Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Schedule 2
Amendment of the
Superannuation Industry (Supervision) Act 1993
13. The Superannuation Industry (Supervision) Act 1993 (the SIS Act) sets out the framework for the prudential supervision of the superannuation industry and is administered by the Insurance and Superannuation Commission (ISC). The SIS Act regulates the conduct of trustees of superannuation entities to ensure the prudent management of superannuation fund monies.
14. This schedule amends the SIS Act to improve the efficiency and effectiveness of the superannuation supervisory framework.
Part 1 - Amendments commencing on date of Assent
Item 1 - Subsection 10(1) (at the end of the definition of relevant person)
15. This item inserts new paragraph (e) into the definition of relevant person in subsection 10(1) of the SIS Act. Under the current definition a custodian is not a relevant person. Therefore, the Commissioner may not be able to directly obtain information relating to superannuation assets from a custodian. For example, section 255 of the SIS Act provides that the Commissioner may require a relevant person to produce books relating to the affairs of a superannuation entity. New paragraph (e) provides that a person who is a custodian in relation to a fund or trust is a relevant person.
Item 2 - Before paragraph 28(2)(a)
16. This item inserts new paragraph 28(2)(aa) into the SIS Act. Subsection 28(2) sets out grounds upon which the Commissioner may revoke the approval of an approved trustee. New paragraph 28(2)(aa) inserts a new ground which allows the Commissioner to revoke the approval of a trustee, without the consent of the Minister, where the trustee has requested in writing that the approval be revoked.
17. This item amends subsection 28(3) of the SIS Act. Subsection 28(3) provides that the Commissioner must not revoke the approval of an approved trustee without the written consent of the Minister. The requirement for the Ministers consent is not considered to be necessary where the trustee has made a voluntary request for an approval to be revoked, for example, where a trustee no longer acts as a trustee for a public offer fund. This amendment enables the Commissioner to revoke the approval of a trustee without the consent of the Minister, where the revocation has been requested in writing by the trustee under new paragraph 28(2)(aa).
18. This item amends subsection 59(1) of the SIS Act to provide for an exception (set out in new subsection 59(1A) inserted by item 8 below) to the general prohibition against the governing rules of a superannuation entity permitting a discretion to be exercised by a person other than the trustee set out in subsection 59(1).
Item 5 - After subsection 59(1)
19. This item inserts new subsection 59(1A) into the SIS Act. Section 59 of the SIS Act prevents trustees from being bound by a members death benefit nomination. The payment of a death benefit is ultimately a matter of trustee discretion. The discretionary nature of the decision in relation to the payment of a death benefit can impose significant compliance costs on superannuation entities, particularly due to the complexity of the decision in some cases. New subsection 59(1A) permits trustees to structure the governing rules of a superannuation entity so that trustees can accept binding death benefit nominations from members. In addition, new subsection 59(1A) enables conditions in relation to the acceptance of binding death benefit nominations by trustees to be prescribed in the SIS Regulations.
20. This item amends paragraph 60(2)(a) of the SIS Act by omitting the words an individual and substituting a person other than a constitutional corporation. At present, subsection 60(2) prevents the amendment of a funds governing rules to allow individuals to be appointed trustees of funds whose sole or primary purpose is not the provision of old-age pensions. It does not prevent the amendment of a funds governing rules to allow bodies corporate that are not constitutional corporations (for example, foreign corporations) from being appointed as trustees of funds whose sole or primary purpose is not the provision of old-age pensions.
21. Under subsection 19(3) bodies corporate that are not constitutional corporations are permitted to be trustees of a regulated fund where the governing rules provide that the sole or primary purpose of that fund is the provision of old-age pensions. Therefore, this item amends paragraph 60(2)(a) so that it applies to a person other than a constitutional corporation and removes the inconsistency between the application of subsection 19(3) and paragraph 60(2)(a).
