Explanatory MemorandumCirculated By the Authority of the Treasurer, the Hon Wayne Swan Mp
General outline and financial impact
Temporary residents' superannuation
The Temporary Residents' Superannuation Legislation Amendment Bill 2008 (main Bill) and the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008 (DASPT Bill):
- implement the Government's proposed temporary residents' superannuation measure (the measure); and
- amend legislation in respect of superannuation for temporary visa holders.
The Government's temporary residents' superannuation measure
The Australian Government provides substantial taxation concessions for superannuation savings in order to encourage individuals to save for their retirement. However, restrictions are placed on the early withdrawal of superannuation savings prior to the individual reaching their preservation age to ensure that they are used for genuine retirement income purposes. In limited circumstances, such as for terminal medical conditions, severe financial hardship and compassionate grounds, individuals can apply for the early release of their superannuation benefits.
Superannuation contributions, earnings and benefits are concessionally taxed in Australia on the basis that they will be used to meet the retirement income needs of Australians. Accordingly, where those benefits are accessed early prior to reaching preservation age, additional tax is generally imposed to recover the tax concessions.
Individuals who hold an eligible temporary resident visa are currently able to access their superannuation benefits early (prior to reaching preservation age) if their visa has been cancelled or has expired and they have departed Australia, by applying for a departing Australia superannuation payment (DASP). A DASP is subject to a final withholding tax to recoup the tax concessions provided to the superannuation of temporary residents.
Despite the ability to claim their superannuation many temporary residents do not do so and leave amounts of small and lost balances in the superannuation system, thereby contributing to the total amount of lost monies in the system.
Currently, the Superannuation (Unclaimed Money and Lost Members) Act 1999 (S(UMLM) Act) requires superannuation providers to report and pay the superannuation of a member to the Commissioner of Taxation (Commissioner) as unclaimed money where certain conditions relating to the member are met. Broadly speaking, 'unclaimed money' is money which the superannuation provider holds in respect of members who have reached the eligibility age (65) or died and the provider is unable to contact the person entitled to receive it.
Schedule 1 to the main Bill contains amendments to the S(UMLM) Act and other Acts so that when temporary visa holders leave Australia without taking their superannuation with them, relevant amounts are reportable and payable to the Commissioner as unclaimed superannuation.
The main Bill and the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008
In broad terms, the amendments contained in Schedule 1 to the main Bill:
- include as unclaimed superannuation the superannuation of a person who was previously a holder of a temporary visa, where at least six months have passed since the person's temporary visa ceased to be in effect and they have left Australia;
- require superannuation providers that hold such unclaimed superannuation for departed temporary visa holders to pay such amounts to the Commissioner; and
- allow departed temporary visa holders to recover any amounts paid to the Commissioner as unclaimed superannuation where certain conditions have been satisfied (subject to the DASP withholding tax).
The measure is seeking to reduce the number of lost accounts and unclaimed money in the superannuation system that can arise when temporary visa holders leave Australia without taking their superannuation benefits with them.
Date of effect : This measure commences from a day to be fixed by Proclamation, or the first day after a period of six months from when the Bill receives Royal Assent, whichever is earlier.
Proposal announced : A discussion paper on the proposal was released for public consultation on 5 May 2008. The Government's final decision was announced in the Minister for Superannuation and Corporate Law's Press Release No. 050 of 8 August 2008.
Financial impact : This measure will have these positive revenue implications:
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Compliance cost impact : Superannuation funds are estimated to, on average, have implementation costs of $33,000 per provider and ongoing annual costs of $2,500 per provider.
Provisions, for costs of $10 million per annum for the Australian Taxation Office (ATO) and $2 million per annum for the Department of Immigration and Citizenship (DIAC) over the forward estimates period, were made in the 2007-08 Mid-Year Economic and Fiscal Outlook .
Summary of regulation impact statement
Regulation impact on business
Impact : This measure will reduce the number of lost accounts in the superannuation system and ensure that superannuation tax concessions are well targeted at individuals who will retire in Australia.
The measure will rely on processes similar to the existing processes used by superannuation funds to transfer unclaimed money to the Commissioner.
Main points :
- In 2006-07 there were over 239,152 temporary resident visas granted with work rights and over 87,300 business long-stay 457 visas issued.
- Departed temporary residents who do not claim their superannuation within six months of departure will have their superannuation paid to the ATO as unclaimed money.
- Departed temporary residents will be able to claim, for an indefinite period, their superannuation benefits less the DASP tax, back from the ATO.
- Superannuation funds will pay amounts that are defined as unclaimed for departed temporary residents to the Commissioner.
- This measure will assist to reduce the number of small and lost accounts that superannuation funds need to manage.
- The ATO's tasks will include:
- matching those individuals identified by the DIAC as departed temporary visa holders with account information provided by superannuation funds and then notifying funds;
- paying amounts to individuals or their legal personal representative where amounts are later claimed; and
- where directed by an individual in certain circumstances rolling over amounts into a superannuation fund.
- The DIAC will be required to identify those individuals who the measure may impact upon and provide this information to the ATO.