Explanatory Statement
Issued by authority of the Minister for Revenue and Assistant TreasurerEXPLANATORY STATEMENT
Income Tax Assessment Act 1936
Retirement Savings Accounts Act 1997
Superannuation Industry (Supervision) Act 1993
Subsection 266(1) of the Income Tax Assessment Act 1936 (the ITA Act), subsection 200(1) of the Retirement Savings Accounts Act 1997 (the RSA Act) and subsection 353(1) of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) provide, in part, that the Governor-General may make regulations prescribing matters required or permitted by the Acts to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Acts.
The purpose of the Regulations is to amend the Income Tax Regulations 1936, the Retirement Savings Accounts Regulations 1997 and the Superannuation Industry (Supervision) Regulations 1994 in order to make a number of technical and clarifying changes to the regulations allowing the splitting of superannuation contributions between spouses and the regulations allowing superannuation splitting on marriage breakdown for family law purposes.
Income Tax Amendment Regulations 2006 (No. 4)
The Income Tax Regulations 1936 (the Income Tax Regulations), among other matters, contain rules which allow superannuation contributions to be split between spouses.
The Regulations extend the scope of the contributions splitting regime to employer contributions to untaxed superannuation schemes. Currently, members of untaxed schemes are unable to split employer contributions to their fund with their spouse. The Regulations also make a number of other minor clarifying amendments, including in response to issues that have been raised by industry since the introduction of the contributions splitting rules on 1 January 2006.
Retirement Savings Accounts Amendment Regulations 2006 (No. 1)
The Retirement Savings Accounts Regulations 1997 (the RSA Regulations), among other matters, contain rules which allow contributions to RSA providers to be split between spouses.
The Regulations make a number of minor clarifying amendments, including in response to issues that have been raised by industry since the introduction of the contributions splitting rules on 1 January 2006.
The RSA Regulations also contain rules to facilitate splitting of superannuation benefits on marriage breakdown for family law purposes. Under family law legislation, married couples have been able to split their superannuation benefits on marriage breakdown since December 2002, including superannuation held in a retirement savings account.
The Regulations make minor technical amendments to the allocated pension provisions relating to family law splits to ensure consistency with the allocated pension provisions in the Superannuation Industry (Supervision) Regulations 1994. The Regulations also make minor technical amendments to the operative time provisions relating to family law splits.
Superannuation Industry (Supervision) Amendment Regulations 2006 (No. 1)
The Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations), among other matters, contain rules which allow superannuation contributions to be split between spouses.
The Regulations extend the scope of the contributions splitting regime to employer contributions to untaxed superannuation schemes. Currently, members of untaxed schemes are unable to split employer contributions to their fund with their spouse. The Regulations also make a number of other minor clarifying amendments, including in response to issues that have been raised by industry since the introduction of the contributions splitting rules on 1 January 2006.
The ITA Act, RSA Act and SIS Act specify no conditions that need to be satisfied before the power to make the Regulations may be exercised.
Details of the Regulations are set out in Attachments A, B and C .
The Regulations are legislative instruments for the purposes of the Legislative Instruments Act 2003.
The Regulations commence on the day after they are registered.
ATTACHMENT A
Details of the Income Tax Amendment Regulations 2006 (No. 4)
Regulation 1 specifies the name of the Regulations as the Income Tax Amendment Regulations 2006 (No. 4).
Regulation 2 provides that the Regulations commence on the day after they are registered.
Regulation 3 provides that Schedule 1 amends the Income Tax Regulations 1936.
Schedule 1 - Amendments
Item 1
Item 1 inserts into subregulation 97(2) a new definition of EPSSS (exempt public sector superannuation scheme). This term will have the same meaning as in the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).
Item 2
Item 2 inserts into subregulation 97(2) a new definition of 'receiving spouse'. This term will have the meaning given by regulation 6.46 of the SIS Regulations.
Item 3
Item 3 renumbers existing regulation 98B to become subregulation 98B (1).
Item 4
Item 4 ensures that the reference to 'spouse contributions-splitting amount' in regulation 98B is consistent with the use of the term in subsection 27A (1) of the ITA Act.
