House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

OUTLINE

The Bill makes amendments to the Banking Act 1959, First Home Saver Accounts Act 2008, Life Insurance Act 1995, Superannuation (Unclaimed Money and Lost Members) Act 1999, Australian Securities and Investments Commission Act 2001, and Corporations Act 2001 to give effect to the unclaimed moneys measures announced in the 2012-13 Mid-Year Economic and Fiscal Outlook.

The Bill will bring forward the time at which money is recognised under the relevant law as lost or unclaimed, helping to reunite people with their money earlier, and will protect superannuation account balances transferred to the Australian Taxation Office (ATO) from erosion by fees and charges.

The Bill will for the first time enable the payment of interest on unclaimed moneys paid.

Date of effect: Sections 1 to 3 commence the day of Royal Assent. Schedule 1 to 5 commence the day after Royal Assent.

Proposal announced: The measures were announced in the 2012-13 Mid-Year Economic and Fiscal Outlook.

Financial impact: Measures in Schedules 1, 2 and 3 are estimated to provide savings to the Budget of $92.3 million over the forward estimates period; measures in Schedule 4 are estimated to provide savings to the Budget of $675.2 million over the forward estimates period; and measures in Schedule 5 are estimated to provide savings to the Budget of $118.5 million over the forward estimates period.

Human rights implications: This Bill does not raise any human rights issues.

Compliance cost impact: Low

Summary of regulation impact statement

Regulation impact on business

Impact: Low

Main points:

• OBPR have advised that a Regulation Impact Statement is not required.

Chapter 1
Schedule 1 - Banking

Outline of chapter

1.1 Schedule 1 to the Bill will amend section 69 of the Banking Act 1959 (Banking Act) to provide for new arrangements for unclaimed moneys held by ADIs.

Context of amendments

1.2 Currently, authorised deposit-taking institutions (ADIs) are required to report on and pay to the Commonwealth unclaimed moneys (Section 69, Banking Act).

1.3 There are two separate limbs to the definition of unclaimed moneys . One consists of moneys to the credit of an account that has not been operated on either by deposit or withdrawal for a period of not less than seven years. The other applies to amounts legally payable by an ADI but in respect of which the time within which proceedings may be taken for the recovery thereof has expired (Subsection 69(1), Banking Act). Unclaimed moneys includes amounts that meet either test.

1.4 Unclaimed moneys held in retirement savings accounts (RSAs) (within the meaning of the Retirement Savings Accounts Act 1997) and first home saver accounts (FHSAs) (within the meaning of the First Home Saver Accounts Act 2008) are excluded from the unclaimed moneys provisions of the Banking Act (Subsection 69(3), Banking Act).

1.5 Details of unclaimed moneys, including the name and last known address of the owner, the amount due and, if relevant, the office or branch where the account was kept are published by the Australian Securities and Investments Commission (ASIC). These details can also be searched via the ASIC web site (Subsection 69(9), Banking Act).

1.6 Owners of unclaimed moneys are able to lodge claims for the return of the value of their money at any time through funds appropriated by Parliament for that purpose (Subsections 69(7), 69(7A) and 69(8), Banking Act).

1.7 The new arrangements will reduce the period before an amount payable by an ADI is treated as unclaimed moneys to three years. They also allow for the payment of interest on unclaimed moneys by the Commonwealth from 1 July 2013, as determined by regulations.

Summary of new law

1.8 The new law amends the Banking Act to change the unclaimed moneys period from seven years to three years and provide for the payment of interest on unclaimed moneys claimed after 1 July 2013.

Comparison of key features of new law and current law

Detailed explanation of new law

1.9 The Bill modifies the definition of unclaimed moneys in subsection 69(1) by reducing the time before such moneys become unclaimed moneys from seven years to three years. The Bill also allows for the number of years and when it commences to be varied via regulations. [Schedule 1, item 1, subsection 69(1)]

1.10 The Bill confirms that the definition of unclaimed moneys contained in subsection 69(1) does not include farm management deposits (FMDs), which are dealt with by subsection 69(1A), or accounts or deposits which are excluded by regulations as permitted by subsections 69(1B), 69(1C), 69(1D) or 69(1E). [Schedule 1, item 2, subsection 69(1AA)]

1.11 The Bill amends the definition of unclaimed moneys with respect to FMDs by making equivalent amendments to subsection 69(1A) to those being made to subsection 69(1). [Schedule 1, item 3, paragraphs 69(1A)(b), 69(1A)(c)]

