Explanatory Statement

Issued by authority of the Minister for Revenue and Assistant Treasurer

Explanatory Statement

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Amendment Regulations 2002 (No. 5)

Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The purpose of the amending Regulations is to make technical and drafting changes and to provide an additional option in respect of allocated pension to facilitate the splitting of superannuation interests between a person who holds a superannuation interest (the member spouse) and their spouse (the non-member spouse) upon their separation.

The regulations are in addition to the Superannuation Industry (Supervision) Amendment Regulations 2001 (No. 3) which were consequential to Part VIIIB of the Family Law Act 1975, inserted by the Family Law Legislation Amendment (Superannuation) Act 2001. Part VIIIB allows the member spouse to make an agreement with the non-member spouse to split the member spouse's superannuation interest between them upon separation. In the event that the parties are unable to agree, the Family Court will be able to order that the superannuation interest be split between them. Part VIIIB applies to all superannuation interests, including those that are held in a regulated superannuation fund and an approved deposit fund. A superannuation payment that is liable to be split is referred to as a splittable payment.

Details of the Regulations are set out in the Attachment.

The Regulations commenced on the commencement of the Family Law Legislation Amendment (Superannuation) Act 2001 which would make commencement 28 December 2002.

Superannuation Industry (Supervision) Amendment Regulations 2002 (No. 5)

Explanation of provisions

Regulation 1 - specifies the name of the proposed Regulations as the Superannuation Industry (Supervision) Amendment Regulations 2002 (No. 5)

Regulation 2 - provides that the proposed Regulations commence on the commencement of the Family Law Legislation Amendment (Superannuation) Act 2001.

Regulation 3 - provides that Schedule 1 amends the Superannuation Industry (Supervision) Regulations 1994 as amended by the Superannuation Industry (Supervision) Amendment Regulations 2001 (No. 3).

Schedule 1 - Amendments

Item 1 amends a reference to the Family Law (Superannuation) Regulations 2001 (FLS Regulations) following an amendment to those regulations. The former Regulation 47 of the FLS Regulations is now contained within Division 6.1A of the FLS Regulations.

Item 2 defines FSR commencement to have the same meaning as in section 1410 of the Corporations Act 2001 and inserts a note that the financial services reform (FSR) commencement is the commencement of item 1 of Schedule 1 to the Financial Services Reform Act 2001 (FSR Act).

Item 3 defines growth phase to have the meaning given by Regulation 1.03AB

Item 4 defines old Regulations to be the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) as in force immediately before the FSR Commencement. The FSR Act repealed a number of regulations relating to disclosure and member protection in the SIS Regulations and inserted regulations relating to disclosure and member protection in the Corporations Regulations 2001. A transition period exists from 11 March 2002 to 11 March 2004 during which a fund can choose to be governed under the new regulations, but by the end of which all funds will be governed under the new regulations. During the transition period, funds that have not yet made the transition to the new regime are subject to the SIS Regulations as they were in force immediately before the FSR commencement, despite their being repealed.

Items 5 to 7 amend the definition of transferable benefits in Subregulation 1.03(1).

Item 5 deletes the words 'the value of to remove any confusion over the meaning of 'value' in this context.

Item 6 amends the definition so that it refers to an amount less fees payable rather than an amount less fees charged. At the time that this definition is relevant to a particular situation no fees have been charged in respect of the amount.

Item 7 substitutes a new paragraph (c) that prescribes how to calculate the amount of a transferable benefit when the payment split is a percentage payment split.

If the payment split is a percentage payment split there are 3 methods to determine transferable benefits:

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subparagraph (i) provides that, in relation to an accumulation interest (other than an interest in a self-managed superannuation fund (SMSF)), the amount of the member spouse's interest is the amount stated in a statement issued by the trustee as to the value of benefits that would have been payable had they voluntarily ceased to be a member of the plan on the relevant date. This amount is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

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subparagraph (ii) provides that, in relation to a SMSF (including an accumulation interest in a SMSF), the amount of the member spouse's interest is to be determined by the trustee using a method that a court would consider appropriate. This ensures that the trustee, which due to the nature of a SMSF includes the member spouse, acts objectively in valuing the member spouse's interest, and amongst other things takes into account the position of the fund as a whole rather than just an amount in the member spouse's name. The amount calculated is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

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subparagraph (iii) provides that when calculating an entitlement in respect of any other interest, the amount of the member spouse's interest is calculated using the relevant method in Part 5 of the FLS Regulations. The amount is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

Items 8 and 9 expand the definition of defined benefit to include a benefit defined by reference to the amount of salary payable to another person. Prior to the amendment subparagraph 1.03AA(1)(b)(i) referred to an amount of the member's salary, whereas certain defined benefit interests are calculated using a salary other than the member's salary (e.g. a judicial officer, a member of a Commonwealth or State Parliament or a member of the Legislative Assembly of a Territory).