Item 5, 6 and 10
Item 5 inserts a new subregulation 98B (2) to ensure that, where an EPSSS effects a contributions split, the resultant splitting amount is a spouse contributions-splitting amount for the purpose of the definition of contributions-splitting eligible termination payment (ETP) in subsection 27A (1) of the ITA Act. This change is necessary because regulation 98B only applies to funds regulated under the SIS Act, and an EPSSS is not a regulated fund. For the same reason, items 6 and 10 make similar changes to ensure that regulations 98C and 98D apply to applications to split contributions in an EPSSS, and to spouse contributions splitting amounts in an EPSSS.
Items 7, 8 and 9
Together, these items make the required changes to the Income Tax Regulations to extend contributions splitting to employer contributions to untaxed schemes.
Currently, the components of a member's superannuation benefit that can be split with their spouse are limited to undeducted (after tax) contributions and the taxed element of the post-June 1983 component (essentially employer contributions to a taxed superannuation fund). The exclusion of the untaxed element of the post-June 1983 component effectively means that members of untaxed State public sector schemes are unable to utilise contributions splitting as it relates to employer contributions.
Item 8 inserts a new paragraph 98C(2)(c) which, subject to subregulation 98C(4), allows a contributions-splitting ETP to include the untaxed element of the post-June 1983 component.
Item 9 substitutes a new subregulation 98C(4). The effect of this is to insert a new paragraph 98C(4)(c) to require that the amount of the ETP referred to in paragraph 98C(2)(c) must not exceed the amount of untaxed splittable employer contributions that the taxpayer has applied to split with their spouse under the SIS Regulations. 'Untaxed splittable employer contributions' are defined in the SIS Regulations to be employer contributions to an untaxed Commonwealth, State or Territory public sector scheme. Item 9 also substitutes new paragraph 98C(4)(a) and new paragraph 98C(4)(b) to ensure that these provisions extend to contributions splitting applications made to an EPSSS.
Items 11, 12 and 13
Where a benefit is rolled over between funds, regulation 99D requires the paying fund to give to the receiving fund an ETP roll-over statement containing certain information, including specified details about the taxpayer.
The amendments insert a new definition of 'relevant person' to provide that, in the case of a contributions-splitting ETP, a reference to 'the taxpayer' in regulation 99D is a reference to 'the receiving spouse'. This clarifies that, in the case of a contributions-splitting ETP, information about the taxpayer required to be given on an ETP roll-over statement means information about the receiving spouse.
Item 14
Item 14 makes minor amendments to subregulation 97(2) in order to maintain consistent referencing to the SIS Regulations throughout the Income Tax Regulations.
ATTACHMENT B
Details of the Retirement Savings Accounts Amendment Regulations 2006 (No. 1)
Regulation 1 specifies the name of the Regulations as the Retirement Savings Accounst Amendment Regulations 2006 (No. 1).
Regulation 2 provides that the Regulations commence on the day after they are registered.
Regulation 3 provides that Schedule 1 amends the Retirement Savings Accounts Regulations 1997.
Schedule 1 - Amendments
Items 1 and 2
Allocated pensions may be paid from retirement savings accounts. An allocated pension is a pension where a payment is made at least once annually and the payment amounts in a year are subject to maximum and minimum limits.
The minimum standards for allocated pensions paid under the RSA Regulations are detailed in subregulation 1.07(2). Under paragraph 1.07(2)(d) and paragraph 1.07(2)(da) of the RSA Regulations, for a pension with a commencement day before, or on or after 1 January 2006 respectively, the payment amounts for an allocated pension in a year are subject to maximum and minimum limits, except in the case of a commutation.
A payment made as a result of a payment split for family law purposes is not currently subject to the maximum and minimum limits under the RSA Regulations. However, similar payments under the SIS Regulations are subject to the maximum and minimum limits.
The amendments ensure that the requirements for allocated pensions under the RSA Regulations are consistent with those which apply to allocated pensions under the SIS Regulations.
Item 1 amends paragraph 1.07(2)(d) so that, for a pension with a commencement day before 1 January 2006, a payment made as a result of a payment split for family law purposes is subject to the maximum and minimum limits.
Item 2 amends paragraph 1.07(2)(da) so that, for a pension with a commencement day on or after 1 January 2006, a payment made as a result of a payment split for family law purposes is subject to the maximum and minimum limits.
