Explanatory Statement

Issued by authority of the Minister for Revenue and Assistant Treasurer

The purpose of the Regulations is to amend the Superannuation (Government Co-contribution for Low Income Earners) Regulations 2004 (Co-contribution Regulations) to support the necessary administration requirements of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (the Co-contribution Act). The Regulations also make a minor technical amendment to the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).

The Co-contribution Act provides a Government co-contribution that matches eligible personal superannuation contributions made by qualifying low income earners on or after 1 July 2003 up to an annual amount of $1,000. The maximum Government co-contribution will apply to those on or below an annual income of $27,500, with the co-contribution tapering off for those on annual incomes between $27,500 and $40,000.

Superannuation (Government Co-contribution for Low Income Earners) Amendment Regulations (No. 1)

Section 55 of the Co-contribution Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Co-contribution Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Co-contribution Act.

Subsections 15(3) and 19(6) of the Co-contribution Act provide that the Commissioner of Taxation (the Commissioner) must determine who or where to pay a Government co-contribution amount or underpaid amount in accordance with regulations made for that purpose.

The provisions setting out these payment rules were not previously included in the Co-contribution Regulations as they had not been finalised. The Co-contribution Regulations required expeditious gazettal and tabling to allow superannuation providers to update their systems and were therefore made without the payment rules.

The Regulations set out, for the purposes of subsections 15(3) and 19(6) of the Co-contribution Act, how the Commissioner is to determine into which account to pay the Government co-contribution, or who to pay if the person is deceased or retired and no longer has an eligible account.

Superannuation Industry (Supervision) Amendment Regulations 2004 (No. 5)

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

The SIS Regulations were previously amended to provide for the treatment of the Government co-contribution in respect of the minimum level of member benefits and the contribution rules governing superannuation funds. A definition was inserted into subregulation 5.01(1) to define 'Government co-contribution benefits' as 'Government co-contributions made under the Co-contribution Act less the costs applicable to them'. However the definition is not technically adequate. The Regulations correct a technical deficiency in the definition to provide for a deduction from an account by a superannuation provider to repay overpaid amounts to the Commissioner.

Details of the Regulations are set out in the Attachment.

The Regulations commenced on the date of their notification in the Gazette.

The Office of Regulation Review has advised that a Regulatory Impact Statement (RIS) is not required to be included with the regulations. The RIS requirements were met by the RIS included with the Explanatory Memorandum for the Superannuation (Government Co-contribution for Low Income Earners) Act 2003. This should be referred to as necessary for the purposes of these regulations.

Attachment - Details of the Superannuation (Government Co-contribution for Low Income Earners) Amendment Regulations 2004 (No. 1)

Regulation 1 specifies the name of the regulations as the Superannuation (Government Co-contribution for Low Income Earners) Amendment Regulations 2004 (No. 1).

Regulation 2 provides that the regulations commence on the date of their notification in the Gazette.

Regulation 3 provides that Schedule 1 amends the Superannuation (Government Co-contribution for Low Income Earners) Regulations 2004 (the Co-contribution Regulations).

Schedule 1 - Amendments

Item 1 amends regulation 3 of the Co-contribution Regulations to include a definition of an eligible account.

An eligible account is defined as an account with a complying superannuation fund or retirement savings account (RSA) that has not advised the Commissioner that the account will not accept a Government co-contribution payment. The account cannot be an insurance only account or an account which has commenced paying a pension or annuity.

An insurance only account is an account which only provides benefits that have no regard to the individual's retirement status or age. For example, an account that will only provide benefits if the member has died, or is permanently or temporarily incapacitated. If a Government co-contribution is paid to these accounts the Government co-contribution will effectively be paying the insurance premium rather than contributing towards an individual's retirement income.

In the Explanatory Memorandum to the Superannuation (Government Co-contribution for Low Income Earners) Bill 2003, the Government made a commitment to deal with Government co-contribution amounts and accounts that had commenced paying pensions. The payment of a Government co-contribution to an account which had commenced paying a pension may cause an immediate commutation of the pension and require the individual's reasonable benefit limit to be re-determined. It will therefore not be appropriate for Government co-contribution payments to be paid to such accounts. They will not be considered as eligible accounts for the purpose of the payment destination rules as set out in proposed subregulation 5(1) - see Item 3 below.

Item 2 omits the note at the end of regulation 4 in the Co-contribution Regulations. The note advises that regulation 5 is reserved for future use. Item 3 (below) will insert a new regulation 5.

Item 3 inserts a new Regulation 5 into the Co-contribution Regulations.

Subsections 15(3) and 19(6) of the Co-contribution Act provide that the Commissioner must determine where to pay a Government co-contribution on behalf of an individual.