22. This item repeals section 72 in Part 8 of the SIS Act and substitutes a new section 72. Part 8 of the SIS Act sets out the rules in relation to the level of in-house assets of a regulated superannuation fund. For example, at present, the in-house asset ratio of a fund must not exceed 10 per cent. The in-house asset ratio is calculated under section 74 of the SIS Act as follows:
(cost of the in-house assets of the fund / cost of all the assets of the fund) * 100
23. An in-house asset is defined in section 71 as an asset of the fund that is a loan to, or an investment in, an employer-sponsor of the fund or an associate of the employer-sponsor.
24. Existing section 72 of the SIS Act sets out how Part 8 applies to a fund which has two or more unrelated employer-sponsors in the fund. The section provides that unrelated employer-sponsors are treated separately for the purposes of the in-house asset rules. For example, for each unrelated employer-sponsor the in-house asset ratio is calculated by dividing the cost of the in-house assets in the employer-sponsor or an associate divided by the cost of the total fund assets multiplied by 100. The in-house asset ratio in relation to each unrelated employer-sponsor must not exceed ten per cent.
25. For example, if a fund has four unrelated employer-sponsors A, B, C and D, section 72 requires the calculation of four separate in-house asset ratios and each must not exceed ten per cent as follows:
(In-house assets of A / Total fund assets) * 100
(In-house assets of B / Total fund assets) * 100
(In-house assets of C / Total fund assets) * 100
(In-house assets of D / Total fund assets) * 100
26. However, section 72 does not appear to provide for the separate treatment of groups of unrelated standard employer-sponsors. For example, with a fund with four employer-sponsors A, B, C and D where A and B are related (group 1) and B and C are related (group 2) but where groups 1 and 2 are unrelated, section 72 appears to require that the funds in-house assets in groups 1 and 2 are to be aggregated in order to calculate the funds in-house assets ratio as follows:
(In-house assets of A, B, C and D / Total fund assets) * 100
27. This is inconsistent with the treatment of the in-house assets held by the fund in individual unrelated standard employer-sponsors where the in-house assets of each unrelated employer-sponsor are treated separately. Therefore, it has been decided that groups of unrelated employer-sponsors should be treated in the same way as individual unrelated employer-sponsors are under existing section 72.
28. Therefore, under new section 72 a fund with, for example, four standard employer-sponsors A, B, C and D where A and B are related (group 1) and B and C are related (group 2) but where groups 1 and 2 are unrelated, the in-house asset rules will apply to each unrelated group of related standard employer-sponsors as follows:
(In-house assets of A and B / Total fund assets) * 100
(In-house assets of C and D / Total fund assets) * 100
29. The result of both calculations must not exceed 10 per cent.
30. New section 72 inserts subsections 72(1) to (5). Subsection 72(1) provides that an employer-sponsor of a superannuation fund is an unrelated employer-sponsor of the fund if there are no other employer-sponsors of the fund who are associated with the employer-sponsor. In addition, employer-sponsors are related if they are associates. Associate is defined in section 70 of the SIS Act.
31. Subsection 72(2) provides that the class of in-house assets of a fund that corresponds to an unrelated employer-sponsor is the in-house assets that consist of loans to, or investments in the employer-sponsor or an associate. The class of in-house assets that corresponds to two or more employer-sponsors who are related to each other is the class of in-house assets that consists of loans to, or investments in any of them or any associates of them.
32. Subsection 72(3) provides that subsections 72(4) and 72(5) apply where there are two are more unrelated employer-sponsors of a fund or there are two or more employer-sponsors of a fund who are related to each other and there are also one or more unrelated employer-sponsors of the fund.
33. Subsection 72(4) provides that Part 8 of the SIS Act, which sets out the rules relating to the level of in-house assets of superannuation funds, does not apply in relation to a fund in relation to the in-house assets of the fund as a whole.
34. Subsection 72(5) provides that Part 8 applies in relation to the fund separately in relation to each of the corresponding classes of in-house assets of the fund, as set out in subsection 72(2), and each of the corresponding classes of in-house assets is to be treated as the whole of the in-house assets of the fund.
