House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

Chapter 1 - Unclaimed money

Outline of chapter

1.1 This chapter explains the operation of the unclaimed money provisions in relation to First Home Saver Accounts (FHSAs).

Context of amendments

1.2 FHSAs can be offered by three different types of provider:

•

authorised deposit-taking institutions (ADIs);

•

life insurance companies; and

•

registrable superannuation entity (RSE) licensees which can provide public offer superannuation funds and are authorised by the Australian Prudential Regulation Authority (APRA) to offer FHSAs (authorised trustees).

1.3 The Life Insurance Act 1995 (section 216) and the Banking Act 1959 (section 69) provide for the treatment of money, in a life insurance company and bank account respectively, which become unclaimed.

1.4 These Acts generally provide that a policy or account which is inactive for seven years becomes unclaimed money and is to be paid to the Commonwealth. The Australian Securities and Investments Commission (ASIC) administer these provisions.

1.5 Without amendments, these Acts would apply to FHSAs provided by life insurance companies and banks. However, because of the particular requirements in those Acts, it is doubtful whether the Commonwealth would be able to pay unclaimed moneys back to the bank or life insurance company unless the account holder had satisfied the FHSA withdrawal rules (including the four-year rule in the main case of a home acquisition payment).

1.6 For superannuation, the Superannuation (Unclaimed Money and Lost Members) Act 1999 provides for the treatment of unclaimed money within superannuation. These rules will not apply to FHSAs held by authorised trustees, as they are not 'funds' within the meaning of that Act.

1.7 For these reasons, the First Home Saver Accounts (Further Provisions) Amendment Bill 2008 inserts into the First Home Saver Accounts Act 2008 (FHSA Act) separate unclaimed money provisions which will deal specifically with FHSAs offered by all types of providers. This will ensure a consistent framework and make it easier for FHSA holders to understand what happens to their account if it becomes unclaimed.

Summary of new law

1.8 At the end of each financial year, account providers must provide ASIC with a statement of any unclaimed money held in FHSAs they provide.

•

An FHSA balance will be unclaimed money if it has not had any withdrawals or contributions for at least seven years, and the FHSA provider has been unable to contact the FHSA holder after the end of that seven-year period.

1.9 Account providers must pay this unclaimed money to ASIC at the same time they provide ASIC with the statement.

1.10 If an individual later identifies themselves to the FHSA provider, the provider will apply to ASIC to have the money returned. The account holder will be required to declare to their provider whether or not they are still eligible to have an FHSA.

•

If the account holder is still eligible to have an FHSA, the provider will be able to reopen an FHSA.

•

If the account holder is not eligible to have an FHSA, the provider must contribute the money to a superannuation account of the individual.

Comparison of key features of new law and current law

Detailed explanation of new law

1.11 FHSAs will be excluded from the unclaimed money provisions in both the Banking Act 1959 and the Life Insurance Act 1995 . Notes will be added to the relevant sections to ensure that readers are aware that unclaimed FHSAs are dealt with in the FHSA Act. [Schedule 2, items 2 and 3, subsection 69(3) of the Banking Act 1959 and Schedule 2, items 39 and 40, subsection 126(1) of the Life Insurance Act 1995]

1.12 ASIC will have the general administration of the unclaimed money provisions of the FHSA Act. [Schedule 2, item 4, subsection 3(3) of the FHSA Act]

Definition of unclaimed money

1.13 FHSAs will be unclaimed money where:

•

no contributions have been made to, and no payments have been made from, the FHSA for a period of at least seven years; and

•

after the end of that period, the FHSA provider has been unable to contact the person after making reasonable efforts.

[Schedule 2, items 12 and 14, sections 17A and 18 of the FHSA Act]

1.14 The payment of fees to the FHSA provider or amounts paid to the Commonwealth in respect of overpayments of Government FHSA contributions or tax on earnings, will not count as payments for the purposes of determining whether an account is unclaimed. [Schedule 2, item 12, section 17A of the FHSA Act]

Payment of unclaimed money to the Commonwealth

1.15 Account providers are required to provide ASIC with a statement, in the form approved by ASIC, of all unclaimed money held in FHSAs they provide as at the end of each calendar year. This statement must be provided to ASIC within three months after the end of each calendar year. Consistent with other unclaimed money regimes, failure to provide a statement to ASIC as required is an offence and a penalty of up to 50 penalty units applies. [Schedule 2, item 25, subsections 51A(1) and (2) of the FHSA Act]

1.16 The statement must contain the FHSA holder's name and address; the amount of unclaimed money; the name of the FHSA provider and any identifying account/policy number. Other information may also be required by the approved form to be included in the statement. [Schedule 2, item 25, subsections 51A(3) and (5) of the FHSA Act]

1.17 Where payments have been made from an FHSA between the end of the calendar year and the date on which the provider gives the statement to ASIC, the statement must contain information relating to the amounts paid. Payments of fees to the FHSA provider or amounts owing to the Commonwealth in respect of overpayments of Government FHSA contributions or tax on earnings do not need to be contained in the statement. [Schedule 2, item 25, subsection 51A(4) of the FHSA Act]

1.18 When an FHSA provider gives such a statement to ASIC, it must also pay to ASIC, on behalf of the Commonwealth, an amount to be worked out in accordance with subsection 51B(2) of the FHSA Act. Also consistent with other unclaimed money regimes, failure to pay the amount to ASIC is an offence and a penalty of up to 50 penalty units applies. [Schedule 2, item 25, subsection 51B(1) of the FHSA Act]