Item 10 defines growth phase . An interest is in the growth phase if

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the member has not satisfied a relevant condition of release; or

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the member has satisfied a relevant condition of release but has not received a payment as a result; or

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the member has satisfied a relevant condition of release and has received a benefit (other than a pension) as a result, but the member is entitled to further benefits as a result of satisfying the condition of release and has not received any of those further benefits.

The relevant conditions of release are contained in Schedule 1 of the SIS Regulations and relate to release on the condition of retirement, death, permanent incapacity, attaining age 65 or terminating employment with an employer who had contributed to the fund in relation to the member.

Items 11 and 12 prescribe in certain circumstances whether a non-member spouse is to be treated or not treated as a member.

For the application of the lost member regulations, the non-member spouse is treated as a member from the operative time.

For the purposes of subsection 17A(5) and section 121A, a person that has a non-member spouse interest per Regulation 7A.03B, is not a member of the fund for the first 6 months after the operative time. As a result, if the number of members of a SMSF exceeds 4 as a result of a non-member spouse interest being created, the trustees of the fund will have up to 6 months to reduce the number of members before it ceases to be a SMSF. In the case of a fund with fewer than S members that is not a SMSF, the amendment will mean that they will continue to be required to have an approved trustee for 6 months after the operative time. If a non-member spouse interest is confirmed under Regulation 7A.03H or 7A.03I the exception ceases to operate.

Item 13 amends the pension rules so that the amount of pension paid in a year can be varied to allow an amount to be paid under a payment split and for related fees to be paid and have the pension continue to meet the pension rules.

Items 14 and 15 allow a fund to use a factor greater than those prescribed in Subregulation 1.08(1) if it is used for conversion in relation to a commutation to give effect to an entitlement of a non-member spouse under a payment split.

Item 16 omits Subregulation 2.05(4). This subregulation was inserted by Superannuation Industry (Supervision) Amendment Regulations 2001 (No. 3). Due to timing matters related to the repeal of a number of SIS Regulations by the FSR Act and a subsequent renumbering of the remaining SIS Regulations it is not possible for the subregulation to be inserted into the SIS Regulations with any meaning. The same effect is achieved by existing Subregulation 2.04(1) as would have been achieved by Subregulation 2.05(4).

Item 17 means that the trustee will not be required to provide the non-member spouse with the taxation components of a hypothetical eligible termination payment as if it had been received at the time that a payment split notice is given.

Items 18 to 24 amend information that is to be provided by the trustee under Regulation 2.36D.

Items 18 and 19 ensure that this regulation does not apply to funds that have elected to operate under the Corporations Act 2001.

Item 20 ensures that this requirement does not apply to any interest in respect of which a new interest has been created, an amount rolled over or transferred, or lump sum paid under any payment split (and not just those done under Division 7A.2).

Item 21 provides that a trustee must advise of the rate of return over the reporting period, rather the interest rate to calculate every adjustment, which could have been up to 365 where a fund reports

Item 22 removes the requirement that the information be given within 6 months after the end of the relevant reporting period. This may not be possible in some circumstances.

Item 23 means that the information must (not may) be given with other specified information.

Item 24 omits Subregulations 2.36D(4) to (6). Subregulations 2.36D(4) and (5), which deal with the reporting by the trustee of adverse events, are now in Regulation 2.36E. Subregulation 2.36D(6) is replaced with a new Subregulation 2.36D(4), which defines a reporting period as a reporting period that applies under Subdivision 2.4.2 of the old Regulations (see item 4).

Item 25 replaces the requirement to report events that may have an adverse effect on the interest, with a requirement to report an event that the trustee reasonably believes may have an adverse effect that is material. The requirement now applies to interests that are subject to a percentage payment split (Regulation 2.36D, in which this requirement was formerly located, did not apply to percentage payment splits).

