House of Representatives

Temporary Residents' Superannuation Legislation Amendment Bill 2008

Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008

Explanatory Memorandum

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

Chapter 3

Other changes

Outline of chapter

3.1 This chapter outlines other amendments to the Superannuation (Unclaimed Money and Lost Members) Act 1999 (S(UMLM) Act) and the amendments to related tax legislation, under Schedule 1 to the Temporary Residents' Superannuation Legislation Amendment Bill 2008 (main Bill) and Schedule 1 to the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008 (DASPT Bill). These amendments are necessary to administer the key rules in Part 3A of the S(UMLM) Act (as outlined in Chapters 1 and 2).

3.2 All references to legislative provisions in this chapter are references to the main Bill unless otherwise stated.

Context of amendments

3.3 Part 1 of Schedule 1 to the main Bill contains amendments to the S(UMLM) Act (including the inserting of Part 3A) to implement this measure.

3.4 For the purposes of administering Part 3A of the S(UMLM) Act, and for purposes related to temporary visa holders' superannuation, Part 2 of Schedule 1 to the main Bill amends the Taxation Administration Act 1953 (TAA 1953) while Part 3 of Schedule 1 to the main Bill amends the Income Tax Assessment Act 1997 (ITAA 1997).

3.5 Schedule 1 to the DASPT Bill amends the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007 to implement this measure and to facilitate the administration of Part 3A of the S(UMLM) Act.

Summary of new law

Other changes to the Superannuation ( Unclaimed Money and Lost Members ) Act 1999

3.6 Amendments are made to the S(UMLM) Act to facilitate the administration of the rules contained in Part 3A, including the quotation and use of tax file numbers, the disclosure of information between central agencies to administer the measure, and the interaction between Part 3 and Part 3A.

3.7 The S(UMLM) Act also clarifies that amounts paid to the Commissioner of Taxation (Commissioner) under the S(UMLM) Act are not held on trust by the Commissioner and are not special public money under the Financial Management and Accountability Act 1997 .

Changes to related tax legislation

3.8 A payment from the Commissioner under section 20H of the S(UMLM) Act is a superannuation benefit under the ITAA 1997. The ITAA 1997 sets out how to work out the tax-free component and the taxable component of the payment that is a superannuation benefit.

3.9 Under the TAA 1953, amounts that are payable or repayable to the Commissioner by a provider under Part 3A of the S(UMLM) Act, are a tax-related liability. Further, a general interest charge accrues on any unpaid amount after the time it becomes due and payable.

3.10 The departing Australia superannuation payment (DASP) withholding tax rates on elements of the taxable component are raised by five percentage points to recover some of the superannuation tax concessions provided to departed temporary visa holders. The DASP withholding tax is not applied on amounts which are subject to the excess untaxed roll-over amounts tax.

Detailed explanation of new law

Other changes to the Superannuation ( Unclaimed Money and Lost Members ) Act 1999

Preliminaries

3.11 The long title of the S(UMLM) Act is amended to more accurately reflect what the legislation broadly aims to achieve. The legislation provides a register of unclaimed money and a register of lost members, and provides for certain payments relating to superannuation and for related purposes.

3.12 The objects provision at section 6 and the outline at section 7 of the S(UMLM) Act are amended to include a summary of the key rules in Part 3A of the S(UMLM) Act.

Interaction between Part 3 and Part 3A of the S(UMLM ) Act

Statements from superannuation providers

3.13 A superannuation provider is currently required under section 16 of the S(UMLM) Act to give the Commissioner a statement of 'unclaimed money' it holds for a member as described under sections 12 or 14 of the S(UMLM) Act. If, at the end of a half-year reporting period, a provider holds unclaimed money for a person under subsection 12(1) of the S(UMLM) Act (member reached age 65) and the provider is also required to give a statement under Part 3A of the S(UMLM) Act in respect of that person, then the provider is not required to give a statement under section 16 of the S(UMLM) Act to the Commissioner in respect of the person [ Schedule 1, item 13, subsection 16(7 )]. The provider does not commit an offence under subsection 16(5) of the S(UMLM) Act in complying with Part 3A of the S(UMLM) Act.