Subregulation 5(1) sets out (via a table) the destination rules that the Commissioner will follow in determining where a Government co-contribution is to be paid in cases where the individual is deceased, retired, has nominated an eligible account, has one or more eligible accounts which have not been nominated, or the individual does not have an eligible account.

Item 1 of the table in subregulation 5(1) provides that the Commissioner will pay a Government co-contribution amount to the person's legal representative if the person had died before receiving the Government co-contribution payment.

Item 2 of the table in subregulation 5(1) provides that the Commissioner will pay a Government co-contribution amount directly to the qualifying individual, if the Commissioner is satisfied that the individual has retired and no longer has an eligible account.

Item 3 of the table in subregulation 5(1) provides that the Commissioner will pay a Government co-contribution amount to the eligible account nominated to the Commissioner by the individual.

Subregulation 5(2) provides that a nomination of an eligible account to the Commissioner will stay in effect until the person nominates another eligible account to the Commissioner; the eligible account stops accepting co-contribution payments; or the nominated account ceases to be an eligible account.

An individual can choose to nominate an eligible account at any time. For example, this may occur if the fund to which the individual makes eligible personal superannuation contributions will not accept a Government co-contribution on behalf of the individual.

Item 4 of the table in subregulation 5(1) provides that where the individual has one or more eligible accounts but has not nominated an eligible account, the co-contribution will be paid in the following order:

1.

To the eligible account that has received a co-contribution in the current financial year. This may arise where the Commissioner has already paid a Government co-contribution in the current financial year, in relation to eligible personal superannuation contributions made for an income year.

For example, the Commissioner may then receive further information in relation to eligible personal superannuation contributions made in a previous income year and make a determination that an additional Government co-contribution payment will be made in the current financial year. Under this rule, unless the individual has met a condition set out by items 1, 2 or 3 of the table in subregulation 5(1) since receiving the Government co-contribution payment, the Commissioner will pay the additional Government co-contribution to the same eligible account as the Government co-contribution amount already paid in the current financial year. This rule only applies where a Government co-contribution amount has already been paid in the current financial year.

Where a Government co-contribution payment has not been made in the current financial year, the following rules will apply.

2.

To the eligible account which has received the greatest amount of eligible personal superannuation contributions in the most recent financial year. For example, an individual may have two eligible accounts into which they make eligible personal superannuation contributions during the financial year. The individual may make a single contribution of $700 to fund A, where as fund B receives 10 separate contributions of $30 each. The Commissioner will determine that the Government co-contribution payment be made to the individual's eligible account within fund A as the total dollar value of the contributions made into this fund is greater than the total dollar value of the contributions made into fund B.

Where rules 1 and 2 do not apply the following rules will be considered next:

3.

To the most recently opened account.

4.

To the account with the highest account balance.

5.

To an account determined by the Commissioner.

For the most part, the Commissioner will make determinations in relation to item 4 of the table in subregulation 5(1) based on information reported under section 26 of the Co-contribution Act and prescribed in the Co-contribution Regulations.

Ultimately, if items 1, 2, 3 or 4 in the table in subregulation 5(1) do not apply then under item 5 of the table in subregulation 5(1) the Commissioner will pay the Government co-contribution amount into the Superannuation Holding Accounts Account. The Superannuation Holding Accounts Account is the name given to the Superannuation Holdings Account Reserve (SHAR) via the Financial Management and Accountability Act 1997. The SHAR was established under section 8 of the Small Superannuation Accounts Act 1995.

Items 4, 5 and 6 remove item 106 of Part 2 in Schedule 2 (telephone number of provider), item 205 of Part 2 in Schedule 3 (original co-contribution amount), and item 306 of Part 3 in Schedule 3 (original co-contribution amount), of the Co-contribution Regulations. Upon reviewing the Co-contribution Regulations the information to be reported by the Commissioner to providers or individuals as set out by these items is now not considered necessary for the administration of the Co-contribution Act.

Details of the Superannuation Industry (Supervision) Amendment Regulations 2004 (No. 5)

Regulation 1 specifies the name of the regulations as the Superannuation Industry (Supervision) Amendment Regulations 2004 (No. 5).

Regulation 2 provides that the regulations commence on the date of their notification in the Gazette.

Regulation 3 provides that Schedule 1 amends the Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations).

Schedule 1 - Amendments

Item 1 corrects a technical deficiency in a definition contained in subregulation 5.01 (1) of the SIS Regulations.

Currently the definition of a 'Government co-contribution benefit' enables the superannuation provider to deduct costs. However the definition does not provide for a deduction from an account by a superannuation provider to repay overpaid amounts to the Commissioner. The amendment corrects the definition to enable deductions for that purpose.