SENATE

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

General outline and financial impact

This Bill provides a legislative framework for employers to make payments to the Superannuation Holding Accounts Reserve (the Reserve) instead of making small superannuation contributions to a superannuation fund.

Date of effect: 1 July 1995

Proposal announced: The system was announced in the Government's Statement of Superannuation Policy Measures, as circulated by the Treasurer on 28 June 1994.

Financial impact: It is estimated that the cost of establishing the Reserve will be approximately $5.6 million. The annual cost of administering the Reserve is estimated at between $7.0 and $7.5 million. These annual running costs are expected to be offset by earnings on the funds held in the Reserve.

Compliance cost impact: The design of the Superannuation Holding Accounts Reserve is to overcome operational difficulties for employers in some areas of superannuation legislation. The Reserve is also designed to assist employers who have been unable to readily find a superannuation fund willing to accept small, particularly one off, contributions on behalf of their employees. Consequently, the availability of the Reserve should reduce employers' compliance costs and at the same time provide for the protection of employees' superannuation entitlements.

Specific areas of reduction are considered to include:

•

Savings of administrative costs for employers continually trying to find a superannuation fund that will accept small contributions. Where an employer is unable to readily find a fund willing to accept small contributions they can make payments to the Reserve.

•

Reduction in the liability to the superannuation guarantee charge (SGC). Previously where an employer could not find a fund willing to accept small contributions they may have become subject to the SGC. This include an administration charge, an interest charge and the amount of the superannuation contribution. The payment of the SGC is also not allowable as an income tax deduction. Because of the introduction of the Reserve the employer can pay an amount to the Reserve and will not be subject to the SGC. Also payments to the Reserve will be allowable as an income tax deduction (up to $1,200 per employee per period) to the employer.

•

A reduction in the costs for professional advice. The Bill has been drafted in the emerging drafting style of the Tax Law Improvement Project and has utilised plain English drafting. The style of the Bill should make it easier for both employers and their advisers to understand.

Areas which may increase compliance costs include the following:

•

An increase in cost or time in either writing to the Australian Taxation Office (ATO) or physically attending the ATO in order to obtain deposit forms for the Reserve.

•

The potential for duplication where an employer who has a superannuation fund that accepts regular payments for the employer's full-time employees but which does not accept small, irregular or one-off contributions. In this circumstance the employer will have to calculate and pay superannuation contributions for its full-time and casual staff separately. This split workload may also lead to the increased potential for error.

It is considered that on balance the introduction of the Reserve should not increase an employer's compliance costs and has potential to decrease those costs.

Chapter 1 - Introduction

Overview

1.1 The measures contained in this Bill provide a legislative framework for the introduction of a collection mechanism for small superannuation contributions called the Superannuation Holding Accounts Reserve.

1.2 This chapter provides an introduction to the need for such a Reserve and explains in general terms how the Reserve is to operate. This chapter provides a simplified explanation of the definitions of terms used in the Bill.

1.3 Subsequent chapters will go into the detail of the measures contained in the Bill and the mechanics of the system.

Purpose

1.4 The object of the Superannuation Holding Accounts Reserve is to improve the operation of the compulsory superannuation system, in particular to provide a much better outcome for employees who have small, and especially intermittent, superannuation amounts. The Reserve is to be established to accept amounts paid instead of superannuation contributions required by the Superannuation Guarantee (Administration) Act 1992. The Reserve will also be able to accept amounts paid instead of superannuation contributions from employers that are not specifically required by industrial awards or the Superannuation Guarantee (Administration) Act 1992.

1.5 The aim of the measures announced by the Treasurer is to protect small superannuation amounts from erosion due to administrative fees and charges. This protection will allow the small amounts to grow to a self sustaining level.

1.6 Small amounts are particularly prevalent in industries which employ a high number of casual workers - such as the tourism (eg. hospitality staff) and agriculture industries (eg. fruit pickers). Women in particular are likely to be holders of small amounts.

What is the problem?

1.7 The small accounts problem refers to the fact that the superannuation guarantee (SG) arrangements (and industrial awards) may require small, one off contributions to be made into superannuation funds. Those contributions are often eroded by fees (entry, exit and administration) imposed by funds.

1.8 The SG requires employers to make superannuation contributions from a wage threshold ($450 per month) and at specific rates of contribution (currently 4% to 5% increasing to 9% by the year 2003). The system works well where an employee has one full-time, or regular part-time, job and receives contributions over a long period to a single fund. However, employees who regularly change jobs, work intermittently or engage in short term work (eg consultancies) often end up with one or a number of small account balances dispersed through the superannuation system, each incurring fees and charges. Substantial fund "exit" and in some cases "entry" charges make it difficult to combine these accounts into one account with only one set of fees and charges.

Example of the problem

1.9 Paul is an 18 year old full-time accountant/bookkeeper with a small company in the hospitality industry and receives a salary of $22,000. Paul's employer contributes 4% of Paul's salary ($880) to its superannuation fund. The fund pays 15% contributions tax on the employer contributions. The balance of Paul's account after tax is therefore $748. The fund also charges a $5 entry fee and 25c a week administration fee ($13 per year). Therefore total charges are $18 per year. The fund earns a return of 4% therefore Paul's employer's contributions earn $29.92. The balance of Paul's superannuation account at the end of the year is $759.92 ($880 - $132 + $29.92 -$18).

1.10 In contrast Karen (also 18 years old) does the same type of work as Paul but for two different employers. Karen has 2 different employers who each pay her $11,000. Each employer also pays 4% of Karen's salary ($440) into separate superannuation funds. Each superannuation fund charges the same fee structure as Paul's fund. Karen's superannuation position for each employer at the end of the year is as follows:

1.11 Karen's total superannuation account is $741.92 ($370.96 x 2) This simple example illustrates that Karen is worse off than Paul by $18.00 (Paul $759.92 - Karen $741.92) even though both received the same wage and worked for the full year. The reason Karen is worse off is that by having two separate funds she pays $18.00 more in fees.

1.12 To address this problem of erosion of small account balances this Bill will establish under the administration of the ATO, an alternative and convenient 'collection' mechanism known as the Superannuation Holding Accounts Reserve into which employers can pay money instead of superannuation contributions for their employees. Monies paid into the Reserve will be allocated to an account of the employee and will be maintained for that employee's benefit. All subsequent amounts paid by any employer for that individual shall be combined in the one account.