Item 3
The intention of subregulation 4.41(1) is that an RSA holder may apply to their RSA provider to split contributions that were made to that RSA provider in the relevant period. However, the existing Regulations are arguably ambiguous on this point and could be taken as meaning that an individual who holds an RSA may apply to their RSA provider to split not only contributions made on their behalf to that RSA provider, but also any splittable contributions that were made to another provider for the benefit of the individual.
The amendment adds the words 'to that RSA provider' to clarify that an application to an RSA provider to split contributions can only be made in respect of contributions made to that provider.
Item 4
The amendment to paragraph 4.41(1)(b) adds the words 'or cashed' to extend the circumstances in which an RSA holder may apply to split contributions made in the current financial year to include where the account is to be wound up as a result of cashing.
Example: Jim is aged 55 and holds an account with an RSA provider. On 1 December 2006, Jim decides to retire and makes arrangements with his RSA provider to cash his benefit in the form of an allocated pension. Under the amendment, prior to winding up his account Jim would be eligible to apply to his RSA provider to split contributions made to his RSA account in the 2006-07 financial year.
Items 5 and 6
These items add the words 'at the time of application' in paragraph 4.41(2)(c) and subregulation 4.41(3) to clarify that the tests for whether the receiving spouse has met a relevant condition of release apply at the time the application for splitting is made. This removes any uncertainty as to the point in time at which these tests need to be applied.
Items 7 and 8
The operative time is defined in section 90MD of the Family Law Act 1975. In relation to a payment split under a court order, the operative time means the time specified in the order. In relation to a payment split under a superannuation agreement or flag lifting agreement, the operative time is the beginning of the fourth business day after the day on which a copy of the agreement is served on the RSA provider.
The operative time specified in a court order may be a date in the past. A backdated operative time may result in an RSA provider inadvertently breaching certain provisions of the Act, or may create an obligation for the RSA provider that arises before the RSA provider is aware of the obligation.
The anomaly does not occur for a payment split under a superannuation agreement as the operative time is specified with reference to when the agreement is served on the RSA provider.
Items 7 and 8 amend the operative time provisions of the RSA Regulations to ensure that an RSA provider is able to satisfy those provisions when the operative time is backdated.
Regulation 4A.05 allows an RSA provider to create a non-member spouse interest by opening a retirement savings account for the non-member spouse in their name. Subregulation 4A.05(8) requires the RSA provider to give both the member spouse and the non-member spouse a written notice containing the details of the new retirement savings account at either the time the payment split notice is given or, if a payment split notice is not required, within 28 days of the operative time.
Item 7 amends subregulation 4A.05(8) so that the RSA provider must provide the written notice to the member spouse and the non-member spouse within 28 days after the later of the operative time and the time when the RSA provider creates the non-member spouse interest.
Subregulation 4A.11(4) requires that, if a request is not received from the non-member spouse, the RSA provider must either roll over or transfer the non-member spouse's withdrawal benefit or provide written advice to the non-member spouse by the end of 6 months after the operative time.
Item 8 amends subregulation 4A.11(4) so that the RSA provider must either roll over or transfer the non-member spouse's withdrawal benefit or provide written advice to the non-member spouse within 6 months after the later of the operative time and the time when the RSA provider creates the non-member spouse interest.
ATTACHMENT C
Details of the Superannuation Industry (Supervision) Amendment Regulations 2006 (No. 1)
Regulation 1 specifies the name of the Regulations as the Superannuation Industry (Supervision) Amendment Regulations 2006 (No. 1).
Regulation 2 provides that the Regulations commence on the day after they are registered.
Regulation 3 provides that Schedule 1 amends the Superannuation Industry (Supervision) Regulations 1994.
Schedule 1 - Amendments
Items 1 to 6, 14 and 15
Currently, members of untaxed State public sector schemes are unable to split employer contributions to their fund with their spouse. These items make the required changes to the SIS Regulations to extend contributions splitting to employer contributions to untaxed schemes. To achieve this outcome the amendments create a new third category of splittable contributions and make other associated changes.
Item 3 inserts a new definition of untaxed splittable employer contribution into regulation 6.40 and item 6 defines it in new subregulation 6.41(5) as a contribution by the Commonwealth, a State or Territory to a public sector superannuation scheme that is not a taxable contribution. Subregulation 6.41(6) (also added by item 6) specifies certain amounts that are not an untaxed splittable employer contribution.