1.12 Regulations may exclude certain accounts and deposits from being treated as unclaimed moneys. [Schedule 1, item 4, subsections 69(1B), 69(1C), 69(1D), 69(1E)]

1.13 The Bill also provides that owners of unclaimed moneys will be entitled to a payment of interest by the Commonwealth, which will be calculated according to regulations. This interest does not accrue prior to 1 July 2013. The regulations may prescribe different rates for different periods over which interest accrues. It is intended that interest will be calculated in accordance with the Consumer Price Index (CPI) and that a nil rate will be able to be prescribed where the CPI does not change between given periods. [Schedule 1, items 5 and 7, subsections 69(7AA), 69(8)]

1.14 As a transitional measure, the Bill extends the deadline to 30 April 2013 for ADIs to report on, and transfer to the Commonwealth, unclaimed moneys as at 31 December 2012. [Schedule 1, item 8, section 69]

Application and transitional provisions

1.15 The amendments in this Chapter will commence the day after the Act receives the Royal Assent.

Chapter 2
Schedule 2 - First Home Saver Accounts

Outline of chapter

2.1 Schedule 2 to the Bill amends the First Home Saver Accounts Act 2008 (FHSA Act) to provide for new arrangements for unclaimed moneys held by FHSA providers.

Context of amendments

2.2 Currently, FHSA providers within the meaning of the FHSA Act are required to report on and pay unclaimed moneys to ASIC. Unclaimed moneys are FHSAs where there has not been a contribution or withdrawal (other than fees or taxes) for a period of not less than seven years and the FHSA provider has been unable to contact the FHSA holder (Sections 17A, 51A and 51B, FHSA Act).

2.3 ASIC may publish details relating to unclaimed moneys from FHSAs (Section 51D, FHSA Act).

2.4 Owners of unclaimed moneys are able to lodge claims for the return of the value of their money at any time through funds appropriated by Parliament for that purpose (Section 51C, FHSA Act).

2.5 The new arrangements will reduce the period before a FHSA is treated as unclaimed moneys to three years. They also allow for the payment of interest from 1 July 2013.

Summary of new law

2.6 The new law will amend sections 17A and 51C of the FHSA Act to change the unclaimed moneys period from seven years to three years and provide for the payment of interest on unclaimed moneys claimed after 1 July 2013.

Comparison of key features of new law and current law

Detailed explanation of new law

2.7 The Bill amends the definition of unclaimed moneys by adding additional limbs to the definition of unclaimed moneys. Accordingly the test currently contained in section 17A is renumbered as subsection 17A(1). [Schedule 2, item 1, section 17A]

2.8 The Bill changes the time period before which a FHSA become unclaimed moneys from seven years to three years or such longer period as may be specified in regulations. [Schedule 2, item 2, paragraph 17A(a)]

2.9 Regulations may specify additional conditions that must be met before a FHSA will become unclaimed moneys. [Schedule 2, item 3, subsections 17A(2), 17A(3), 17A(4)]

2.10 The Bill also provides that owners of unclaimed moneys will be entitled to a payment of interest, which will be calculated according to the regulations. This interest does not accrue prior to 1 July 2013. The regulations may prescribe different rates for different periods over which interest accrues. It is intended that interest will be calculated in accordance with the Consumer Price Index (CPI) and that a nil rate will be able to be prescribed where the CPI does not change between given periods. [Schedule 2, item 4, subsections 51C(1A), 51C(1B), 51C(1C)]

2.11 The Bill requires that FHSA providers must pass on any amount of interest paid by ASIC in relation to a FHSA that has been treated as unclaimed moneys. [Schedule 2, item 5, paragraph 51C(2)(a)]

Application and transitional provisions

2.12 The amendments in this Chapter will commence the day after the Act receives the Royal Assent.

Chapter 3
Schedule 3 - Life Insurance

Outline of chapter

3.1 Schedule 3 to the Bill amends section 216 of the Life Insurance Act 1995 (LI Act) to provide for the new arrangements for unclaimed life insurance moneys.

Context of amendments

3.2 Currently, life insurance companies within the meaning of the LI Act are required to report on and pay unclaimed moneys to the Commonwealth. There are two limbs to the definition of unclaimed moneys in the LI Act. Unclaimed moneys includes sums payable on the maturity of a policy which are not claimed within seven years after the maturity date of the policy. Unclaimed moneys also includes sums of money that have become legally payable with respect to policies where the time within which proceedings may be taken for their recovery (Subsections 216(1), 216(3) and 216(15), LI Act).

3.3 ASIC must maintain a register that contains details of unclaimed moneys subject to the LI Act (Subsection 216(13), LI Act).