3.14 However, a provider that holds unclaimed money for a person under subsection 12(2) (splittable payments) or section 14 (death) of the S(UMLM) Act, is still required to comply with the reporting requirements under section 16 of the S(UMLM) Act. This is necessary because Part 3A of the S(UMLM) Act should not apply to a non-member spouse entitled to the splittable payments as the non-member spouse is not a person with an interest in the fund for the purposes of Part 3A of the S(UMLM) Act.

3.15 Further, the Commissioner is unlikely to be aware of the death of a departed temporary visa holder. If a provider is aware of a departed temporary visa holder member's death, the provider is required to deal with the deceased person's superannuation under Part 3 of the S(UMLM) Act (ie, the deceased member's benefits are paid to the Commissioner as unclaimed money if section 14 of the S(UMLM) Act is met).

Payments from superannuation providers

3.16 A provider who is not required to give a statement under section 16 of the S(UMLM) Act in respect to a person is not required to specify an amount in a statement for the purposes of section 17 of the S(UMLM) Act. Accordingly, the provider is not required to pay that unclaimed money amount to the Commissioner under section 17 of the S(UMLM) Act in these circumstances [ Schedule 1, item 14, subsection 17(1 )]. The provider does not commit an offence under subsection 17(6) in complying with Part 3A of the S(UMLM) Act.

3.17 However, a provider that holds unclaimed money for a person under subsection 12(2) (splittable payments) or section 14 (death) of the S(UMLM) Act, is still required to comply with its payment obligations under section 17 of the S(UMLM) Act.

Example 3.1 A superannuation provider has unclaimed money for member Shaz under subsection 12(1) of the S(UMLM) Act for the half year ending on 31 December. The provider receives a notice under section 20C of the S(UMLM) Act on 25 February of the following year in respect of Shaz. The provider is required to give a statement in the approved form with the required information, to the Commissioner by the end of 1 May of that year (assuming that the next scheduled statement day after the notice was given is 1 May). The provider is also required to work out the amount (if any) payable in respect of Shaz under Part 3A of the S(UMLM) Act, and pay this amount to the Commissioner by the end of 1 May. The provider is not required to also give a statement and make a payment in respect of Shaz under sections 16 and 17 of the S(UMLM) Act in these circumstances.

Statements and payments from superannuation providers where Part 3A does not apply

3.18 A provider that holds unclaimed money for a person under sections 12 or 14 of the S(UMLM) Act and has not been given a notice under section 20C of the S(UMLM) Act in respect of the person, is required to comply with the requirements under Part 3 of the S(UMLM) Act. This includes giving a statement and paying unclaimed money to the Commissioner in respect of the person under sections 16 and 17 of the S(UMLM) Act.

Payments from the Commissioner

3.19 Where the Commissioner has received an amount under both section 17 and Part 3A of the S(UMLM) Act in respect of a person, and the Commissioner is required to make a payment in respect of the person, the Commissioner is then required to make the payment under Part 3A and not under section 17 of the S(UMLM) Act. [ Schedule 1, item 15, subsection 17(2A )]

Disclosure of information

3.20 In broad terms, Part 3A of the S(UMLM) Act allows for the disclosure of migration and citizenship information by central agencies for the purposes of administrating the measure. More specifically, Part 3A of the S(UMLM) Act contains a provision which permits the disclosure of certain information (refer to paragraph 3.21), by certain persons (refer to paragraph 3.22), for certain purposes (refer to paragraph 3.23) [ Schedule 1, item 16, section 20N ].

3.21 The information that can be disclosed can relate to any of the following matters:

·
whether a person is or was the holder of a visa at a particular time or during a particular period;
·
whether a person is or was an Australian or New Zealand citizen at a particular time or during a particular period;
·
whether a person left Australia at a particular time or during a particular period;
·
whether at a particular time or during a particular period a person has made a valid application for a permanent visa; and/or
·
confirmation, by reference to any employment of, or work done by, a person, that they are the same person as a particular person who is or was the holder of a temporary visa at a particular time or in a particular period.