Item 8 - At the beginning of Division 3 of Part 8
35. Item 11 inserts new section 80A into the SIS Act. Section 80A provides that the rules relating to the limits on in-house assets that may be held by a superannuation fund, set out in Division 3 of Part 8, do not apply to a fund if new Division 3A, inserted into the SIS Act by item 12 below, applies to the fund. Division 3A sets out in-house asset rules for certain defined benefit funds and requires that in order for Division 3 not to apply to a fund, the fund must comply with Division 3A, as certified by an actuary.
Item 9 - After Division 3 of Part 8
36. This item inserts a new Division 3A into Part 8 of the SIS Act to set out the limits on in-house assets of certain defined benefit funds. At present, Division 3 of Part 8 of the SIS Act sets out restrictions on the ability of trustees to make loans to, or investments in, an employer-sponsor of the fund (the in-house asset rules). In particular, the rules set out a timetable for a phased reduction in the ceiling on a funds permitted in-house assets, that is, from a limit of ten per cent of total fund assets on a historical cost basis in 1997-98, to five per cent of total fund assets on a market value basis by 2001-2002.
37. Division 3A provides a limited relaxation of the in-house asset rules set out in Division 3 for defined benefit funds that have substantial surplus assets. In essence, Division 3A enables certain defined benefit funds to hold their existing in-house assets and not have to sell them in order to comply with the phased reduction of in-house assets under Division 3. However, there are a number of conditions set out in new sections 83A to 83E that must be met in order for a fund to be able to take advantage of Division 3A.
38. Section 83A sets out the definition of a number of terms used in new Division 3A. In particular, a definition of base amount is inserted to mean 120 per cent of whichever is the greater of the funds liabilities in respect of vested benefits or the funds accrued actuarial liabilities (defined in section 83A). A definition of prescribed percentage is inserted to mean 10 per cent in relation to the 1998-99 and 1999-2000 years of income and 5 per cent in relation to a later year of income. A definition of maximum permitted amount is inserted to mean the sum of an amount equal to the prescribed percentage of the base amount and the amount by which the market value of the funds assets at that time exceeds the base amount.
39. New section 83B sets out the conditions that must be satisfied by a superannuation fund in respect of a year of income in order for Division 3A to apply to the fund. In particular, the section requires that the fund must be a defined benefit fund, the fund must have an employer-sponsor which is a listed public company or an associate of a listed public company and the market value of the funds assets must not be less than the base amount (defined in new section 83A). The intention of the last condition is to provide a buffer against short term decreases in the value of the assets backing the vested benefits and to increase the security of fund assets. In addition, the trustee of the fund must decide, and record this decision in writing, that Division 3A is to apply to the fund in respect of a particular year of income.
40. New section 83C states that the market value of a funds in-house assets at the end of a year of income must not exceed the maximum permitted amount (defined in section 83A). In essence, section 83C provides that the total amount of in-house assets that a fund may hold under Division 3A is 10 per cent (5 per cent after the 1999-2000 year of income) of 120 per cent of the funds liabilities plus any amount of assets over and above 120 per cent of the funds liabilities (see example at paragraph 46 below).
41. New section 83D sets out two limits in relation to the in-house assets that may be held by the fund. Subsection 83D(1) provides that the market value of any in-house assets over and above 10 per cent of 120 per cent of the funds liabilities must consist of shares in the capital of listed public companies. Subsection 83D(2) provides that the in-house assets of a fund must not include more than 5 per cent of the voting shares in any listed public company that is the employer-sponsor or is an associate of the employer-sponsor.
42. New section 83E prohibits the acquisition of in-house assets unless the market value of the funds in-house assets has ceased to exceed the prescribed percentage (10 per cent or 5 per cent after 1999-2000) of 120 per cent of the funds liabilities. The intention is that financially strong defined benefit funds can continue to hold certain in-house assets but cannot acquire additional in-house assets. In other words, excess in-house assets should only be increased by way of revaluations, not new acquisitions.