Item 26 amends the definition of a member of a prescribed class to include a non-member spouse whose interest is not rolled over or transferred to another fund. This will prevent a standard employer-sponsored fund from becoming a public offer fund when, as a result of creating an interest in the fund for a non-member spouse, it has a member that is not a standard-employer sponsored member.

Item 27 omits the definitions of FSR commencement and old Regulations from Regulation 4A.05. Definitions of FSR commencement and old Regulations have been inserted in the SIS Regulations by items 2 and 3 respectively and now apply in respect of the entire SIS Regulations.

Item 28 provides that if a payment of a member's benefit is required to be made under Subregulation 6.17(2) but the flagging provisions of the Family Law Act 1975 prevent a trustee from making the payment then the trustee is not in breach of the standard by not making the payment.

Item 29 amends Subregulation 7A.03(4) so that a payment split notice is still required if a payment split ceases due to a non-member spouse interest being created. This is required because a non-member spouse interest is created at the initiative of the trustee, not the non-member spouse. The payment split notice is not required if the non-member spouse interest is confirmed under Regulation 7A.03H or 7A.03I.

Item 30 ensures that the note refers to the appropriate section of the Corporations Act 2001 and Divisions of the SIS Regulations.

Item 31 inserts a new Division 7A.lA into the SIS Regulations.

This Division enables a trustee to create a new interest for a non-member spouse when an allocated pension is being paid in respect of an original interest that is subject to a payment split. The new interest can be created without the consent of the non-member spouse is then able to receive what would otherwise have been splittable payments in respect of their interest without triggering Regulation 58A of the FLS Regulations and Division 7A.3 of the SIS Regulations.

The non-member spouse is then free to determine how they want their entitlement to be dealt with within the specified timeframe in Division 7A.lA. The Division contains similar rights and obligations, on the part of the trustee and non-member spouse, to those found in Part 7A.2. Part 7A.lA is tailored, however, to the fact that the non-member spouse is actually a member of the fund, albeit with a non-member spouse interest.

Application

The Division applies if an allocated pension is being paid in respect of an interest that is subject to a payment split, and the trustee has not created a new interest in the fund, transferred or rolled an amount out of the fund or paid a lump sum to the non-member spouse, or received a request from the Non-member spouse to do any of these. If the trustee creates a new interest under this Division then Division 7A.2 no longer applies. [Regulation 7A.03A]

Creating a new interest

An interest created at the initiative of the trustee under this Division is known as a 'non-member spouse interest'. A non-member spouse for whom a trustee creates a non-member spouse interest remains a non-member spouse until the interest is confirmed either under Regulation 7A.03H or 7A.03I, or is transferred or rolled over or paid as a lump sum.

If the payment split is a base amount payment split, the value of the interest must be equal to the non-member spouse's base amount at the time the new interest is created less any fees payable by the non-member spouse in respect of the payment split. There is no adjusted base amount when an allocated pension is being paid in respect of the original interest.

If the payment split is a percentage payment split there are 2 methods to determine the value of the non-member spouse's interest:

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subparagraph (i) provides that, in relation to an SMSF, the amount of the member spouse's interest at the time that the non-member spouse interest is created is determined by the trustee using a method that a court would consider appropriate. This ensures that the trustee, which due to the nature of a SMSF includes the member spouse, acts objectively in valuing the member spouse's interest, and amongst other things takes into account the position of the fund as a whole, including the overall value of the assets of the fund, whether or not they have been allocated to members, rather than just an amount in the member spouse's name. The amount calculated is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

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subparagraph (ii) provides that, when calculating an entitlement in respect of any other interest, the amount of the member spouse's interest is calculated using the relevant method in Part 5 of the FLS Regulations. The amount is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

At the time the non-member spouse's interest is created, the member spouse's benefits in the regulated superannuation fund or approved deposit fund (ADF) must be reduced by the amount of the non-member spouse's interest and any fees payable by the non-member spouse in respect of the payment split.

The value of the benefits in the non-member spouse interest must not be more than the member spouse's withdrawal benefit in relation to the original interest immediately before the payment split. The benefits in the non-member spouse interest are unrestricted non-preserved benefits.