[ Schedule 1, item 16, subsection 20N(4 )]

3.22 Persons who are permitted to disclose relevant information (refer to paragraph 3.21) are the Secretary and Australian public service employees of a department administered by a Minister responsible for administering a provision in the Migration Act 1958 or the Australian Citizenship Act 2007 . [ Schedule 1, item 16, subsection 20N(2 )]

3.23 A permitted person (refer to paragraph 3.22) must only disclose relevant information (refer to paragraph 3.21) for the purposes of administering the S(UMLM) Act and/or related tax legislation (the TAA 1953, the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007 and the ITAA 1997). [ Schedule 1, item 16, subsection 20N(3 )]

3.24 For instance, it allows a department (administered by a Minister responsible for administering a provision in the Migration Act 1958 or the Australian Citizenship Act 2007 ) to disclose information relating to the employment of a temporary visa holder to the Commissioner. The Commissioner can then compare this information with information the Commissioner has obtained from other sources to confirm that the person is the same person to be identified in a notice under section 20C of the S(UMLM) Act, before sending out the notice to a superannuation provider.

3.25 Part 6 of the S(UMLM) Act allows certain persons (which includes the Commissioner and officers and employees of an agency responsible for administering the S(UMLM) Act) to obtain and disclose information for the purposes of administering the S(UMLM) Act in the course of their duties. This includes disclosure to superannuation providers to facilitate the operation of Part 3A of the S(UMLM) Act.

3.26 For instance, this may involve the Commissioner obtaining migration and citizenship information from another department (which is responsible for administering a provision in the Migration Act 1958 or the Australian Citizenship Act 2007 ) and including that information in a notice under section 20C of the S(UMLM) Act to a superannuation provider.

Tax file numbers

3.27 A notice from the Commissioner under section 20C of the S(UMLM) Act to a superannuation provider may contain the tax file number of a person and of the fund. [ Schedule 1, item 18, section 25A ]

3.28 A statement in the approved form from a provider to the Commissioner under Part 3A of the S(UMLM) Act may contain the tax file number of the provider, of the fund and of the person identified in a notice under section 20C of the S(UMLM) Act (if it is quoted to the provider or in the notice) [ Schedule 1, item 17, subsection 25(2A )]. A notice containing the tax file number of a member is taken to be quoted for superannuation purposes under section 295-615 of the ITAA 1997.

3.29 The Commissioner can request the tax file number of a person to be quoted (for the purposes of administering the S(UMLM) Act or the Superannuation (Unclaimed Money and Lost Members) Regulations 1999 (Regulations)) from the following:

·
someone who claims to be entitled to a payment under the S(UMLM) Act;
·
someone who claims to be a lost member; or
·
someone who claims to be entitled to a payment under the S(UMLM) Act and a lost member.

[ Schedule 1, item 20, paragraph 29(1 )( aa )]

However, a person who refuses to quote their tax file number to the Commissioner is not prevented from being paid an amount (if any) that is payable under Part 3A of the S(UMLM) Act. [ Schedule 1, item 21, subsection 29(4 )]

3.30 For clarification, an amount paid to the Commissioner under the S(UMLM) Act is not held on trust by the Commissioner and it is not special public money under the Financial Management and Accountability Act 1997 . [ Schedule 1, item 22, section 49 ]

Changes to the Income Tax Assessment Act 1997

Nature of payments from the Commissioner

3.31 A payment from the Commissioner under section 20H of the S(UMLM) Act is:

·
a 'superannuation benefit' under section 307-5 of the ITAA 1997 [ Schedule 1, items 31 and 32, subsection 307 - 5(1 ), item 5 in the table ];
·
an 'unclaimed money payment' under section 307-5 of the ITAA 1997 [ Schedule 1, items 31 and 32, subsection 307 - 5(1 ), item 5 in the table ]; and
·
in some circumstances, a 'departing Australia superannuation payment' (DASP) under section 301-170 of the ITAA 1997 [ Schedule 1, item 30, subsections 301 - 170(2 ) to ( 4 )].