Example of application of Division 3A
43. For example, a fund with liabilities of $100m must have assets of at least 120 per cent of $100m in order for Division 3A to apply, ie $120m which is the base amount. If the market value of the funds assets is $150m the maximum permitted amount, under section 83C, of in-house assets that the fund may have is calculated as follows:
(10% * $120m) + ($150m - $120m)
ie $12m + $30m = $42m
44. In addition, under subsection 83D(1), any amount of in-house assets over and above the prescribed percentage of the base amount must be shares in the capital of listed public companies. In other words, in the example above, $30m must be shares in the capital of a listed public company which is an employer-sponsor or an associate of an employer-sponsor.
45. This item amends subsection 84(1) as a result of the insertion of new Division 3A in Part 8 of the SIS Act (inserted by item 12 above). Subsection 84(1) provides that the trustee of a superannuation fund must take all reasonable steps to ensure that the provisions of Divisions 2 and 3 of Part 8 of the SIS Act are complied with. This amendment inserts a reference to Division 3A into subsection 84(1).
Item 11 - Paragraph 112(1)(ba)
46. This item amends paragraph 112(1)(ba) of the SIS Act to rectify a drafting error by substituting paragraph for subsection.
Item 12 - After subsection 117(3)
47. This item inserts new subsection 117(3A) into the SIS Act. Subsection 117(3) currently imposes a general prohibition on trustees of standard employer-sponsored funds paying an amount, or permitting an amount to be paid out, to a standard employer-sponsor except as provided for in section 117. As this provision overrides a standard employer-sponsors contractual right to be paid, it increases the trustees right to retain this money which could amount to an acquisition of property for the purposes of paragraph 51(xxxi) of the Constitution and therefore would be constitutionally invalid. Subsection 117(3A) excludes the application of subsection 117(3) in circumstances where its application gives rise to the acquisition of property otherwise than on just terms and the acquisition would be invalid because of paragraph 51(xxxi) of the Constitution.
48. This item amends subsection 126C(5) of the SIS Act to rectify a drafting error by changing a reference to subsection 126D(2) to subsection 126D(3).
49. This item repeals subsection 131(4) of the SIS Act and inserts new subsections 131(4), (4A) and (4B). At present section 131 enables the Commissioner to make a written order disqualifying a person from being an approved auditor for the purposes of the SIS Act. Paragraph 131(4)(a) requires the gazettal of any disqualification order, and paragraph 131(4)(b) requires the gazettal of any action taken in relation to reviewing the decision to make the order. The requirement that any action taken in relation to reviewing a decision to make a disqualification order has to be gazetted means that even where the Commissioners decision is confirmed, that is, no change to the decision, particulars of this action may need to be published in the Gazette.
50. New subsection 131(4) provides that the Commissioner must publish a disqualification order in the Gazette as soon as practicable after it is made.
51. New subsections 131(4A) and (4B) provide that where an application has been made for the review of the Commissioners decision to make a disqualification order and the Commissioners decision is varied or revoked, the particulars of the variation or revocation must be published in the Gazette.
52. Therefore, where an application has been made for the review of the Commissioners decision to make a disqualification order and the Commissioners decision is confirmed, particulars of this action are not required to be published in the Gazette.
53. This item repeals subsection 131(10) and substitutes a new subsection. This amendment clarifies that subsection 131(10) refers to a revocation of a disqualification order under subsection 131(5) rather than under new subsections 131(4A) or (4B) (inserted by item 17).
54. This item amends subsection 171(4) to replace the words to the applicant when redeeming the interest with in respect of the redemption of the interest. Section 171 of the SIS Act requires the governing rules of a public offer superannuation fund and an Approved Deposit Fund (ADF) to include a provision that allows non-standard employer-sponsored members to redeem their interest in a fund within 14 days of the issue of the superannuation interests in that fund. The removal of the words to the applicant when redeeming the interest in subsection 171(4) of the SIS Act makes it clear that the individual is not always entitled to be paid the redemption money. For example, preserved superannuation benefits must remain in the superannuation system until a condition of release is met.
