bill amends the Superannuation Guarantee (Administration) Regulations (the SG Regulations), to reinstate with effect from 1 August 1996 a former exemption from the Superannuation Guarantee (SG) for employers. Theformer exemption applied to employers in respect of certain senior foreign executives who met the criteria for the former class 413 overseas executive visa. The exemption will not be extended to the spouses and dependants of such executives.

Summary of the amendments

Purpose of the amendments

3.2 The amendments will continue an exemption from SG for employers in respect of certain senior foreign executives who meet equivalent criteria to the former class 413 overseas executive visa.

Date of effect

3.3 The amendments are to apply from 1 August 1996, the date that the exemption was rendered ineffective by the re-numbering of immigration visa classes. [Item 2]

Background to the legislation

3.4 The Superannuation Guarantee Charge Act 1992 imposes a charge on employers who do not make a minimum level of superannuation contributions in accordance with the Superannuation Guarantee (Administration) Act 1992 (the SG legislation) on behalf of an employee. The minimum level of contributions is based on a percentage of the earnings of the employee.

3.5 Prior to 1 August 1996 certain senior foreign executives and their families were issued with a class 413 visa (overseas executive visa). The senior foreign executive held a 413 visa by satisfying the primary criteria of the visa class while the other family members (spouse and children) held 413 visas by satisfying the secondary criteria of the visa class.

3.6 There was a general exemption from the SG legislation for employers in respect of all persons who held a 413 visa (sub-regulation7(1)of the SG Regulations).

3.7 From 1 August 1996, new visa classes were introduced for all business entrants (the 456 and 457 visa classes) replacing the 413 visa class and several other classes of visas. This had the effect that the exemption no longer applied in respect of holders of the new 456 and 457 visa classes, despite such holders satisfying the criteria of the former 413 visa class.

3.8 Schedule 3 makes amendments to sub-regulation 7(1) of the SG Regulations to implement the Governments announcement of 25 June 1997 (Assistant Treasurers Press Release No. 10) to continue the former SG exemption for senior foreign executives. The announcement provided that the exemption would not extend to spouses and dependants on the basis that this would be likely to give rise to labour market distortions by making non-residents cheaper to employ than similarly skilled Australians.

3.9 The amendments apply from 1 August 1996 because that was the date that the former exemption was rendered ineffective by the re-numbering of immigration visa classes (rather than any change in SG policy or law). The Governments announcement of 25 June 1997 subsequently confirmed that the exemption would continue from 1 August 1996. If the amendments did not apply from that date, employers who have acted in reliance on the re-numbering of immigration visa classes being reflected in the SG Regulations may be liable to the SG charge.

3.10 The amendments have continued the former SG exemption for senior foreign executives on the basis that senior foreign executives are usually in Australia for only short periods and have retirement income arrangements equivalent or greater than SG in their home countries.

3.11 Employers of persons who continue to hold a 413 visa (which from 1 August 1996 have no longer been issued) remain unaffected by the amendments and continue to be subject to the SG exemption for as long as the visa remains effective.

Explanation of the amendments

3.12 The amendments continue an exemption from the SG legislation for employers in respect of employees holding either a visa class 456 or 457 in a primary capacity, who meet certain criteria prescribed in the amendments. The prescribed criteria takes into account the primary criteria for the former visa class 413, the new 456 or 457 visa classes and the self assessment nature of SG legislation. [Item 1]

3.13 The criteria that a senior foreign executive must satisfy can be broadly categorised into two sets of criteria depending on the type of visa held by the executive. The executive need only satisfy one set of criteria.

3.14 The first set of criteria is that the senior foreign executive is a 456 visa holder or the holder of an Electronic Travel Authority equivalent (class 956 or 977 visas) and satisfies any of the following three conditions:

•

The visa holder is a national managing executive, deputy national managing executive or state manager of his or her employer.

•

The visa holder is a full-time senior executive carrying substantial executive responsibility and has qualifications which are appropriate for the position (which may include qualifications through prior demonstrated work experience and skills).

•

The visa holder is an employee establishing a business activity in Australia on behalf of his or her employer, the employees position is a full-time position carrying substantial executive responsibility and the employee has qualifications which are appropriate for the position (which may include qualifications through prior demonstrated work experience and skills).

3.15 The second set of criteria is that the senior foreign executive is a 457 visa holder and satisfies any of the following three conditions:

•

The visa holder is a national managing executive, deputy national managing executive or state manager of his or her employer and was nominated for the purposes of the 457 visa application by the employer (including identified under a regional headquarters agreement or labour agreement).

•

The visa holder is a full-time senior executive carrying substantial executive responsibility, has qualifications which are appropriate for the position (which may include qualifications through prior demonstrated work experience and skills) and was nominated for the purposes of the 457 visa application by his or her employer (including identified under a regional headquarters agreement or labour agreement).

•

The visa holder is an employee establishing a business activity in Australia on behalf of his or her employer, the employees position is a full-time position carrying substantial executive responsibility and the employee has qualifications which are appropriate for the position (which may include qualifications through prior demonstrated work experience and skills).

Example One

3.16 Bhria is the national managing executive of Silica Valley Australia and has been employed by the company since arriving from the USA in July 1997. Bhria holds a visa class 457 in a primary capacity. She satisfies the first condition of the second set of criteria. Theposition is that of a very senior executive and she was nominated by her employer Silica Valley Australia in her application for a 457 visa. Accordingly, her employer is not subject to the SG legislation in respect of her employment.

Example Two

3.17 Rembrandt is married to Bhria and accompanies her to Australia in July 1997. Rembrandt commences work in Australia as a shop assistant. As Rembrandt is not the primary holder of the visa class 457, his employer is subject to the SG legislation and therefore must make SG contributions on his behalf in order to avoid paying the SG charge.

Commencement

3.18 The amendments apply from 1 August 1996. [Item 2]

Interpretation

3.19 Despite the fact that the regulations inserted by this Schedule in the SG Regulations are being enacted, they may be amended or repealed by further SG Regulations. [Item 3]