3.4 Owners of unclaimed moneys are able to lodge claims for the return of the value of their money at any time through funds appropriated by Parliament for that purpose (Subsections 216(7) and 216(12), LI Act).

3.5 The new arrangements will reduce the period before life insurance moneys are treated as unclaimed moneys to three years. They also allow for the payment of interest from 1 July 2013.

Context of amendments

3.6 The new law amends the LI Act to change the unclaimed moneys period from seven years to three years and provide for the payment of interest on unclaimed moneys claimed after 1 July 2013.

Comparison of key features of new law and current law

Detailed explanation of new law

3.7 The Bill modifies subsections 216(15), paragraph (c) to change the time period before life insurance moneys become unclaimed moneys from seven years to three years. [Schedule 3, item 3,subsection 216(15)]

3.8 The Bill provides that owners of unclaimed moneys will be entitled to a payment of interest, which will be calculated according to the regulations. This interest does not accrue prior to 1 July 2013. The regulations may prescribe different rates for different periods over which interest accrues. It is intended that interest will be calculated in accordance with the Consumer Price Index (CPI) and that a nil rate will be able to be prescribed where the CPI does not change between given periods. [Schedule 3, item 1, subsections 216(7A), 216(7B), 216(7C)]

Application and transitional provisions

3.9 The amendments in this Chapter will commence the day after the Act receives the Royal Assent.

Chapter 4
Schedule 4 - Superannuation

Outline of chapter

4.1 Schedule 4 to the Bill amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA) to change arrangements for the transfer of lost member accounts to the Commissioner of Taxation (Commissioner) and to provide for the payment of interest on unclaimed superannuation money.

4.2 Small lost accounts with balances of less than $2,000 and accounts of unidentifiable members that have been inactive for 12 months will be required to be paid to the Commissioner. Interest will also be paid on unclaimed superannuation money at the time this money is claimed. This will accrue and be payable from 1 July 2013 on all unclaimed superannuation money.

4.3 All references to legislative provisions in this chapter are references to the SUMLMA unless otherwise stated.

Context of amendments

4.4 Superannuation providers are required to transfer unclaimed monies to the Commissioner. The term 'unclaimed superannuation monies' refers to three types of unclaimed money:

•

'general' unclaimed superannuation money;

•

unclaimed superannuation of former temporary residents; and

•

lost member accounts, that is, small accounts of lost members, and inactive accounts of unidentifiable members.

4.5 The unclaimed monies provisions do not apply to defined benefit interests.

4.6 Individuals are able to claim back monies from the Commissioner at any time. Interest on these monies is currently only payable in the case of former temporary residents who become an Australian or New Zealand citizen or hold a permanent resident visa.

4.7 Superannuation providers must give the Commissioner details relating to small accounts of lost members, and inactive accounts of unidentifiable lost members, and pay the value of these accounts to the Commissioner. These details are currently provided to the Commissioner as at 31 December and 30 June each year, with payments then being payable to the Commissioner on 30 April and 31 October each year respectively.

4.8 The new arrangements will enhance the current strategies employed by the ATO to reunite members with lost super accounts, aiming to reduce the number of unnecessary and inactive accounts.

4.9 Transferring more small lost accounts to the ATO will ensure they are properly protected from being eroded by fees and charges. The payment of interest from 1 July 2013 on amounts reclaimed from the ATO will further boost individuals' retirement savings.

4.10 The Department of the Treasury estimates that under the current rules, a 20-year-old with $1,000 in superannuation can unknowingly have their super savings eroded to just $418 after five years by a range of fees and deductions. Fees and insurance charges typically exceed average investment earnings even for accounts with $2,000. A 30-year-old with $2,000 can unknowingly have their super savings eroded to just $1,250 after five years.

4.11 As a result of the new arrangements, a 20-year-old with $1,000 currently inactive in super, is expected to be able to claim $1,131 from the ATO after five years (assuming average Consumer Price Index (CPI) inflation of 2.5 per cent), a boost to their superannuation savings of over $700 compared with current arrangements. A 30-year-old with $2,000 is expected to be able to claim $2,263 from the ATO after five years, a boost to their superannuation savings of over $1,000 compared with current arrangements.

Summary of new law

4.12 The balance threshold below which small lost accounts will be required to be transferred to the Commissioner will increase from $200 to $2,000. The period of inactivity before inactive accounts of unidentifiable members will be required to be transferred to the Commissioner will be decreased from five years to 12 months.

4.13 From 1 July 2013, the Commissioner must pay interest on all unclaimed superannuation money payments in respect of individuals.