The trustee is required to provide information to the member spouse and the non-member spouse if a non-member spouse interest is created. This must be done at the time that a payment split notice is given, or if no payment split notice is required, for example if the non-member spouse interest is confirmed, then within 28 days after the operative time. [Regulation 7A.03B]

Request to deal with a non-member spouse interest

If the trustee has created a non-member spouse interest then the non-member spouse may request that the trustee:

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retain their interest in the fund [Regulation 7A.03C]; or

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roll-over or transfer the withdrawal benefit to a regulated superannuation fund, ADF, exempt public sector superannuation scheme (EPSSS) or retirement savings account (RSA) [Regulation 7A.03D]; or

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pay their withdrawal benefit to them in a lump sum [Regulation 7A.03E].

If the original interest is in a SMSF then the member spouse may request the trustee to roll-over or transfer the non-member spouse's withdrawal benefit to a regulated superannuation fund, ADF, EPSSS or RSA [Regulation 7A.03D]. This request must include a written nomination from the non-member spouse of the regulated superannuation fund, ADF, EPSSS or RSA to which they want the interest transferred (see Requirements for requests).

Requirements for requests

A request must be in writing, signed by the person and must state the date that it is given to the trustee. It must include the name, date of birth and postal address of the person making the request.

A request by a member spouse in relation to a SMSF under Subregulation 7A.03D(2) must include a written nomination from the non-member spouse of the regulated superannuation fund, ADF, EPSSS or RSA to which they want the interest transferred. This requirement ensures that the non-member spouse's agreement to the transfer of his or her entitlement has been received prior to any request being made by the member spouse.

The trustee must receive a request within 28 days after the trustee provides a payment split notice unless the trustee allows a longer period. Once made, the trustee may allow the request to be withdrawn. [Regulation 7A.03F]

Giving effect to a request

The trustee must give effect to the first request that they receive under Division 7A.lA within the time allowed, unless the request is withdrawn. If the governing rules of the regulated superannuation fund or ADF do not allow a new interest to be created for the non-member spouse, or the fund is a fund with fewer than 5 members and the trustees do not want to create a new interest, or a regulated superannuation fund, ADF, RSA or EPSSS does not accept the transfer of a nonmember spouse's withdrawal benefit, the trustee may ask the non-member spouse to nominate another regulated superannuation fund, ADF, RSA or EPSSS. Alternatively, the trustee may transfer the non-member spouse's withdrawal benefits into an eligible roll-over fund (ERF). The trustee must notify the non-member spouse if the trustee exercises this option. [Regulation 7A.03G]

If the trustee does not receive a request from a member spouse or a non-member spouse within 28 days from the payment split notice or such longer period allowed by the trustee, the trustee may then opt to roll-over or transfer the non-member spouse's withdrawal benefit to another regulated superannuation fund, ADF, RSA or EPSSS. If the trustee opts to roll-over or transfer the non-member spouse's withdrawal benefit, the trustee must notify the non-member spouse of the trustee's intention to do so and give the non-member spouse 28 days to nominate a regulated superannuation fund, ADF, RSA or EPSSS for the roll-over or transfer. The trustee must also provide the non-member spouse with details of the ERF it may use if the non-member spouse does not nominate a fund within 28 days. If the non-member spouse does not nominate a regulated superannuation fund, ADF, RSA or EPSSS within 28 days, the trustee may roll-over or transfer the benefits to an ERF.

If the trustee has not received a request within 28 days after the payment split notice or longer period that the trustee allows, and the trustee does not opt to roll-over or transfer the non-member spouse's withdrawal benefit, then the trustee must confirm the interest that the non-member spouse has in the fund and inform the non-member spouse of the cooling-off arrangements (if applicable). This must be done within 6 months of the operative time.