1.13 The payment by an employer of an amount instead of a superannuation contribution is, for the ease of understanding, called a deposit. This is merely a label used for the purposes of explanation. The employer's payments are not deposits in the legal sense of that term and the nature of the Reserve is not that of a bank or financial institution.

1.14 No administration charges will be applied to the employee's account and the monies will remain untaxed whilst in the account. When the monies are paid to a complying superannuation fund those amounts will be treated as employer contributions to that fund.

1.15 The Superannuation Holding Accounts Reserve can be likened to a nursery. Employers can plant money for employees in the Reserve where they will remain protected from fees and charges until they grow to a sustainable level of $1,200 when they can then be transplanted into a complying superannuation fund.

1.16 In order to provide an incentive to transfer accounts that exceed $1,200 to a superannuation fund, interest will not be credited on amounts that exceed $1,200. Also, in order to provide an incentive to employers not to make deposits for employees that exceed $1,200, income tax deductions will not be available to employers to the extent that a deposit for an individual in a particular year of income exceeds $1,200.

Date of effect

1.17 The Superannuation Small Accounts Bill 1995 will commence on 1 July 1995. [Clause 2 of Part 1]

Background to the legislation

1.18 The Government's statement of Superannuation Policy Measures, circulated by the Treasurer on 28 June 1994, outlined a number of new initiatives to improve the effectiveness of its superannuation policies. The ATO superannuation accounts collection mechanism was one of those initiatives. In order for the superannuation accounts collection mechanism to function it is necessary to establish the Reserve to facilitate the collection of those small accounts.

Explanation of the provisions

1.19 The following is only a simplified explanation of the operation of the Bill and subsequent chapters will go into greater detail in relation to the operative provisions of the Bill.

1.20 The ATO will set up accounts that will allow employers to pay money for their employees to the ATO instead of making superannuation contributions. The Reserve offers employees with small balances an opportunity to avoid the erosion of those balances by fees. Employees may at any time have the balance of their account transferred to a superannuation fund of their choice. Generally, employees will not have direct access to their account balance. [Clause 3 of Part 1]

1.21 Employees' accounts will earn interest on accounts that have balances of up to $1,200 provided that the interest earned by the Reserve exceeds the costs of administering the Reserve. Interest will not be paid on so much of an account balance that exceeds $1,200. This is an incentive to get employees to transfer their account balances to a superannuation fund of their choice. Interest earned on the accounts will be free from income tax in the Reserve. Interest earned on accounts within the Reserve will not be taxed in the employee's hands but will be treated as part of the employer's contribution when transferred to a superannuation fund. Upon transfer of the account balance to a superannuation fund the amount shall be treated as an employer contribution (and so subject to contributions tax of 15%). [Clause 3 of Part 1]

1.22 Employers who make deposits to the small superannuation accounts fund may get income tax deductions for such deposits. Such deposits will also count as superannuation contributions for the purposes of the Superannuation Guarantee (Administration) Act 1992. [Clause 3 of Part 1]

1.23 The income tax deduction is only available to employers making payments that do not exceed $1,200 per employee per year. Where such a payment exceeds $1,200 the amount that exceeds $1,200 will not be deductible for income tax purposes. This is to encourage employers who make payments to the Reserve instead of superannuation contributions which exceed $1,200 to place those contributions with a superannuation fund.

Meaning of 'employer' and 'employee'

1.24 The Bill potentially applies to all employers in respect of their employees. An 'employer' and 'employee' have their ordinary meaning. In addition, a person will be taken to be an employer or an employee in the following circumstances:

•

a person who receives payments as a member of the executive body of a body corporate (whether described as a board of directors or otherwise) is an employee of the body corporate;

•

a person who works under a contract wholly or principally for labour is an employee of the other party to the contract;

•

a member of a Commonwealth or State Parliament or Territory Legislative Assembly is an employee of the Commonwealth, State or Territory;

•

a person who receives payments for performing, presenting, participating or providing services in connection with any music, play, dance, entertainment, sport, display, or promotional activity or any similar activity involving the exercise of creative talents is an employee of the payer;

•

a person who receives payments to perform or provide services in connection with the making of any film, tape or disc or of any television or radio broadcast is an employee of the payer;

•

a person who holds, or performs the duties of an appointment, office or position under the Constitution or under a law of the Commonwealth, of a State or a Territory (including members of the defence force or a police force) is an employee of the Commonwealth, State or Territory;

1.25 A member of a local government council in the capacity of a councillor of that council is not an employee of the council.

1.26 These provisions are similar to section 12 of the Superannuation Guarantee (Administration) Act 1992 with the exception being subsection 12(11) of that Act. Subsection 12(11) of the Superannuation Guarantee (Administration) Act 1992 excludes from the definition of employee a person who is paid to do work of a domestic or private nature for less than 30 hours per week. This is to enable people who are employed in work of a private or domestic nature and who are not covered by the SG legislation to nevertheless have amounts paid into the Reserve for their benefit. [Clause 4 of Part 1 and the Schedule]

Example of private or domestic work

1.27 Anne, a widow, has two children of school age. Anne has a full-time job but needs someone to look after the children after school and to prepare meals each day. Anne employs a person to help in the home and to prepare meals from 3.00 pm to 7.00 pm Monday to Friday a total of 20 hours per week. Although Anne is not required to provide superannuation support for her employee under the SG legislation she may make payments instead of superannuation contributions to the Reserve.

Administration

1.28 The Commissioner of Taxation has the general administration of this Bill. [Clause 6 of Part 1]

Chapter 3 - Accounts within the Reserve

Overview

2.1 This chapter provides for the establishment of the Superannuation Holding Accounts Reserve to receive payments from employers instead of superannuation contributions for employees. The provisions relevant to this chapter are contained in Part 2 of the Bill. The chapter also provides for the continued use of the Audit Act 1901 until the enactment of the Financial Management and Accountability Bill 1995.

Purpose of the provisions

2.2 The purpose of the provisions is to establish a fund capable of receiving and combining payments instead of superannuation contributions from employers. The fund is to operate as an aggregation mechanism between employers and the superannuation industry.