Payment is a superannuation benefit

3.32 A payment from the Commissioner under section 20H of the S(UMLM) Act is a 'superannuation member benefit' under the ITAA 1997 if it is paid otherwise than because of the death of a person, and it is a 'superannuation death benefit' under the ITAA 1997 if it is paid because of the death of a person. [ Schedule 1, items 31 and 32, subsection 307 - 5(1 ), item 5 in the table ]

3.33 A payment from a provider to the Commissioner because of a notice under section 20C of the S(UMLM) Act is also a superannuation benefit because of sections 307-5 and 307-15 of the ITAA 1997 [ Schedule 1, item 31, subsection 307 - 5(1 ), item 5 in the table ]. However, this payment is not a 'roll-over superannuation benefit' as defined under section 306-10 of the ITAA 1997 because the benefit is not paid to a complying superannuation plan nor is it paid to an entity to purchase a superannuation annuity from the entity. The payment is non-assessable and non-exempt income because of section 306-20 of the ITAA 1997.

Payment is a departing Australia superannuation payment

3.34 Generally, a payment from the Commissioner under section 20H of the S(UMLM) Act can be a DASP under the ITAA 1997 [ Schedule 1, item 30, subsection 301 - 170(2 )]. This is because the payment is made in respect of a person who is or was a departed temporary visa holder. Under section 301-175 of the ITAA 1997, the payment is subject to the DASP withholding tax. The DASP withholding tax is withheld by the Commissioner at the time of payment.

3.35 However, a payment by the Commissioner under section 20H of the S(UMLM) Act is not a DASP (and therefore not subject to the DASP withholding tax), if the Commissioner is satisfied at the time of the payment, that:

·
the person has not held a temporary visa;
·
at least a continuous period of six months have not passed since both the person's temporary visa ceased to be in effect and they left Australia; or
·
the payment is prescribed by the Regulations as not a DASP.

[ Schedule 1, item 30, subsections 307 - 170(3 ) and 301 - 170(4 )]

This allows, for example, the Commissioner, who is required by the S(UMLM) Act to make a payment under section 20H (refer to Chapter 2) but is also satisfied that the person should not have been originally identified in a notice under section 20C of the S(UMLM) Act, to still make a payment in respect of the person and not have to apply the DASP withholding tax.

Components of a payment that is a superannuation benefit

3.36 The rules to work out the tax components of a superannuation benefit that is a payment from the Commissioner under section 20H of the S(UMLM) Act, are set out under Subdivision 307-C of the ITAA 1997 [ Schedule 1, item 34, paragraph 307 - 120(2 )( e )]. Like any other superannuation benefit, a payment from the Commissioner can consist of a 'tax-free component' and a 'taxable component' [ Schedule 1, item 35, subsection 307 - 142(1 )].

3.37 The tax-free component of the payment is the total of the tax-free components of the amounts paid to the Commissioner (that are included in the Commissioner's payment) by superannuation providers under the S(UMLM) Act [ Schedule 1, item 35, subsection 307 - 142(2 )]. The amounts paid to the Commissioner can be under section 17 and/or under Part 3A of the S(UMLM) Act.

3.38 The taxable component of the payment is the total of the taxable components of the amounts paid to the Commissioner (that are included in the Commissioner's payment) by superannuation providers under the S(UMLM) Act [ Schedule 1, item 35, subsection 307 - 142(3 )]. The amounts paid to the Commissioner can be under section 17 and/or under Part 3A of the S(UMLM) Act.

Example 3.2 Assume an amount of $10,000 has been paid to the Commissioner in respect of Jay under Part 3A of the S(UMLM) Act, with the tax-free component of the amount equal to $3,000 and the taxable component equal to $7,000. A further amount of $8,000 was earlier paid to the Commissioner in respect of Jay under section 17 of the S(UMLM) Act, with the tax-free component of that amount equal to $2,000 and the taxable component equal to $6,000. Assume the Commissioner is required to make a payment in respect of Jay and there is an amount payable under Part 3A of the S(UMLM) Act. Further, assume no previous amount has been paid by the Commissioner for Jay. The gross amount payable in respect of Jay is $18,000. The tax-free component of the payment is equal to $5,000 ($3,000 + $2,000) and the taxable component of the payment is equal to $13,000 ($7,000 + $6,000). The payment is a DASP and is subject to the DASP withholding tax on the taxable component of the payment ($13,000).