Once the non-member spouse interest is confirmed it is no longer a non-member spouse interest. That is, the holder of the interest is no longer a non-member spouse and the interest does not have any special character for the purposes of Part 7A.1 A. [Regulation 7A.03H]

Confirming that the non-member spouse has an interest in the fund

If the trustee receives a request from the non-member spouse in the time allowed, to confirm an interest, and:

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the governing rules of the fund allow the non-member spouse to retain an interest in the fund; and

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if the fund is a fund with fewer than 5 members, and the trustees want to create a new interest for the non-member spouse

then the trustee must confirm in writing that the non-member spouse has an interest in the fund and must inform the non-member spouse of the cooling-off arrangements (if applicable). Once the non-member spouse interest is confirmed it is no longer a non-member spouse interest. That is, the holder of the interest is no longer a non-member spouse and the interest does not have any special character for the purposes of Part 7A.1A. [Regulation 7A.03I]

Rolling over or transferring the non-member spouse's interest

A non-member spouse or, if the non-member spouse interest is in a SMSF, a member spouse, may apply to have the withdrawal benefit in the non-member spouse interest rolled over or transferred to another regulated superannuation fund, ADF, RSA or EPSSS nominated by the non-member spouse. This regulation also allows for a nonmember spouse's withdrawal benefit to be rolled over or transferred to another regulated superannuation fund at the trustee's initiative if the trustee has not received a request under Regulation 7A.03C (or the fund is a SMSF and the trustee has received a request under Regulation 7A.03C but does not wish to confirm an interest for the non-member spouse), 7A.03D or 7A.03E.

The trustee is required to give effect to the roll-over or transfer within a specified timeframe. In the case of a roll-over or transfer to another regulated superannuation fund, ADF, RSA or EPSSS:

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at the request of the non-member spouse or the member spouse under Regulation 7A.03D, the withdrawal benefit in the non-member spouse interest must be rolled over or transferred within 90 days of receiving the request, or a longer period if allowed by the Regulator;

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nominated by the non-member spouse at the trustee's initiative under paragraph 7A.03H(1)(a), the withdrawal benefit in the non-member spouse interest must be rolled over or transferred within 90 days of receiving a fund nomination from the non-member spouse.

In the case of a roll-over or transfer to an ERF at the trustee's initiative under paragraph 7A.03H(1)(b):

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the withdrawal benefit in the non-member spouse interest must be rolled over or transferred within 90 days after the end of the 28 day period the non-member spouse is given in Subregulation 7A.03H(2) to nominate a regulated superannuation fund or RSA for the roll-over or transfer and no nomination has been received from the non-member spouse.

The trustee must notify the non-member spouse that the withdrawal benefit has been rolled over or transferred within 28 days of the roll-over or transfer taking place. The notice must include the amount that was rolled over or transferred and if it was done on the trustee's initiative under paragraph 7A.03H(1)(b) must include details of the accepting fund. [Regulation 7A.03J]

Paying a lump sum

The benefits in the non-member spouse interest are unrestricted non-preserved benefits. If a request for a lump sum payment of the withdrawal benefit in the nonmember spouse interest is made by the non-member spouse then the trustee must pay the lump sum within 90 days after receiving the request, or any longer period allowed by the Regulator. [Regulation 7A.03K]

Items 32 and 33 amend Regulation 7A.04 so that Division 7A.2 does not apply to a partially vested accumulation interest (as defined in Regulation 9 of the FLS Regulations) where a base amount in relation to that interest is greater than the member spouse's current withdrawal benefit. Nor does Regulation 7A.04 apply to an original interest that is determined by reference to a policy of life insurance mentioned in Regulation S.15D or to an original interest if the trustee has created a non member spouse interest under Regulation 7A.03B.

Item 34 extends the application of Subregulation 7A.07(1) from only applying when a non-member spouse has satisfied a condition of release at the operative time, to also applying when an allocated pension is being paid in respect of the original interest or when the original interest comprises only unrestricted non-preserved benefits.

Item 35 provides that a fund with fewer than 5 members does not have to admit a non-member spouse as a member.

Item 36 ensures that if an amount is rolled over or transferred under paragraph 7A.09(3)(b) the trustee must inform the non-member spouse of the amount rolled over or transferred and any adjustments made to the base amount.

Items 37 to 42 make a number of amendments to the rules that apply under Regulation 7A.11 if the trustee creates a new interest.

Item 37 removes the words 'to the value of to remove any confusion over the meaning of the word 'value' in this context.

Item 38 amends paragraphs 2(a) and (b) so that they refer to an amount less fees payable rather than an amount less fees charged. At the time that these paragraphs are relevant to a particular situation no fees have been charged in respect of the amount.

Item 39 provides, in relation to percentage payment splits, how to calculate the value of the original interest and the value of the benefits in the new interest for the non-member spouse. Prior to this amendment there was no instruction on how to value an original interest that is subject to a payment split.