Explanation of the provisions

2.3 The Bill establishes a reserve to be known as the Superannuation Holding Accounts Reserve. This Reserve will receive payments from employers and shall credit those payments to accounts of employees. The Reserve shall also combine multiple payments from a particular employer or from different employers. See chapters 3 to 6 for more detailed explanations of the operations of the Reserve. [Subclause 8(1) of Part 2]

2.4 After the commencement of the Financial Management and Accountability Act 1995 the Reserve shall form a component of the Reserved Money Fund. The Reserve component of the Reserved Money Fund is established by, and for the purposes of, this Bill. This is in accordance with subclause 20(5) of the Financial Management and Accountability Act 1995. [Subclause 8(2) of Part 2]

2.5 The Bill allows for the transitional use of the Audit Act 1901 until enactment of the Financial Management and Accountability Bill 1995. The Reserve is to be a trust account for the purposes of section 62A of the Audit Act 1901. This enables the Reserve to make payments and debits from the Reserve, to invest the money in the Reserve and authorises the expenditure of money from the Reserve. [Subclause 8(3) of Part 2]

Investment of money in the Reserve

2.6 The money in the Reserve that is not required for the making of payments out of the Reserve may be invested in accordance with section 40 of the Financial Management and Accountability Act 1995. Section 40 of that Act provides that those funds may be invested in the following areas:

•

securities of the Commonwealth or of a State or Territory;

•

securities guaranteed by the Commonwealth, a State or a Territory;

•

a deposit with a bank, including a deposit evidenced by a certificate of deposit; and

•

any other form of investment prescribed by the regulations. [Note 1, Clause 8 of Part 2]

2.7 The Bill provides for the transitionary application of the Audit Act 1901. Section 62B of that Act authorises the investment of balances in the Reserve. The catchall provision in section 62B of that Act is slightly more restrictive than section 40 of the Financial Management and Accountability Act 1995 in that section 62B of the Audit Act 1901 allows investment in 'any other form of investment approved by the Minister'. Section 40 of the Financial Management and Accountability Act 1995 allows other forms of investment to be prescribed by the regulations. [Note 2, clause 8 of Part 2]

2.8 Section 81 of the Constitution provides that all revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund to be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by the Constitution. In accordance with section 81 of the Constitution, income from investments must be paid into the Consolidated Revenue Fund. Any gain from the investment of money held in the Superannuation Holding Accounts Reserve shall be transferred from the Consolidated Revenue Fund to the Superannuation Holding Accounts Reserve. Further details of the investment of money held in the Reserve are contained in chapter 6 . [Note 2, Clause 8 of Part 2]

The Reserve not a superannuation fund

2.9 The Superannuation Holdings Account Reserve is not a superannuation fund or a superannuation scheme. This is to ensure that there is no misunderstanding as to the nature of the Superannuation Holding Accounts Reserve. [Subclauses 9(1) and (2) of Part 2]

Access to funds

2.10 The Reserved Money Fund is to be appropriated as necessary for the purposes of the Bill. This provides that where funds are needed to be applied for the purpose of this Bill the Reserve Money Fund is to be appropriated for that purpose. This is in accordance with Division 2 of the Financial Management and Accountability Act 1995. [Subclause 10(1) of Part 2]

2.11 The appropriation from the Reserved Money Fund does not take effect until the commencement of the Financial Management and Accountability Act 1995. [Subclause 10(2) of Part 2]

Chapter 4 - Accounts within the Reserve

Overview

3.1 This chapter provides for the establishment of individual accounts within the Superannuation Holdings Account Reserve. The chapter also provides a general summary of the administration and operation of the Reserve. The chapter particularly provides a summary of credits to and withdrawals from the Reserve. This chapter is to be read as a summary only, the detailed operational provisions relating to credits to the Reserve are contained in chapters 5 and 6 and those relating to withdrawals from the Reserve are contained in chapter 7.

Purpose of the provisions

3.2 The provisions set out the mechanics required to establish the Reserve. They deal with issues such as establishing a separate account for each employee, credits to and withdrawals from accounts, opening and closing of accounts, rules about accounts and notification of account balances.

Explanation of the provisions

Accounts

The employee's individual account

3.3 A separate notional account is to be kept within the Reserve for each employee. The account kept in the name of an individual is to be known as the individual's account. [Clause 12 of Part 3]

Summary of credits to the account

3.4 The following outlines the circumstances in which amounts may be credited to accounts in the Reserve. [Clause 13 of Part 3]

Deposits by employers

3.5 An individual's employer may make deposits in respect of the individual to the Reserve. The employer may make these deposits instead of making superannuation contributions for those employees. As mentioned in paragraph 13 of chapter 1 the term deposit is only a label which is used for ease of understanding. It is important to note however that deposits to the Reserve must not contravene any law, award or legally enforceable agreement. This issue is further discussed in chapter 4. The deposits, once made, will result in a credit to the individual's account in the Reserve. [Clause 13 of Part 3]

Superannuation guarantee shortfalls

3.6 Where an employer pays a superannuation guarantee charge and there is a shortfall component in relation to an individual the amount of that superannuation guarantee shortfall may be credited to the individual's account in the Reserve. [Clause 13 of Part 3]

Interest

3.7 Amounts of interest earned on the investment of the Reserve's money under Part 6 of the Bill may be credited to the employee's account in the Reserve. For a more detailed explanation of the method of crediting interest refer to chapter 6. [Clause 13 of Part 3]

Summary of withdrawals from accounts

3.8 The following outlines the circumstances in which withdrawals may be made from an account in the Reserve [clause 14 of Part 3]:

•

Transfer to a regulated superannuation fund (the operative provision is clause 61 );

•

Balance of the account is less than $500 and the individual is not in employment (the operative provision is clause 63 );

•

Withdrawal as a result of severe financial hardship (the operative provision is clause 64) ;

•

Retirement due to disability (the operative provision is clause 65 );

•

Individual turns 65 (the operative provision is clause 66 );

•

Individual is not an Australian resident (the operative provision is clause 67 ); and

•

Upon the death of the individual (the operative provision is clause 68 ).

A detailed explanation of these circumstances is contained in chapter 7 dealing with withdrawal of account balances.

3.9 A withdrawal may also be made from an account in the Reserve in order to refund amounts that were not made in accordance with the Bill or were made by mistake. Part 8 of the Bill deals with refunds and a detailed explanation of those provisions is contained in chapter 8.