1.19 The amount is the amount in the statement less money which was paid from FHSAs during the period between the end of the year and the statement date less any balance remaining in an FHSA after such a payment has been made during the period between the end of the year and the statement date. [Schedule 2, item 25, subsection 51B(2) of the FHSA Act]

1.20 Subject to the obligation to repay money which later becomes 'found', an FHSA provider is discharged from any further liability in respect of an account where the money has been paid to ASIC. [Schedule 2, item 25, subsection 51B(3) of the FHSA Act]

Recovery of unclaimed money paid to the Commonwealth

1.21 Where unclaimed money has been paid to ASIC and:

•

a person (or their legal personal representative) has made an application to reclaim their money to their provider in the form approved by ASIC; and

•

the FHSA provider applies to ASIC stating it has approved the person's application and will deal with the money in accordance with the law,

ASIC must repay the amount. Account holders will also be able to apply to a different provider if their original provider no longer provides FHSAs. [Schedule 2, item 25, subsection 51C(1) of the FHSA Act]

1.22 FHSA providers are limited in how they can deal with unclaimed money repaid to them by ASIC to ensure they only reopen an FHSA where the 'found' FHSA holder continues to meet the eligibility requirements to hold an FHSA. FHSA providers have 30 days in which to appropriately deal with the unclaimed money [Schedule 2, item 25, subsection 51C(2) of the FHSA Act].

•

Where the application states the person wants the money contributed to an FHSA, and that they meet the FHSA eligibility requirements (in section 15 of the FHSA Act), the FHSA provider must repay the money to an FHSA opened or issued to the person [Schedule 2, item 25, subparagraph 51C(2)(a)(i) of the FHSA Act].

•

Where the application states the person wants the money to be contributed to a superannuation interest in a particular superannuation plan, the FHSA provider must pay the money into that plan [Schedule 2, item 25, subparagraph 51C(2)(b)(ii) of the FHSA Act].

•

Where the person is over age 60 and they want the money paid to them, the FHSA provider must pay the money to the person [Schedule 2, item 25, subparagraph 51C(2)(b)(iii) of the FHSA Act].

•

In other circumstances, the FHSA provider must pay the money to a superannuation interest for the benefit of the person in the provider's default superannuation fund [Schedule 2, item 25, subparagraph 51C(2)(b)(iv) of the FHSA Act].

•

If the person is deceased, the FHSA provider may pay the money to the person's legal personal representative [Schedule 2, item 25, subparagraph 51C(2)(b)(v) of the FHSA Act].

1.23 Failure to pay an amount as required is an offence and a penalty of up to 50 penalty units applies. [Schedule 2, item 25, subsection 51C(2) of the FHSA Act]

1.24 Where an FHSA provider satisfies ASIC that an amount paid to ASIC under section 51B exceeded the amount that was properly payable, ASIC must repay the excess to the provider. [Schedule 2, item 25, subsection 51C(3) of the FHSA Act]

1.25 The Consolidated Revenue Fund is appropriated for the purposes of returning unclaimed money. This is consistent with the practice adopted under the Banking Act 1959 (subsection 69(8)) and the Life Insurance Act 1995 (subsection 216(12)). [Schedule 2, item 25, subsection 51C(4) of the FHSA Act]

Consequential amendments

1.26 Some other amendments are needed to ensure the appropriate treatment of unclaimed money.

1.27 Where an individual has had an FHSA closed because it became unclaimed and the balance was paid to ASIC, they will not be prohibited from opening another FHSA. When opening another FHSA on reclaiming their money, they must declare that the initial contribution will be a reclaimed amount paid under paragraph 51C(2)(a) of the FHSA Act. [Schedule 2, item 9, paragraph 15(2)(d), and item 16, subparagraph 19(1)(b)(iv) of the FHSA Act]

1.28 An amount repaid to an FHSA under paragraph 51C(2)(a) of the FHSA Act is not a personal contribution. This ensures a Government FHSA contribution is not payable on an amount returned to an FHSA. [Schedule 2, item 7, paragraph 11(3)(e) of the FHSA Act]

1.29 An amount reclaimed and paid to a subsequent FHSA will be excluded from the prohibition on accepting contributions which will result in the account balance cap being breached. This recognises that an FHSA may grow beyond the account balance cap due to earnings or interest and then be paid to ASIC. This amendment allows the entire balance in these situations to be repaid to a subsequent FHSA. [Schedule 2, item 19, subparagraph 27(1)(b)(iv) of the FHSA Act]

1.30 In order to ensure the correct taxation treatment applies to a reclaimed amount, an amount the provider pays to the former account holder will be treated as being paid from an FHSA. [Schedule 2, item 25, subsection 51C(5) of the FHSA Act]

1.31 This amendment is required because in certain situations, money repaid under subsection 51C(2) will be repaid directly from an FHSA provider, and not necessarily from an FHSA. For example, where an FHSA provider pays an amount directly to an individual under paragraph 51C(2)(c).

1.32 ASIC may publish information about unclaimed money to allow individuals to search for their money which has become unclaimed and been paid to ASIC. [Schedule 2, item 25, section 51D of the FHSA Act]

1.33 The provisions relating to unclaimed money in FHSAs operate to the exclusion of any law of a State or Territory which requires unclaimed money to be paid to a State or Territory, or lodgment of a notice of unclaimed money with an authority of a State or Territory. [Schedule 2, item 25, section 51E of the FHSA Act]

1.34 An amendment is made to section 31 of the FHSA Act to allow FHSA providers to make a payment from an FHSA for a compulsory payment of unclaimed money under subsection 51B(1). [Schedule 2, item 22, subparagraph 31(1)(b)(iv) of the FHSA Act]