Payment from the Commissioner to a fund

3.39 A payment from the Commissioner to a fund under the S(UMLM) Act is a 'roll-over superannuation benefit' for income tax purposes under section 306-10 of the ITAA 1997. The rules to work out the 'element taxed in the fund' and the 'element untaxed in the fund' of the taxable component of a superannuation benefit that is a payment from the Commissioner under section 20H of the S(UMLM) Act, are set out under Subdivision 307-E of the ITAA1997 [ Schedule 1, item 37, subsection 307 - 300(1 )].

3.40 The element taxed in the fund of the taxable component of a superannuation benefit that is a payment from the Commissioner, is the total of the elements taxed in the fund of the taxable component of the amounts paid to the Commissioner under the S(UMLM) Act (to the extent they are included in the Commissioner's payment) [ Schedule 1, item 37, subsection 307 - 300(2 )]. The amounts paid to the Commissioner can be made under section 17 and/or Part 3A of the S(UMLM) Act.

3.41 The element untaxed in the fund of the taxable component of a superannuation benefit that is a payment from the Commissioner, is the total of the elements untaxed in the fund of the taxable component of the amounts paid to the Commissioner by providers under the S(UMLM) Act (to the extent they are included in the Commissioner's payment) [ Schedule 1, item 37, subsection 307 - 300(3 )]. The amounts paid to the Commissioner can be made under section 17 and/or Part 3A of the S(UMLM) Act.

3.42 The entire amount that is paid by the Commissioner to a fund as a roll-over superannuation benefit is included in the 'contributions segment' of the superannuation interest in the receiving fund and is therefore part of the tax-free component of the interest [ Schedule 1, item 36, subsection 307 - 220(4 )]. No part of an amount of a DASP paid by the Commissioner to a fund as a roll-over superannuation benefit under Part 3A of the S(UMLM) Act is included in the assessable income of the receiving fund [ Schedule 1, item 27, subsection 295 - 190(1A )]. This ensures that an amount which is already subject to the DASP withholding tax is not further taxed when it is paid by a fund as a superannuation benefit from the interest.

Payment from the Commissioner to a person

3.43 Generally, a payment from the Commissioner to a person under section 20H of the S(UMLM) Act is a DASP under section 301-170 of the ITAA 1997 [ Schedule 1, item 30, subsection 301 - 170(2 )]. A DASP is non-assessable income and non-exempt income under section 301-175 of the ITAA 1997, however, at the time of making the payment the relevant amount of DASP tax is withheld by the Commissioner.

Changes to the Superannuation ( Departing Australia Superannuation Payments Tax ) Act 2007

Departing Australia superannuation payment withholding tax rates

3.44 Generally, a payment from the Commissioner under section 20H of the S(UMLM) Act (and therefore made in respect of a departed temporary visa holder) is a DASP under section 301-170 of the ITAA 1997 [ Schedule 1, item 30, subsection 301 - 170(2 )]. Accordingly, the payment is subject to the DASP withholding tax and the relevant amount of tax is withheld by the Commissioner at the time of making the payment (refer to paragraph 2.22).

3.45 Schedule 1 to the DASPT Bill raises the DASP tax rates in the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007 by five percentage points. This increase is aimed at recovering some of the superannuation tax concessions provided to departed temporary visa holders.

3.46 The final withholding tax rate on the element taxed of the DASP is 35 per cent (raised from 30 per cent) while the final withholding tax rate on the element untaxed of the payment is 45 per cent (raised from 40 per cent). [ Schedule 1, items 4 and 5, paragraphs 5(1 )( b ) and 5(1 )( c ) of the DASPT Bill ]

Excess untaxed roll - over amounts

3.47 The part of the element untaxed of a DASP that is paid from the Commissioner to a fund (as a roll-over superannuation benefit) which is below the 'untaxed plan cap amount' (as defined in the ITAA 1997), is subject to the DASP withholding tax rate of 45 per cent [ Schedule 1, item 6, paragraph 5(2 )( a ) of the DASPT Bill ]. The amount of tax is withheld by the Commissioner at the time of the payment (refer to paragraph 2.22).

3.48 The part of the element untaxed of a DASP that is paid from the Commissioner to a fund (as a roll-over superannuation benefit) which exceeds the untaxed plan cap amount, is subject to the excess untaxed roll-over amounts tax (under section 306-15 of the ITAA 1997). No DASP withholding tax is payable on the excess amount to avoid double taxation on the excess amount [ Schedule 1, item 6, paragraph 5(2 )( b ) of the DASPT Bill ]. The excess untaxed roll-over amounts tax is withheld by the Commissioner at the time of payment to a fund (refer to paragraph 2.22).