Opening and closing accounts

Opening accounts

3.10 The Commissioner may open an account in the Reserve for an individual at any time. This enables the Commissioner to open an account in anticipation of a deposit or where an individual requests the Commissioner to open an account in their name. [Subclause 15(1) of Part 3]

Example

3.11 Upon completion of her tertiary studies Kathy intends to go on a working holiday around Australia. Kathy intends to pick up jobs as and when she needs the money. Kathy writes to the Commissioner asking him to open an account for her. The Commissioner opens an account in Kathy's name. When Kathy's employers make payments to the Reserve they will be credited to Kathy's account and all the payments will be amalgamated into the same account.

3.12 The Commissioner must open an account for an individual where that individual does not already have an account and the individual's employer makes a deposit in respect of the individual. In the above example, even without a request from Kathy, the Commissioner would have to open an account for Kathy immediately the Commissioner receives the first payment from any of Kathy's employers. [Subclause 15(2) of Part 3]

Closing accounts

3.13 The Commissioner may close an account where:

•

the balance of the account has been nil for the past two years;

•

an individual requests the Commissioner to close the account; or

•

the individual has died.

Where an individual has died and the individual's account balance has been paid to the individual's legal personal representative it is appropriate to close the account. The Commissioner may also close an individual's account where the balance of the account has been withdrawn due to the individual's retirement due to disability, attaining the age of 65, or ceasing to be a resident. An account may also be closed where the balance of the account is transferred to the Consolidated Revenue Fund due to inactivity on the account for a period of 10 years. In other circumstances the account must have a nil balance for the preceeding two years before an account can be closed. This is to provide for people moving in and out of the workforce at irregular intervals. [Clause 16 of Part 3]

3.14 An account may have a nil balance where:

(a)

there has been no money credited to the account;

(b)

the balance of the account has been withdrawn;

(c)

the balance of the account has been refunded; or

(d)

the balance of the account has be transferred to the Consolidated Revenue Fund.

It should be noted that these are only examples for the purpose of illustration and do not represent an exhaustive list of the circumstances which may give rise to a nil account balance. [Clause 17 of Part 3]

One account per individual

3.15 An individual is only allowed to have one account in the Reserve. It may occur however that due to clerical or spelling errors an individual may in fact have more than one account in the Reserve. Where the Commissioner becomes aware of two or more accounts for the one individual the Commissioner must amalgamate those accounts into a single account. [Clause 18 of Part 3]

Example

3.16 John Smith has had 3 casual jobs during the year and each employer has made a payment to the Reserve. The employers however have made mistakes with the spelling of his name. The first employer spelt it the correct way as John Smith, the second employer spelt it Jon Smyth and the third employer John Smythe. As all three of the payments had John's correct address and Tax File Number the Commissioner amalgamated the accounts with John's correct and existing account in the Reserve.

Account balances are not held on trust

3.17 Money credited to an individual's account in the Reserve is not held on trust nor is it special public money for the purposes of section 16 of the Financial Management and Accountability Act 1995. Consequently, the Commonwealth is not able to deal with the money except in a manner provided by this Bill. This provision is to ensure that there is no misunderstanding as to the nature and status of the Superannuation Holding Accounts Reserve. [Subclauses 19(1) and (2) of Part 3]

3.18 The purpose of this provision is to make it clear that an individual's rights under this Bill are statutory. The provisions contained in this Bill do not create nor extend any common law rights.

3.19 The provision deeming money credited to an individual's account in the Reserve as not constituting special public money for the purposes of section 16 of the Financial Management and Accountability Act 1995 does not have effect until the commencement of the Financial Management and Accountability Act 1995. [Subclause 19(3) of Part 3]

Notification of account balances

Notification of opening balance

3.20 As soon as practical after the Commissioner first credits an amount to an individual's account the Commissioner must notify the individual of the account balance. This also provides an opportunity for the Commissioner to provide information to an individual of the operation of the Reserve. [Clause 20 of Part 3]

Individual's request

3.21 An individual may at any time request the Commissioner to provide details of the individual's account and balance in the Reserve. The request must be in writing in a form approved by the Commissioner and the Commissioner must comply with the request. [Clause 21 of Part 3]

Annual notification

3.22 Where an individual's account balance exceeds zero the Commissioner must, as soon as practical after the end of the financial year, provide that individual with written advice as to the balance of the individual's account as at the end of the financial year. Where an individual's account balance is nil at the end of the financial year the Commisioner is not required to advise the individual of their account balance. [Clause 22 of Part 3]

Notification when account balance reaches $1,200

3.23 Where a particular credit to an individual's account increases the balance of the account to an amount of $1,200 or more the Commisioner must advise the individual, as soon as is practicable after that credit is made, of the balance of the account. The advice shall be in writing and shall also advise the individual that interest will not be paid on any amount that exceeds $1,200. The advice will also advise that interest is not paid on amounts that exceed $1,200 and that the individual may have the account balance transferred to a superannuation fund of their choice as is provided in clause 61. [Clause 23 of Part 3]

3.24 The policy behind the Superannuation Holding Accounts Reserve is to enable small accounts to be protected from fees and charges. Once an account reaches the level of $1,200 it is considered that interest earned in a superannuation fund would normally exceed any fees and charges on the account. At this level the account should be self sustaining. The investment restrictions on the Reserve (see paragraph 2.6) mean that the investment earnings of the Reserve could be less than can be obtained from a superannuation fund. In these circumstance once an account reaches $1,200 it is the policy intention that people transfer their accounts to a superannuation fund. For this reason the Commissioner will suggest this course of action to each individual when their account balance reaches $1,200.

Notification not required where address unknown

3.25 Where the Commissioner does not know the employee's current address there is no requirement for the Commissioner to issue a notification. This may occur where the Commissioner has previously sent out a notification and it has been sent back "return to sender". Until the Commissioner is made aware of a new address there is no requirement to continue to send notices to that old address.

Chapter 4 - Deposits on Reserve

Overview

4.1 This chapter sets out the manner and type of deposits which may be made to the Reserve.

Purpose of the provisions

4.2 The provisions set out the manner and type of payments which may be made, by employers, into the Superannuation Holding Accounts Reserve administered by the ATO for employees.

4.3 The term 'deposit' is only a label used to facilitate a general understanding of the operation of the Reserve. The Reserve, however, in no way operates as a bank or financial institution. This is to clarify any doubt that may arise through the use of terms such as 'deposit' and 'account'.