4.14 The amount of interest will be worked out in accordance with the regulations. The regulations may prescribe different rates for different periods over which interest accrues. It is intended that interest will be calculated in accordance with the Consumer Price Index (CPI) and that a nil rate will be able to be prescribed where the CPI does not change between given periods.

Comparison of key features of new law and current law

Detailed explanation of new law

4.15 The balance threshold below which small accounts of lost members will be required to be transferred to the Commissioner will increase from $200 to $2,000. [Schedule 4, item 5, paragraph 24(1)(b)]

4.16 The period of inactivity before inactive accounts of unidentifiable members will be required to be transferred to the Commissioner will decrease from five year to 12 months. The superannuation provider will still need to be satisfied that it will never be possible for the provider, having regard to information reasonably available to the provider, to pay an amount to the member. [Schedule 4, item 6, paragraph 24(2)(b)]

Example 4.1 : A small balance account that is lost because it is uncontactable.

Jack has an account with a super fund with an account balance of $1,900. The fund has sufficient details to identify Jack, however two pieces of correspondence sent to him have been returned unclaimed. On this basis, Jack's account is lost, and on the next reporting date the fund must report and pay the balance of the account to the ATO.

Example 4.2 : A small balance account that is lost because it is inactive.

Poppy has an account with a super fund with an account balance of $1,400. The fund has sufficient details to identify Poppy, however her account has not received any contributions or rollovers within the last five years. On this basis, Poppy's account is lost, and on the next reporting date the fund must report and pay the balance of the account to the ATO.

Example 4.3 : A small balance account that is not lost.

Tabbles has an account with a super fund with an account balance of $1,700. The fund has sufficient details to identify Tabbles, and correspondence sent to Tabbles is not being returned unclaimed to the fund. Tabbles' account has not received any contributions for over a year, as he is on an extended break from the workforce. Tabbles' account is not lost at this stage. It would need to be inactive for a five year period before being deemed lost.

Example 4.4 : An account of an unidentifiable member that is lost.

ABC Super fund has an accumulation account for J Smith of $3,500. J Smith's account has not received any contributions or rollovers within the last 12 months. As the trustee of ABC Super has no address, no date of birth, no tax file number and no employer details, the trustee has formed the view that it would never be possible for the fund to pay J Smith. Consequently, J Smith's account would be classified as a lost member account on 31 December 2012 and transferred to the ATO by 30 April 2013.

4.17 The Bill amends the operation of the SUMLMA to require the Commissioner to pay interest on payments of all unclaimed superannuation money that the Commissioner makes in respect of an individual under the general, former temporary resident, and lost member unclaimed money provisions from 1 July 2013.

4.18 From 1 July 2013 interest will be paid under newly inserted subsection 24G(3A) or 24G(3B) in relation to lost member amounts paid by the Commissioner under 24G(2). This interest does not accrue in relation to the periods before 1 July 2013. The amount of interest will be worked out in accordance with the regulations. The regulations may prescribe different rates for different periods over which interest accrues. [Schedule 4, item 7, subsections 24G(3A), (3B), (3C), (3D)]

4.19 From 1 July 2013 interest will be paid under newly inserted subsection 17(2AB) or 17(2AC) in relation to general unclaimed money paid by the Commissioner under subsection 17(2). This interest does not accrue in relation to the periods before 1 July 2013. The amount of interest will be worked out in accordance with the regulations. The regulations may prescribe different rates for different periods over which interest accrues. [Schedule 4, item 1, subsections 17(2AB), (2AC), (2AD), (2AE)]

4.20 From 1 July 2013 interest will be paid under newly inserted subsection 20H(2AA) in relation to all unclaimed money payments for former temporary residents under subsection 20H(2). The amount of interest will be worked out in accordance with the regulations. The regulations may prescribe different rates for different periods over which interest accrues. [Schedule 4, items 2, 3 and 4, subsections 20H(2AA), (2AB), (2A), paragraph 20H(3)(b)]

4.21 The current interest provisions for certain former temporary residents in subsection 20H(2A) will only apply to payments made before 1 July 2013. Regulations made for the purposes of newly inserted subsection (2AA) may prescribe a different rate of interest for the accrual of interest for certain temporary residents prior to 1 July 2013.

Application and transitional provisions

4.22 The amendments in this Chapter will commence the day after the Act receives the Royal Assent.

Chapter 5
Schedule 5 - Corporations

Outline of chapter

5.1 Schedule 5 to the Bill amends the Corporations Act 2001 (the Corporations Act) and the Australian Securities and Investments Commission Act 2001 (the ASIC Act) to close the Companies and Unclaimed Moneys Special Account (CUMSA), and establish new processes for the receipt and payment of unclaimed property.