Item 4 substitutes a new heading into regulation 6.41 to include a reference to untaxed splittable employer contribution.
Item 2 specifies that the 'maximum splittable amount' with reference to untaxed splittable employer contributions is 100 per cent of the amount of the untaxed splittable employer contributions made in the financial year. As no tax is payable on these contributions, there is no need to limit the maximum splittable amount to less than the full amount of the contributions made.
Item 14 inserts a new paragraph 6.44(4)(c) to require that a member must specify in a splitting application the amount of any untaxed splittable employer contributions that the member seeks to split with their spouse.
To ensure the integrity of the contributions splitting regime and avoid scope for tax planning, the current Regulations match the nature of the splittable contributions which a member can apply to split with their spouse with the nature of the benefit that is split. In the case of untaxed splittable contributions and taxed splittable contributions, this is achieved by subregulations 6.45(3) and 6.45(4).
Consistent with this approach, item 15 inserts a new subregulation 6.45(5) to provide that a trustee may give effect to a split of untaxed splittable employer contributions only if the amount specified in the application is not greater than the untaxed element of the post-June 1983 component that would form part of the ETP that would be payable if the member withdrew their entire benefit at the time the trustee gives effect to the split. Item 15 also substitutes new subregulations 6.45(3) and 6.45(4) to make minor stylistic changes to the wording of these provisions.
Items 7 and 8
Item 7 amends subregulation 6.42(1) so that it is also subject to new subregulation 6.42(3). New subregulation 6.42(3) (inserted by item 8) ensures that contributions by the Commonwealth, a State or Territory to a public sector superanuation scheme after 1 January 2006 to fund benefits which accrued in a financial year prior to 2005-06 are not splittable contributions.
Item 9
This item makes a minor change to subregulation 6.44(1) to clarify its intended operation.
The intention of subregulation 6.44(1) is that a member may only apply to the trustee of their fund to split contributions that were made to that fund. However, the existing wording of the provision is ambiguous on this point and could be taken to mean that a member may apply to the trustee of their fund to split contributions that were made to any regulated superannuation fund for their benefit in the relevant period.
The amendment adds the words 'to that fund' to clarify that an application to a fund to split contributions can only be made in respect of contributions that were made to that fund.
Item 10
The amendment to paragraph 6.44(1)(b) adds the words 'or cashed' to extend the circumstances in which a member may apply to split contributions made in the current financial year to include where the member's account is to be wound up as a result of the benefit being cashed.
Example: Maurice is aged 60 and has an accumulation account with XYZ superannuation fund. On 1 December 2006, he instructs the fund to transfer part of his benefit to another fund and cash the remainder of his benefit in the form of an allocated pension.
Under the amendment, prior to winding up his accumulation account Maurice would be eligible to apply to the trustee of XYZ fund to split contributions that were made to the fund for his benefit in the 2006-07 financial year.
Item 11
This item changes the reference in subparagraph 6.44(2)(a)(i) to ' a relevant financial year' to ' the relevant financial year'. The effect of the amendment is to allow a member to make two splitting applications in the same financial year where the applications are in respect of contributions in different relevant financial years. This is illustrated in the following example.
Example: Shaz makes $10,000 of splittable contributions to ABC fund between 1 January and 30 June of 2006. On 1 July 2006, she applies to split these contributions with her spouse and the trustee of ABC fund gives effect to the application. On 1 March 2007, Shaz instructs ABC fund to wind up her account by rolling over her entire benefit to another fund. On the same day, Shaz makes a further application to ABC fund to split contributions made to the fund for her benefit in the 2006-07 year.
While the trustee of ABC fund has already given effect to a splitting application from Shaz earlier in the financial year, that application was in respect of contributions made in the 2005-06 financial year. As Shaz's current splitting application is in respect of contributions made in the 2006-07 financial year, it would not be invalid under paragraph 6.44(2)(a).
Items 12 and 13
These items add the words 'at the time of application' in paragraph 6.44(2)(c) and subregulation 6.44(3) to clarify that the tests for whether the receiving spouse has met a relevant condition of release apply at the time the application for splitting is made. This removes any uncertainty as to the point in time at which these tests need to be applied.