Explanation of the provisions

Deposits by employers

4.4 An employer of an individual may pay an amount to the Commissioner by way of a deposit in respect of an individual. Such deposits are made instead of making a superannuation contibution in respect of an individual. Where an employer makes such a payment the employer is said to have made a deposit in respect of an individual. [Clause 24 of Part 3]

4.5 Deposits to the Reserve are intended to be, but are not, limited to deposits instead of SG contributions.

4.6 The Reserve will accept any deposits that satisfy the requirements of this Bill. Where an employer is not subject to SG (for example; where monthly salary or wages of the employee is less than $450) that employer may still make deposits to the Reserve on behalf of those employees. This is because there may be no superannuation funds willing to accept those small accounts but the employer still wishes to provide superannuation support for those employees.

Example where employer not subject to SG

4.7 Jenny is 15 years old in year 10 at school. Jenny has a casual job working as a shop assistant in a department store. She works 4 hours on Friday nights and three hours on Saturday mornings. Jenny earns $105 a week (a total of $420 per month). Although Jenny's employer is not required to provide superannuation support for Jenny he or she is aware of the benefits of superannuation and decides to contribute $4.20 per week for Jenny's superannuation. Where the employer is unable to find a superannuation fund willing to accept these contributions the employer may pay an amount instead of those contributions into the Reserve for Jenny's benefit. The advantage of this is that by the end of the year Jenny's account will have a minimum balance of $218.40 plus any interest credited to the account.

4.8 When Jenny obtains full-time employment at say age 18 her account balance will be at least $660 and she may then have the balance of her account transferred to a superannuation fund of her choice.

4.9 The advantage of the Reserve is that Jenny can obtain superannuation support where previously the employer may not have been able to provide that support. Also by using the Reserve Jenny's employer's contributions are not eroded by fees and charges as was the case for Karen in the example in at paragraphs 1.10 and 1.11.

Deposit forms

4.10 The following information in a form approved by the Commissioner is to accompany any deposit to the Reserve:

•

the employers name and address;

•

a declaration that the depositor is an employer, or former employer of the individual [clause 27 of Part 4];

•

a declaration that the deposit is made in respect of the employment or former employment of an individual and that the deposit is made instead of a superannuation contribution, of an equal amount of the deposit, in respect of that employee or former employee [clause 28 of Part 4];

•

a declaration that the deposit does not contravene any other law, award or enforceable agreement. This requirement is to clarify the fact that deposits to the Reserve will not overide any liability that the employer may have under any other law, award or by virtue of any other legally enforceable agreement. The making of a payment to the Reserve will not be a defence for any failure on the employer's behalf to satisfy any other obligation that the employer may have in relation to the provision of superannuation benefits for employees [clause 29 of Part 4];

•

a declaration that to the best of the depositor's knowledge, during the period to which the deposit relates, the individual was under the age of 65 [clause 30 of Part 4];

•

the individual's tax file number (if known to the employer) [subclause 26(d) of Part 4]; and

•

the deposit form must be signed by or on behalf of the employer [subclause 26(e) of Part 4].

4.11 This information is needed;

•

to enable the ATO to locate the employee to advise them of their account balances;

•

to be provided to a superannuation fund of the employee's choice when the employee requests the ATO to transfer their account balance to that nominated fund; and

•

to allow the ATO to pay the employee's account balance either directly to the employee or to the employee's deceased estate where necessary.

Consequences of false declarations

4.12 A failure to provide the information required on the deposit form will not result in the deposit being held to be invalid. However, where such information is not provided the deposit may be refunded to the employer. Where the failure is not discovered on lodgment the deposit form will be processed as a valid deposit form. Where the failure is discovered at lodgment the Commissioner is not obliged to accept the deposit and may return it to the employer requesting all the required information to be provided. The operation and consequences of the refund provisions are contained in chapter 8. [Clause 31 of Part 4]

4.13 It should be remembered that a false or misleading statement may result in criminal liability under Part III of the Taxation Administration Act 1953, the disallowance of an income tax deduction and the potential liability to a SGC.

Deposit form may deal with multiple payments

4.14 Where a person makes a deposit that relates to several employees and the deposit form is accompanied by a single cheque, a single money order or a single amount of cash covering the payments it will be considered that the employer had made the payment by a separate cheque for each individual employee separately. This will enable the Commissioner to refund only amounts that do not satisfy the requirements of the Bill without effecting the validity of the other payments. For example if the employer makes a deposit for 100 employees but one employee is described as Mickey Mouse then the Commissioner would only refund the amount that represents the deposit for Mickey Mouse without effecting the payment for the other 99 employees. [Clause 32 of Part 4]

Deposit not held on trust

4.15 Money credited to an individual's account in the Reserve is not held on trust nor is it special public money for the purposes of section 16 of the Financial Management and Accountability Act 1995. Consequently, the Commonwealth is not able to deal with the money except in a manner provided by this Bill. This provision is to ensure that there is no misunderstanding as to the nature and status of the Superannuation Holding Accounts Reserve. [Subclauses 33(1) and (2) of Part 4]

4.16 The provision deeming money credited to an individual's account in the Reserve as not constituting special public money for the purposes of section 16 of the Financial Management and Accountability Act 1995 does not have effect until the commencment of the Financial Management and Accountability Act 1995. [Subclause 33(3) of part 4]

Chapter 5 - Crediting of deposits

Overview

5.1 This chapter sets out the machinery in relation to what happens to an amount that has been deposited to the Reserve in accordance with clauses 34 and 35 of the Bill.

Explantion of the provisions

5.2 Where a person pays an amount to the Commissioner as a deposit to the Reserve the deposit is first credited to the Consolidated Revenue Fund. This is in accordance with section 18 of the Financial Management and Accountability Act 1995 and also in accordance with section 81 of the Constitution (for an explanation of the operation of section 81 of the Constitution refer to paragraph 2.8). The amount is initially credited to the Consolidated Revenue Fund. From the Consolidated Revenue Fund an amount equal to the deposit is credited to the Reserve and then credited to the individual's account within the Reserve. The following flow chart explains how deposits are credited. [Clauses 34 and 35 of Part 5]

Chapter 6 - Crediting of interest

Overview

6.1 This chapter sets out the definitions of certain interest amounts and the manner in which interest is to be calculated and credited to accounts in the Superannuation Holding Accounts Reserve. The chapter also sets out the mechanism for the recovery of interest from accounts that have been either refunded or accumulated.

Purpose of the provisions

6.2 The provisions contained in Part 6 of the Bill set out the mechanics of how interest is calculated and once calculated how that interest is credited to accounts in the Reserve.