Context of amendments

5.2 The Australian Securities and Investments Commission (ASIC) is responsible for holding and handling unclaimed property (including unclaimed moneys) arising under the Corporations Act, on behalf of the Commonwealth.

5.3 Currently, upon receipt of unclaimed property, ASIC must either credit the amount of the money to CUMSA (in the case of money), or sell or dispose of the property as it sees fit and credit the amount of the proceeds to CUMSA (in the case of property). The funds are held in CUMSA for six years, after which any remaining funds are debited from CUMSA (Part 9.7, Corporations Act).

5.4 Owners of unclaimed property are able to lodge claims for the return of the value of their property at any time while it is held in CUMSA, or afterwards through funds appropriated by Parliament for that purpose.

5.5 The new arrangements will streamline current processes and provide for unclaimed property to be recognised directly in the Commonwealth Consolidated Revenue Fund upon receipt by ASIC. Owners of unclaimed property continue to be able to claim and receive the return of an amount equal to the value of their property, funded by an amount appropriated by Parliament for that purpose. The new arrangements also provide for an interest component to be paid to owners.

Summary of new law

5.6 The new law will remove Division 1, Part 8 of the ASIC Act, which establishes CUMSA and its purposes, and amend sections 1339 and 1341 of the Corporations Act to provide for the new arrangements for the administration and distribution of unclaimed property. The Bill provides that owners of unclaimed property will be entitled to a payment of interest, calculated according to the regulations.

Comparison of key features of new law and current law

Detailed explanation of new law

5.7 The Bill repeals Division 1 of Part 8 of the ASIC Act, thereby closing CUMSA. [Schedule 5, item 1, ASIC Act, Division 1 of Part 8; items 2 to 4, Corporations Act, section 9]

5.8 ASIC will continue to have responsibility for the holding and handling of unclaimed property arising under the Corporations Act, under Part 9.7.

5.9 The Bill repeals existing subsection 1339(2) which requires ASIC to credit unclaimed property to CUMSA, and replaces the provisions with new arrangements for dealing with unclaimed property. [Schedule 5, item 5, subsection 1339(2)]

5.10 Upon the receipt of unclaimed property that is money, ASIC will continue to hold and receive moneys on behalf of the Commonwealth, which will be recognised in the Commonwealth Consolidated Revenue Fund. Upon the receipt of unclaimed property, ASIC must sell or dispose of the property as it sees fit, and hold and receive any proceeds on behalf of the Commonwealth, with any proceeds to be recognised in the Commonwealth Consolidated Revenue Fund. [Schedule 5, item 5, subsection 1339(2)]

5.11 The Bill repeals existing subsections 1341(1) and 1341(2), and replaces the provisions with new arrangements for the return of unclaimed property to claimants. [Schedule 5, item 6, subsections 1341(1) and (2)]

5.12 The Bill provides that claimants of unclaimed property can continue to claim and receive the return of their property currently or previously held by ASIC on behalf of the Commonwealth. If ASIC is satisfied that the claimant is entitled to the amount claimed, ASIC must pay the owner an amount equal to the value of the unclaimed money (in the case of money), or the proceeds received for the property (in the case of property that is not money), using funds appropriated by the Parliament for that purpose. [Schedule 5, item 6, subsections 1341(1) and (2)]

5.13 The Bill also provides that owners will be entitled to a payment of interest on the principal value, which will be calculated according to the regulations. This interest does not accrue prior to 1 July 2013. The regulations may prescribe different rates for different periods over which interest accrues. It is intended that interest will be calculated in accordance with the Consumer Price Index (CPI) and that a nil rate will be able to be prescribed where the CPI does not change between given periods. [Schedule 5, item 8, after subsection 1341(3)]

Application and transitional provisions

5.14 The amendments in this Chapter will commence the day after the Act receives the Royal Assent.

Chapter 6 Statement of Compatibility with Human Rights

Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

These amendments will enhance the current strategies employed by ASIC and the ATO to reunite people with their unclaimed moneys.

Human rights implications

The Bill does not engage any of the applicable rights or freedoms.

Conclusion

This Schedule is compatible with human rights as it does not raise any human rights issues.

Index

Schedule 1: Banking

Schedule 2: First Home Saver Accounts

Schedule 3: Life Insurance

Schedule 4: Superannuation

Schedule 5: Corporations