If the payment split is a percentage payment split there are 3 methods to determine the value of the new interest for the non-member spouse:

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subparagraph (i) provides that, in relation to an accumulation interest (other than an interest in a SMSF), the amount of the member spouse's interest is the amount stated in a statement issued by the trustee as to the value of benefits that would have been payable had they voluntarily ceased to be a member of the plan on the relevant date. This amount is multiplied by the percentage in the agreement or order and any fees payable by the non-member spouse in respect of the payment split are deducted.

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subparagraph (ii) provides that, in relation to a SMSF (including an accumulation interest in a SMSF), the amount of the member spouse's interest is to be determined by the trustee using a method that a court would consider appropriate. This ensures that the trustee, which due to the nature of a SMSF includes the member spouse, acts objectively in valuing the member spouse's interest, and amongst other things takes into account the position of the fund as a whole, including the overall value of the assets of the fund, whether or not they have been allocated to members, rather than just an amount in the member spouse's name. The amount calculated is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

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subparagraph (iii) provides that when calculating an entitlement in respect of any other interest, the amount of the member spouse's interest is calculated using the relevant method in Part 5 of the FLS Regulations. The amount is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

Item 40 means if a splittable payment becomes due before a new interest is created, then the value of the interest of the non-member spouse will be reduced if the payment split is a base amount payments split.

Item 41 ensures that the member spouse's interest is reduced by not only the amount in the non-member spouse in respect of the payment split, which do not form part of the new interest.

The amendment also clarifies that the proportion used when calculating the reduction of the unrestricted non-preserved benefits, restricted non-preserved benefits and the preserved benefits of the member spouse is the proportion that each category bears to the member spouse's interest immediately before the new interest is created.

Item 42 provides that in addition to advising the non-member spouse that a new interest has been created, the trustee must also advise the member spouse. In addition, the trustee must advise both the member spouse and the non-member spouse of the amount in the new interest and if the payment split was a

Items 43 and 44 make a number of amendments to the rules that apply under Regulation 7A.12 if the trustee rolls over or transfers transferable benefits.

Item 43 ensures that the member spouse's interest is reduced by not only the amount of the transferable benefits, but also by the fees that are payable by the non-member spouse in respect of the payment split, which do not form part of the transferable benefits.

The amendment also clarifies that the proportion used when calculating the reduction of the unrestricted non-preserved benefits, restricted non-preserved benefits and the preserved benefits of the member spouse is the proportion that each category bears to the member spouse's interest immediately before the benefits were rolled over or transferred. It also ensures that the benefits held in the new interest are unrestricted non-preserved, restricted non-preserved or preserved benefits in accordance with the character that the benefits had in the member spouse's interest.

Item 44 provides that in addition to advising the non-member spouse that the benefits have been rolled over or transferred, the trustee must also advise the member spouse. In addition, the trustee must advise both the member spouse and the non-member spouse of the amount that has been transferred or rolled over and if the payment split was a base amount payment split, the amount of any adjustment made to the base amount.

If the payment split is a base amount payment split and a splittable payment is made before an amount is rolled over or transferred, then the amount calculated under Subregulation 7A.12(2) is reduced by the amount that the non-member spouse is entitled to be paid in respect of the splittable payment.

Items 45 to 50 make a number of amendments to the rules that apply under Regulation 7A.13 if the trustee pays a lump sum to the non-member spouse.

Item 45 removes the words 'to the value of' to remove any confusion over the meaning of the word 'value' in this context.

Item 46 amends paragraphs 2(a) and (b) so that they refer to an amount less fees payable rather than an amount less fees charged. At the time that these paragraphs are relevant to a particular situation no fees have been charged in respect of the amount.

Item 47 provides, in relation to percentage payment splits, how to calculate the value of the original interest and the value of the lump sum to be paid to the non-member spouse. Prior to this amendment there was no instruction on how to value an original interest that is subject to a payment split.