Item 17 - After subsection 171(4)
55. This item inserts new subsections 171(4A) to (4D) into the SIS Act. This amendment clarifies to whom contributions should be refunded when an applicant withdraws from a public offer superannuation fund, or an Approved Deposit Fund (ADF), within the 14 day cooling-off period.
56. In particular, new subsection 171(4A) provides that where a benefit has been rolled over or transferred to a public offer superannuation fund, or ADF, and a redemption occurs, the governing rules are to provide that the preserved and restricted non-preserved benefits must be paid to a superannuation fund, ADF or Retirement Savings Account (RSA) nominated by the applicant. The money cannot be paid to the applicant.
57. Subsection 171(4B) provides that where unrestricted non-preserved benefits have been transferred or rolled over to the fund, the governing rules are to provide that the benefits are to be paid in accordance with the directions of the applicant, including to the applicant, that is, the benefits can leave the superannuation system.
58. Subsection 171(4C) provides that the governing rules are to provide that contributions that are paid by the employer of the applicant (such as salary sacrifice contributions) are to be paid to, or in accordance with the directions of, the employer.
59. Subsection 171(4D) captures amounts paid that are not covered by 171(4A), 171(4B) and 171(4C) and requires that the governing rules are to provide that the amount payable in respect of the redemption of the interest is to be paid to, or in accordance with the directions of, the applicant.
60. This item amends subsection 171(5) to replace the words to the applicant with in respect of the redemption of the interest. Section 171 of the SIS Act requires the governing rules of a public offer superannuation fund and an Approved Deposit Fund (ADF) to include a provision that allows non-standard employer-sponsored members to redeem their interest in a fund within 14 days of the issue of the superannuation interest in that fund. The removal of the words to the applicant in subsection 171(5) of the SIS Act makes it clear that the individual member is not always entitled to be paid the redemption money. For example, a preserved superannuation benefit must remain in the superannuation system until a condition of release is met.
Item 19 - After subsection 171(5)
61. This item inserts new subsections 171(5A) and (5B) into the SIS Act. These subsections make it clear, for the purposes of the SIS Act and Regulations, that a payment under new subsection 171(4A) or (4B) (inserted by item 20) is taken to be a payment of a benefit, and a payment under new subsection 171(4C) or (4D) (inserted by item 20) is not taken to be a payment of a benefit. In other words, Part 6 of the SIS Regulations applies where the purchase of a superannuation interest in a public offer superannuation fund was funded by rolled over preserved and restricted non-preserved benefits.
Item 20 - Division 1 of Part 25 (heading)
62. This item repeals the heading of Division 1 of Part 25 and substitutes a new heading as a consequence of amendments to Division 1 of Part 25 inserted by item 24.
Item 21 - At the end of Division 1 of Part 25
63. This item inserts new section 253A into Division 1 of Part 25 of the SIS Act. Part 25 of the SIS Act outlines the monitoring and investigation powers of the Insurance and Superannuation Commissioner. There is uncertainty as to whether these powers apply to certain parties, including former trustees of an entity. Therefore, it is important to clarify that each notice provision in Part 25 applies to a former relevant person of an entity which includes a former trustee. Relevant person is defined in section 10 of the SIS Act. New section 253A provides that each notice provision in Part 25 of the SIS Act applies to persons that have previously been a relevant person of an entity.
Item 22 - At the end of section 255
64. This item inserts a new subsection 255(4) into the SIS Act. Section 255 provides that the Commissioner may require the production of books from a relevant person in relation to a superannuation entity. New subsection 255(4) makes it clear that the powers in section 255 of the SIS Act can be exercised notwithstanding that a notice of investigation has been given under subsection 263(1).
65. This item amends subsection 264(1) of the SIS Act. Section 264 gives the Commissioner the power to issue notices to obtain information and to freeze assets where it appears that conduct has been or is being engaged in a manner that is likely to affect adversely the values of the interests of beneficiaries. This amendment ensures that the power of the Commissioner to obtain information or to freeze assets can be exercised in respect of proposed conduct, rather than only when conduct has been or is being engaged in.