Explanation of the provisions

Gross interest amount

6.3 The gross interest amount for a quarter is the sum of:

•

income which is derived by the Commonwealth during the quarter from the investment of money in the Reserve; plus

•

the amount (if any) determined by the Minister for Finance as notional interest earned on any amount of the Reserve that was not invested during the quarter. [Clause 38 of Part 6]

6.4 The money in the Reserve that is not required for the making of payments out of the Reserve may be invested in accordance with section 40 of the Financial Management and Accountability Act 1995. Section 40 of that Act provides that those funds may be invested in the following areas:

•

securities of the Commonwealth or of a State or Territory;

•

securities guaranteed by the Commonwealth, a State or Territory;

•

a deposit with a bank, including a deposit evidenced by a certificate of deposit; and

•

any other form of investment prescribed by the regulations.

Thus the money in the Reserve is only capable of investment in relatively low risk areas.

6.5 Until the enactment of the Financial Management and Accountability Bill 1995 the investment of funds in the Reserve will be in accordance with section 62B of the Audit Act 1901 (refer to paragraph 2.7)

6.6 Where the money in the Reserve is not invested the gross interest amount shall be the amount (if any) that is determined by the Minister of Finance. In this case the Minister for Finance will deem an earning rate and the amount of interest in the Reserve. The earning rate may be based on Commonwealth securities such as 13 week Treasury Notes.

Net interest amount

6.7 The net interest amount for a quarter is the gross interest amount reduced by the costs incurred by the Commonwealth in connection with the administration of this Bill. The net interest amount, however, will not be reduced below zero. This is to ensure that account's within the Reserve are not eroded by administration fees of the Reserve. [Clause 39 of Part 6]

6.8 The basic policy behind the establishment of the Reserve is that account balances are protected from erosion by fees and charges. The administration costs of the Reserve are to be met soley out of interest derived by the Reserve. Any excess interest after reimbursing the Commonwealth for the cost of the administration of the Reserve may then be credited to accounts within the Reserve.

6.9 The costs of administering the Reserve for a quarter shall include amounts of carry forward excess costs, the amortisation of capital costs such as computer equipment and any investment costs incurred in connection with the investment of the money in the Reserve.

6.10 As soon as practical after the end of the quarter an amount equal to the net interest is to be transferred from the Consolidated Revenue Fund to the Unallocated Interest Pool of the Reserve for crediting to individual accounts.

Unallocated Interest Pool

6.11 The Unallocated Interest Pool is an accounting provision that forms part of the Reserve and is used as a holding facility for the net interest that is transferred to the Pool from the Consolidated Revenue Fund. The reason interest must first come from Consolidated Revenue Fund is discussed in paragraph 2.8. The Unallocated Interest Pool is credited when net interest is received from the Consolidated Revenue Fund and debited when allocated to individual accounts. The Unallocated Interest Pool is a convenient method of keeping track of the net interest received in the Reserve and the amount of interest credited to individual accounts and as such it performs a valuable accounting function. [Clauses 41 and 42 of Part 6]

6.12 Where the balance of the Unallocated Interest Pool is nil or insufficient to apply interest to individual accounts the Minister for Finance may decide to supplement the Unallocated Interest Pool from the Consolidated Revenue Fund. This circumstance may arise (for example) in the first quarter of the operation of the Reserve where a person withdraws their account balance before interest has been credited to the accounts. The person is entitled to interest on the money whilst it was in the Reserve but the Unallocated Interest Pool would not have been credited with interest from the Consolidated Revenue Fund. In this circumstance the Consolidated Revenue Fund is appropriated to enable interest to be credited to the individual's account. [Clause 43 of Part 6]

6.13 As interest is only paid on the first $1,200 of an account balance, it is possible for a surplus to build up in the Unallocated Interest Pool. If the Commissioner of Taxation is satisfied that there is a surplus in the Unallocated Interest Pool that surplus is to be transferred to the Consolidated Revenue Fund. This situation may arise where interest on accounts with balances in excess of $1,200 cannot be utilised because all other accounts have been credited with the capped maximum rate. In this circumstance the surplus is transferred to the Consolidated Revenue Fund. [Clause 44 of Part 6]

Gazettal of allocation day and allocation rate

6.14 As soon as practical after the net interest has been transferred from the Consolidated Revenue Fund to the Unallocated Interest Pool the Commissioner must Gazette that a specified day in the next quarter is the day on which interest is to be allocated to accounts in the Reserve (the allocation day) together with the rate of interest that is to be credited to accounts in the Reserve (the allocation rate). [Clause 46 of Part 6]

Calculation of the allocation rate

6.15 In order to work out the allocation rate it is necessary to follow the following steps:

Step 1 - adjusted total balances

(a)

for each day in the quarter work out the total balances of all accounts in the Reserve;

(b)

add up those totals; and

(c)

divide that total by the number of days in the quarter.

If the balance of any account exceeds $1,200 then the balance is taken to be $1,200.

Step 2 - provisional rate for the quarter

The provisonal rate for the quarter is calculated (to 4 decimal places) using the following formula:

(Net interest amount/Adjusted total balances) * 100


Example - Provisional rate

Assume net interest amount is $77 then using the formula:

(77/5060) * 100 = 1.521%


Provisional rate =1.5217%

Step 3 - total balances

(a)

for each day in the quarter work out the total balances of all accounts in the Reserve;

(b)

add up those totals; and

(c)

divide that total by the number of days in the quarter.

Step 4 - capped rate for the quarter

The capped rate for the quarter is calculated (to 4 decimal places) using the following formula:

(Gross interest amount/ Total balances) * 100


Example - capped rate

Assume the gross interest amount is $107.20 (see example after paragraph 6.9 above) then using the formula:

(107.20/5360) * 100 = 2%


Capped rate =2%

The allocation rate

6.16 The actual allocation rate is determined by comparing the provisional rate with the capped rate. Where the provisional rate is less than or equal to the capped rate, the allocation rate equals the provisional rate. Where the provisional rate exceeds the capped rate, the allocation rate is the capped rate. In the above example the provisional rate of 1.5217% is less than the capped rate of 2% therefore the allocation rate is 1.5217%. [Clause 47 of Part 6]

6.17 It should be noted that depending on the rate of return on the monies in the Reserve and the amount of administrative costs, the rate of interest to be applied to accounts could be 0%. However, the account balances will be protected from erosion as the administration fees cannot reduce the capital of the Reserve.