Example 3.3 Assume the Commissioner is required to pay an amount in respect of Faleesha under section 20H of the S(UMLM) Act. Faleesha is able to and directs for the payment to be made to a complying superannuation plan. The total amount payable is $1.02 million. Assume Faleesha's untaxed plan cap amount for the year is $1 million. Of the payment, the amount of $1 million is subject to the DASP withholding tax and the remaining $20,000 is subject to the excess untaxed roll-over amounts tax.

Changes to the Taxation Administration Act 1953

Penalties

3.49 Under the TAA 1953, a superannuation provider that does not pay an amount that is payable under Part 3A of the S(UMLM) Act to the Commissioner is liable to pay a general interest charge on the unpaid amount after the time the amount becomes due and payable. [ Schedule 1, item 23, subsection 8AAB(5 ), item 13B ]

3.50 A superannuation provider that does not return the amount paid to it by the Commissioner under Part 3A of the S(UMLM) Act (which was not credited by the provider within 28 days of receiving the payment), is liable to pay a general interest charge on any unpaid amount after the time the amount is required to be repaid. [ Schedule 1, item 23, subsection 8AAB(5 ), item 13C ]

3.51 If a provider fails to pay an amount payable in respect of a person under Part 3A of the S(UMLM) Act to the Commissioner, it is a tax-related liability under the TAA 1953. [ Schedule 1, item 25, subsection 250 - 10(2 ) in Schedule 1, item 68 ]

3.52 An amount a provider is liable to repay to the Commissioner, because it was not credited to a person's account within 28 days of receiving the payment, is a tax-related liability under the TAA 1953. [ Schedule 1, item 25, subsection 250 - 10(2 ) in Schedule 1, item 69 ]

3.53 A superannuation provider could be liable to an administrative penalty under the TAA 1953 if it gives a statement to the Commissioner under the S(UMLM) Act that is false or misleading and which results in the amount specified in the statement being less than what it would have been if the statement had not contained false or misleading information. [ Schedule 1, item 26, subsection 284 - 80(1 ) in Schedule 1, item 1 ]

Taxation objections

3.54 A person, who is not a superannuation provider, can lodge a taxation objection against a notice under section 20C of the S(UMLM) Act. This includes the person identified in the notice or their legal personal representative. The objection is required to be made within two years (instead of the usual 60 days) of the notice being given to the provider. [ Schedule 1, item 24, paragraph 14ZW(1 )( bd )]

3.55 A person who is not a superannuation provider and who is dissatisfied with a decision made by the Commissioner under the relevant provisions in Part 3A of the S(UMLM) Act, can lodge a taxation objection against that decision. For instance, the decision may relate to making a payment, refunding an overpayment or recovering an overpayment. The taxation objection must be lodged within two years of receiving notice of the decision [ Schedule 1, item 24, paragraph 14ZW(1 )( be )]. A person who can lodge a taxation objection includes the departed temporary visa holder, a legal personal representative or a beneficiary.

3.56 Under paragraph 14ZW(1)(c) of the TAA 1953, superannuation providers who are dissatisfied with a notice given under section 20C of the S(UMLM) Act or a decision made by the Commissioner under the relevant provisions in Part 3A of the S(UMLM) Act, have the usual 60 days from when the notice under section 20C of the S(UMLM) Act was given, or when the notice of the decision was given, to lodge a taxation objection.

Application and transitional provisions

3.57 Changes to the TAA 1953 and the ITAA 1997 apply from the commencement of Schedule 1 to the main Bill.

3.58 Increases to the DASP withholding tax rates apply from the commencement of Schedule 1 to the DASPT Bill.

3.59 A request for a DASP that is made before the commencement of Schedule 1 to the DASPT Bill is subject to the DASP withholding tax rates that apply before that commencement [ Schedule 1, item 7 of the DASPT Bill ]. That is, a 30 per cent or 40 per cent withholding tax rate applies to a request for DASP that is made before the commencement of Schedule 1 to the DASPT Bill.


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