Item 24 - Subsections 264(2), (3) and (4)
66. This item repeals subsections 264(2), 264(3) and 264(4) and substitutes new subsections 264(2), 264(3), 264(4) and 264(4A) in the SIS Act. Section 264 gives the Commissioner the power to obtain information and to freeze assets. However, the power to obtain information is limited to the trustee or investment manager of a superannuation entity. The ability to issue notices to freeze assets cannot be subject to conditions.
67. New subsection 264(2) gives the Commissioner the general power to obtain information from a relevant person. New subsections 264(3) and (4) give the Commissioner the ability to issue a notice imposing a freeze on assets subject to conditions that are specified in the notice.
68. In particular, subsection 264(3) enables the Commissioner to direct the trustee or investment manager subject to conditions as specified not to acquire assets, not to dispose of assets or to deal with assets in a particular way.
69. Subsection 264(4) gives the Commissioner the same ability as set out in subsection 264(3) in relation to a person who has possession, custody or control of an asset.
70. Subsection 264(4A) provides that the power of the Commissioner under subsection 264(3) or (4) to direct a person not to deal in a particular way in assets of an entity includes the power to direct a person not to remove from Australia assets of the entity that are in Australia.
71. This item amends subsection 264(6) of the SIS Act. Subsection 264(6) provides that the Commissioner must not give a notice under section 264 without the written consent of the Minister. The requirement to obtain the written consent of the Minister in order to issue a notice requiring information delays the gathering of evidence necessary to make a recommendation to the Minister to issue a freeze order. This amendment provides that the Commissioner does not require the written consent of the Minister to give a notice requesting information from a relevant person under subsection 264(2).
72. This item amends section 276 so that a reference to paragraph 270(b) is changed to paragraph 270(d). Due to a drafting error, no consequential amendment was made to the text of section 276 when the Superannuation Industry (Supervision) Legislation Amendment Act 1995 inserted a new section 270 into the SIS Act.
Item 27 - Section 285 (penalty)
73. This item amends section 285 to increase the penalty provision for a breach of subsection 264(3) or 264(4) from 30 penalty units to imprisonment for two years.
Item 28 - Section 286 (penalty)
74. This item amends section 286 to increase the penalty for contravention of the requirements under this section from 30 penalty units to a penalty of imprisonment for two years.
Item 29 - After subsection 287(2)
75. This item inserts new subsection 287(2A) into the SIS Act to prevent a body corporate claiming privilege against self-incrimination.
76. Notices seeking books or information can be issued to a body corporate under various sections of the SIS Act. As subsection 287(2) stands, a body corporate in receipt of such a notice could claim privilege in respect of certain information or books. If such a claim was made (and accepted) the fact of production, would be inadmissible in any subsequent criminal or civil penalty proceedings under subsection 287(3). The High Court decision in Environment Protection Authority v Caltex Refining Co Pty Ltd stated that a body corporate could not claim the common law privilege against self-incrimination. Therefore, section 287 without this amendment would provide a body corporate with more rights that it would have under the common law.
77. The removal of the privilege against self-incrimination for a body corporate applies only in respect of requirements to produce books made after the date of Royal Assent. In other words, the amendment will only preclude a body corporate claiming a privilege against self-incrimination in relation to a request to produce a book under Part 25 made after the date of Royal Assent.
78. This item amends paragraph 290(2)(b) to prevent a body corporate claiming privilege against self-incrimination in respect of a statement made at an examination (see paragraph 270(d)). This amendment reflects the common law position in relation to corporations seeking privilege against self-incrimination (see item 32).