Crediting of interest

6.18 Interest accrues to an account each day based on the balance of the account at the end of that day. Interest does not accrue on accounts that exceed $1,200. If an account balance exceeds $1,200 the balance is taken to be $1,200. [Clause 49 of Part 6]

6.19 The rate and time of allocation of interest to an account depends on which of the following particular events occurs:

•

the allocation day event;

•

the withdrawal event;

•

the inactive account transfer event; or

•

the transitional - withdrawal event before first allocation day. [Clause 50 of Part 6]

Allocation day event

6.20 The allocation day event is where the account is still in the Reserve as at the day in which the interest is to be credited to the accounts in the Reserve. The allocation day event is the day which the Commisioner Gazettes as the allocation day (refer to paragraph 6.14 above).

6.21 Where the account is still in the Reserve as at the allocation day the rate of accrual to the account balance is worked out using the following formula:

(Allocation rate/Total number of days in the quarter)


6.22 Using the previous examples the allocation rate was 1.5217% and the number of days in the quarter was 91. In this circumstance the rate of accrual would be 0.016722%. Therefore an individual would have interest credited to their account at the rate of 0.016722% per day based on the balance of their account at the end of each day.

6.23 It is important to note that interest is not compounding and the rate of accrual is simply applied to the balance of the account at the end of each day to derive interest and that interest is then added up to determine the total interest earned during the quarter which is then credited to the account.

Withdrawal event

6.24 The withdrawal event is where the account is withdrawn from the Reserve before the allocation day. The allocation day is the day which the Commissioner Gazettes as the allocation day (refer to paragraph 6.14 above). In this circumstance the adjusted allocation rate is the rate that was last published in the Gazette. The rate of accrual is calculated using the following formula:

Adjusted allocation rate/Total number of days in the quarter


6.25 If we assume that the previous allocation rate was 1.4518% and that the employee withdrew the amount after 15 days into the new quarter then the allocation rate would be:

1.4518/15 = 0.096787%


Therefore interest would be calculated at 0.096786% per day for each of those 15 days based on the closing balance of the account for each day.

Inactive account transfer event

6.26 The inactive account transfer event is where the account is transferred from the Reserve due to the account being inactive before the allocation day. The allocation day is the day which the Commisioner Gazettes as the allocation day (refer to paragraph 6.14 above). Inactive accounts are discussed in chapter 9. In this circumstance the adjusted allocation rate is the rate that was last published in the Gazette. The rate of accrual is calculated using the same formula as for the withdrawal event discussed in paragraphs 6.24 and 6.25 above.

Transitional - withdrawal event before the first allocation day

6.27 If an employee withdraws their account balance before the allocation day for the quarter beginning on 1 July 1995 then the adjusted allocation rate will be 0.4% per quarter or a higher rate if the Minister for Finance determines. [Subclause 50(6) of Part 6]

Rounding up

6.28 Where an amount that is to be credited to an account on a particular day is not a number of whole cents, that total amount must be rounded up to the nearest cent. This will overcome the situation of amounts being calculated to six decimal points not being expressed as whole cents. [Clause 51 of Part 6]

Interest does not accrue on amounts refunded

6.29 Interest does not accrue, and is taken never to have accrued on amounts that are subsequently refunded. This also applies to SGC amounts that were incorrectly credited and have subsequently been debited.

6.30 Interest will also be adjusted where accounts have been amalgamated into one account and the amalgamated account excceds $1,200. For example where the Commissioner discovers that an individual has three accounts each with a balance of $1,000 which have been earning interest the Commissioner shall adjust the interest credited to ensure that no interest is credited on the amounts that exceed $1,200.

6.31 Any excess interest amounts that had previously been credited to such an account shall be reversed. The individual's account shall be debited and the Unallocated Interest Pool shall be credited with that amount. [Clauses 53 to 55 of Part 6]

Chapter 7 - Withdrawal of account balances

Overview

7.1 This chapter deals with the methods and circumstances in which account balances can be withdrawn from the Superannuation Holding Accounts Reserve.

Purpose of the provisions

7.2 The provisions set out the manner, type and circumstances in which account balances may be withdrawn from the Reserve.

7.3 The provisions cover the following areas:

•

the timing of withdrawals from the Reserve;

•

transfers to regulated superannuation funds;

•

withdrawals where the account balance is less than $500 and the individual is not in employment;

•

withdrawals due to severe financial hardship of the individual;

•

withdrawals where the individual has retired on grounds of disability;

•

withdrawals where the individual has turned 65 years of age;

•

withdrawals where the individual is not an Australian resident;

•

withdrawals upon the death of the individual; and

•

the recovery of account balances.

Explanation of the provisions

Timing of a request for a withdrawal

7.4 Where an individual makes a request to withdraw the balance of their account with the Reserve the request will have no effect until after the expiration of 14 days after the amount had been credited to the employee's account with the Reserve. [Clause 58 of Part 7]

7.5 This provision together with clause 59 is to enable employers and the Commissioner of Taxation a period of 14 days to action a refund of an amount that had been incorrectly deposited with , or credited to, the Reserve. Further detailed discussions of the circumstances in which an employer may request a refund of amounts incorrectly deposited with the Reserve are contained in chapter 8.

Example

7.6 Jane's employer makes a deposit to the Reserve of $1,000 on 27 July. Jane ceases employment with that employer on 28 July. On 1 August Jane requests that her account balance with the Reserve be transferred to a superannuation fund of her choice. On 5 August Jane's employer discovers that there has been a clerical error in that the amount that should have been deposited for Jane should only have been $100. If there was no time limit before a request would be effective the total amount of Jane's account balance would be transferred to her superannuation fund. This provision enables the employer to have 14 days in which to identify the error and request a refund of the over payment.

7.7 Applications for withdrawals may be frozen where the Commissioner's decision on an employer's request for refund is subject to review [clause 59 of Part 7]. The review procedures are contained in chapter 11.

7.8 Where a request is made to withdraw an account balance the Commissioner must wait at least 24 hours before actioning the request. This is to enable interest to be credited to the account balance as at the close of business of the day of the request for withdrawal. [Clause 60 of Part 7]

Withdrawals to be for the whole account balance

7.9 All withdrawals from the Reserve are to be for the whole of the account balance. This ensures that there are no partial withdrawals. Where a withdrawal is made from an account with the Reserve the whole of that account is debited and the account balance with the Reserve is reduced to zero.