If the payment split is a percentage payment split there are 3 methods to determine the value of the lump sum:

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subparagraph (i) provides that, in relation to an accumulation interest (other than an interest in a SMSF), the amount of the member spouse's interest is the amount stated in a statement issued by the trustee as to the value of benefits that would have been payable had they voluntarily ceased to be a member of the plan on the relevant date. This amount is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

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subparagraph (ii) provides that, in relation to a SMSF (including an accumulation interest in a SMSF), the amount of the member spouse's interest is to be determined by the trustee using a method that a court would consider appropriate. This ensures that the trustee, which due to the nature of a SMSF includes the member spouse, acts objectively in valuing the member spouse's interest, and

amongst other things takes into account the position of the fund as a whole including the overall value of the assets of the fund, whether or not they have been allocated to members, rather than just an amount in the member spouse's name. The amount calculated is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

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subparagraph (iii) provides that when calculating an entitlement in respect of any other interest, the amount of the member spouse's interest is calculated using the relevant method in Part 5 of the FLS Regulations. The amount is then multiplied by the percentage applying in the agreement or order and reduced by any fees payable by the non-member spouse in respect of the payment split.

Item 48 means if a splittable payment becomes due before a lump sum is paid, then the value of the lump sum to be paid to the non-member spouse will be reduced if the payment split is a base amount payment split.

Item 49 ensures that the member spouse's interest is reduced by not only the amount of the lump sum, but also by the fees that are payable by the non-member spouse in respect of the payment split, which do not form part of the lump sum.

The amendment also clarifies that the proportion used when calculating the reduction of the unrestricted non-preserved benefits, restricted non-preserved benefits and the preserved benefits of the non-member spouse is the proportion that each category bears to the member spouse's interest immediately before the new interest is created.

Item 50 provides that in addition to advising the non-member spouse that a lump sum has been paid, the trustee must also advise the member spouse. In addition, the trustee must advise both the member spouse and the non-member spouse of the amount of the lump sum and if the payment split was a base amount payment split, the amount of any adjustment made to the base amount.

Item 51 ensures that the Division does not apply to any interest in respect of which a new interest has been created, an amount rolled over or transferred or lump sum paid under any payment split (and not just those done under Division 7A.2).

Items 52 to 56 amend the requirements in relation to the preservation of non-member spouse entitlements under Regulation 7A.16 when a splittable payment is made.

Item 52 means that the regulation does not apply if the splittable payment derives from an allocated pension.

Item 53 increases the type of entities to which a trustee can roll-over or transfer an amount, to include an ADF or EPSSS.

Item 54 means that if an amount is allocated to an interest or rolled over or transferred for the benefit of the non-member spouse as a result of a splittable payment and the non-member spouse has not satisfied a condition of release at the time of the splittable payment (and the member spouse was not receiving the pension at the operative time), then the amount allocated or transferred or rolled over must be preserved.

Item 55 amends the subregulation so that it does not apply to an allocated pension.

Item 56 amends the paragraph to take into account that the trustee is also able to roll-over or transfer to an ADF or EPSSS as a result of item 46.

Item 57 amends paragraph 7A.17(1)(b) so that the regulation does not apply to an allocated pension.

Items 58 to 60 amend the rules on cashing of non-member spouse entitlements under Regulation 7A.18 when a splittable payment becomes payable.

Item 58 means that the regulation applies when a splittable payment derives from an allocated pension.

Item 59 increases the type of entities to which a trustee can roll-over or transfer an amount, to include an ADF or EPSSS.

Item 60 provides that the trustee must pay the amount to the non-member spouse, allocate the amount to an interest or roll-over or transfer the amount, as applicable, within 90 days after the splittable payment becomes payable.

Item 61 inserts a new Division 7A.4 dealing with the preservation requirements when a trustee takes an action to satisfy Regulation 14G of the FLS Regulations.

When a new interest is created in a fund, or an amount is transferred or rolled over, or a lump sum is paid, in respect of an entitlement that arises from an original interest that is an accumulation interest that is in the growth phase or for which an allocated pension is being paid, the preservation requirements are prescribed in Part 7A.2. The regulations being inserted by item 61 will mean that the same preservation requirements will apply if a trustee takes the same action in relation to any other kind of interest.

Item 62 amends the paragraph so that a member's benefits can be altered if the alteration is 'made' to give effect to a payment split, rather than having to be 'necessary' to give effect to a payment split. In addition, a member's benefits can be reduced if the alteration is made to satisfy Regulation 14G of the FLS Regulations. Regulation 14G does not require or explicitly allow the alteration but if the trustee is satisfying this regulation then the trustee may alter the member's benefits accordingly.