79. This item amends section 349 of the SIS Act. At present, section 349 provides that the SIS Act and Regulations have effect subject to any superannuation order under the Crimes (Superannuation Benefits) Act 1989 (CSB Act). Section 349 does not currently include superannuation orders under the Australian Federal Police Act 1979 (AFP Act) and as such trustees could contravene the requirements of the SIS legislation if they were to comply with an order made under the AFP Act. This amendment provides that the SIS Act and Regulations have effect subject to any superannuation order within the meaning of the AFP Act and the CSB Act. This will allow trustees to comply with orders made under either the CSB Act or the AFP Act without contravening the SIS legislation.
80. This item repeals section 375 and substitutes a new section 375 into the SIS Act. No consequential amendment was made to the text of section 375 when the Superannuation Laws Amendment (Small Accounts and Other Measures) Act 1995 amended subsection 153(1). This amendment corrects this drafting error.
Part 2 - Amendments commencing 28 days after date of Assent
81. This item inserts a definition of asset in subsection 10(1) of the SIS Act. Asset is defined to include any form of property, including money.
Item 34 - Subsection 10(1) (paragraphs (d) and (e) of the definition of insolvent under administration)
82. This item amends the definition of insolvent under administration in subsection 10(1) of the SIS Act.
83. Under section 120 of the SIS Act, a person who is an insolvent under administration is a disqualified person. The SIS Act prevents a disqualified person from being a trustee of a superannuation entity, an investment manager of a superannuation entity or a custodian of a superannuation entity.
84. Under paragraph (d) of the current definition of insolvent under administration, a person will be an insolvent under administration for three years after entering into a deed of assignment or a deed of arrangement. However, once a deed of assignment or arrangement has been executed and complied with in full, any creditors who are owed a provable debt will have no further claims on a debtor.
85. In effect, a debtor who has executed and complied with a deed of assignment or arrangement will be in the same position as a debtor who has been discharged from bankruptcy. However, a discharged bankrupt can immediately take part in the management of a superannuation entity while a person who has executed and complied with a deed of assignment or arrangement, and who may be in exactly the same legal position must wait up to three years. Therefore, this item amends the definition of insolvent under administration to remove the inconsistent treatment of a discharged bankrupt and a person who has executed a deed of assignment or a deed of arrangement.
86. In particular, the definition of insolvent under administration includes a person:
- -
- who has executed a deed of assignment and has not been issued with a certificate under section 232 of the Bankruptcy Act 1966 in respect of that deed of assignment;
- -
- who has executed a deed of arrangement and has not been issued with a certificate under section 237A of the Bankruptcy Act 1966 in respect of that deed of arrangement; and
- -
- whose creditors have accepted a composition and who has not been issued with a certificate under section 243A of the Bankruptcy Act 1966 in respect of that composition.
87. This item inserts a definition of invest in subsection 10(1) of the SIS Act. Invest is to apply assets in any way or make a contract for the purpose of gaining interest, income, profit or gain. The definition applies to the application of all assets of a superannuation entity for the purposes of gaining interest, income or profit, and not just to the application of money and includes investment in derivatives where there may be no up front application of money.
Item 36 - Subsection 10(1) (definition of investment)
88. This item repeals the definition of investment from subsection 10(1) of the SIS Act. A definition of invest is inserted by item 41.
Item 37 - Subsection 10(1) (definition of investment manager)
89. This item amends the definition of investment manager in subsection 10(1) of the SIS Act. The amendment makes it clear that an investment manager is a person appointed by the trustee to invest (definition inserted by item 41) on behalf of the trustee.
90. This item amends subsection 109(1) by replacing the words invest money of the entity with invest in that capacity to clarify that this subsection refers to all of the assets of a superannuation entity for the purposes of gaining interest, income or profit, and not just the application of money.
Item 39 - Paragraph 109(1A)(a)
91. This item amends paragraph 109(1A)(a) by replacing the words invests money of the entity with invests in that capacity to clarify that this paragraph refers to all of the assets of a superannuation entity for the purposes of gaining interest, income or profit, and not just the application of money.
Item 40 - After subsection 117(5)
92. This item inserts new subsection 117(5A) into the SIS Act. Section 117 of the SIS Act sets out the circumstances in which amounts may be paid out of an employer-sponsored fund to an employer-sponsor.
93. Paragraph 117(5)(d) provides that the trustee of a standard employer-sponsored fund must give notice to the members of the fund of an intention to pay an amount to the standard employer-sponsor in accordance with the governing rules of the fund. There is no requirement in section 117 governing how this notice is to be given. In light of the significant effect on a members benefits that a payment of an amount to a standard employer-sponsor may have, it has been decided to require the trustee to be reasonably satisfied that all members of the fund have been informed about the payment proposal.
94. New subsection 117(5A) provides that when the trustee of a standard employer-sponsored fund gives notice of an intention to pay an amount to a standard employer-sponsored fund under paragraph 117(5)(d), the trustee must be reasonably satisfied that all of the members of the fund, other than lost members, have been informed about the payment proposal.
95. This item amends section 168 in Division 5 of Part 19 of the SIS Act. Division 5 of Part 19 applies to money received by the trustee of a public offer entity from a person in respect of an application for the issue of a superannuation interest. The money must be held in trust if the superannuation interest is not issued immediately.
96. A practical issue arises from the wording of section 168 and SIS regulation 3.12 because it is assumed that the applicant is to become the beneficiary. However, this is not the case where the money is received from the trustee of another regulated superannuation or Approved Deposit Fund or from a sponsoring employer. Therefore, reference to the applicant is removed from section 168 and Division 5 of Part 19 applies to money received by a trustee from a person in respect of an application for the issue of a superannuation interest.
97. This item amends subsection 169(1)to provide that where application money is received but a superannuation interest is not issued immediately, the money must be held on trust for the person on whose behalf the money was received. This amendment recognises that the applicant is not necessarily the person on whose behalf the money was received.
Part 3 - Amendments that are taken to have commenced on 5 June 1997
Item 43 - Paragraph 299Z(2)(a)
98. This item amends paragraph 299Z(2)(a) of the SIS Act. Paragraph 299Z(2)(a) provides that if, before the commencement of the Superannuation Contributions Tax (Consequential Amendment) Act 1997 (the SCT(CA) Act), an employee quoted their Tax File Number (TFN) for the purposes of the SIS Act only, and provided the employer notifies the employee or member of its intention and provides an opportunity to object, the TFN may also be used for the purposes of the Surcharge Acts (defined in section 299(W) of the SIS Act). This amendment extends the application of this provision to 5 June 1998.
Item 44 - Paragraph 299Z(3)(a)
99. This item amends paragraph 299Z(3)(a) of the SIS Act. Paragraph 299Z(3)(a) provides that if, before the commencement of the Superannuation Contributions Tax (Consequential Amendment) Act 1997 (the SCT(CA) Act), an employee quoted their Tax File Number (TFN) for the purposes of the SIS Act only, and provided the trustee notifies the employee or member of its intention and provides an opportunity to object, the TFN may also be used for the purposes of the Surcharge Acts (defined in section 299(W) of the SIS Act). This amendment extends the application of this provision to 5 June 1998.
Part 4 - Amendment commencing on 1 January 1999
100. This item inserts after section 69 of the SIS Act new section 69A. Section 69A provides that for the purposes of the in-house asset rules set out in Part 8 of the SIS Act, a sub-fund of a regulated superannuation fund is taken to be a regulated superannuation fund. However, in order for section 69A to apply a sub-fund must have separately identifiable assets and beneficiaries and the interest of each beneficiary of the sub-fund must be determined by reference only to the conditions governing that sub-fund.
101. The purpose of new section 69A is to prevent a sub-fund holding 100 per cent of its assets in in-house assets which could be achieved under the existing legislation.
Part 5 - Amendment commencing 6 months after date of Assent
Item 46 - Subsection 10(1) (definition of governing rules)
102. This item repeals the definition of governing rules in subsection 10(1) of the SIS Act and inserts a new definition. This amendment makes its clear the governing rules of a fund include written and unwritten rules governing the establishment or operation of the fund, scheme or trust.