Transfers to superannuation funds

7.10 An individual may, at any time, request the Commissioner to pay the balance of the individual's account balance with the Reserve (irrespective of the account balance) to a complying superannuation fund or an exempt public sector superannuation scheme of the individual's choice. [Clause 61 of Part 7]

7.11 The fund, acting on the individual's behalf, may also request the Commissioner to transfer the balance of the individual's account to that complying superannuation fund. Such a request however must be accompanied by a copy of the individual's authority allowing the fund to make such a request. The copy of the authority must be legible and contain all the information that is required on the form provided by the Commissioner. [Subclause 61(7) of Part 7]

7.12 At the time of the request the Commissioner must have obtained a statement by the trustee of the fund that it is a regulated superannuation fund that is capable of accepting employer contributions. [Subclause 61(1)(b) of Part 7]

7.13 These requests must be in writing and in a form approved by the Commissioner. Where such an application is made the Commissioner must comply with the request unless the Commissioner is satisfied that the trustee of the superannuation fund is unwilling to accept the amount. [Subclauses 60(3) and (4) of Part 7]

Withdrawal where the account balance is less than $500 and the individual has ceased employment

7.14 Where the individual satisfies the Commissioner that they are no longer in employment with any employer that had made a deposit to the Reserve and the individual's account balance is less than $500, the individual may request the Commissioner to pay their account balance direct to them. The balance of the individual's account balance must be less than $500 at the time the Commissioner complies with the request. A request will not be complied with where, for example, the employee's account balance is $490 at the time of the request and before the Commissioner complies with the request a further amount of $300 is credited to the employee's account. [Clause 63 of Part 7]

7.15 Such a request may only be made where the total balance of the individual's account balance represents amounts deposited by that former employer. As mentioned in paragraph 7.9 above, withdrawals from the Reserve must be for the whole account. Where the account is made up of deposits from more than one employer the individual cannot withdraw an amount that represents one employer's deposit because they have ceased employment with that particular employer.

Example of a withdrawal where employment has ceased

7.16 Robert worked as a casual friut picker during his college vacation and his employer made a deposit to the Reserve of $80. Robert returned to college and had no subsequent employment. Robert is able to request the Commissioner to pay the balance of his account with the Reserve ($80) to him as he has ceased employment and the total balance of his account represents the $80 deposited by his employer.

7.17 Sarah has worked as a casual shop assistant and her employer has deposited $80 to the Reserve during the year. Sarah leaves that employer and obtains employment in another shop and that employer has contributed $20 to the Reserve during the year. Sarah cannot request the Commissioner to pay the $80 that her first employer deposited to the Reserve because her account balance ($100) consists of the $80 (from her first employer) plus $20 contributed by her new employer. This is because it is not possible to make partial withdrawals from the Reserve and in Sarah's case she is still currently employed.

7.18 Kevin, like Robert, also worked as a fruit picker but he worked for the whole season for two separate employers. The first employer deposited $450 to the Reserve during the year. Kevin ceased employment with that employer and commenced work with a new employer. The new employer deposited $80 to the Reserve during the year. Kevin has ceased employment with that second employer. Kevin is unable to have the $450 deposited by his first employer paid to him because Kevin's account balance with the Reserve stands at $530 which exceeds the limit of $500.

Withdrawal of account balance due to severe financial hardship

7.19 An individual may apply to the Commissioner for a payment of their account balance with the Reserve on the grounds that the individual is suffering severe financial hardship.

7.20 Upon receipt of such a request the Commissioner will refer the individual's request to the Insurance and Superannuation Commissioner for consideration. Where the Insurance and Superannuation Commissioner is satisfied that the individual is entitled to be paid the balance of their account with the Reserve because of the individual's severe financial hardship, the Commisioner of Taxation will make the payment of the individual's account balance with the Reserve to the individual.

7.21 There is no dollar limit in relation to a request on the grounds of severe financial hardship. If for example an individual's account balance with the Reserve is $876.58 the Commissioner of Taxation will pay that amount to the individual where the Insurance and Superannuation Commissioner has determinied in writing that the individual is in severe financial hardship.

7.22 The Insurance and Superannuation Commissioner is required to make the determination regarding an individual's financial circumstances because the Insurance and Superannuation Commissioner is required to make such determinations for the superannuation industry under Schedule 1 of the Superannuation Industry (Supervision) Regulations and is consequently experienced in making such determinations. [Clause 64 of Part 7]

Withdrawal of account balance due to disability

7.23 An individual may apply to the Commissioner for a payment of their account balance with the Reserve on the grounds that the individual has retired from employment due to disability. The individual must not be currently in employment. An individual will be considered to have retired on grounds of disability if 2 legally qualified medical practictioners have certified that the disability is likely to result in the individual being unable ever to be employed in a capacity for which the individual is reasonably qualified because of education, training or experience. [Clause 65 of Part 7]

Example of retirement due to disability

7.24 John has been employed as an abalone diver. John's employer has deposited $983 to the Reserve. During the year John suffers from the bends and is advised by his doctors never to subject himself to the pressures required in diving for abalone. John is able to withdraw the balance of his account with the Reserve as he has ceased his previous employment due to disability and has not commenced any new employment.

Withdrawal due to the attainment of age 65

7.25 Where an individual attains the age of 65 they may request the Commissioner to pay the balance of their account with the Reserve to them. There is no dollar limit on the account balance where the individual has attained the age of 65. [Clause 66 of Part 7]

Withdrawal due to the individual no longer being a resident of Australia

7.26 Where an individual satisfies the Commissioner that they are no longer a resident of Australia (for the purposes of the Income Tax Assessment Act 1936) the individual may ask the Commissioner to pay to them an amount equal to their account balance with the Reserve. The individual must also satisfy the Commissioner that they are not in employment, or where they are in employment the duties of that employment are performed wholly or principally outside Australia. There is no dollar limit on the account balance for this type of withdrawal. [Clause 67 of Part 7]

Example of non-residence

7.27 Roger has been in Australia for the past 5 years completing his schooling and tertiary education. Roger's parents and family live in Singapore. During Roger's time in Australia he has obtained casual work in various areas. Roger's employer's have, over the years, deposited $1,187 to the Reserve. Upon completion of his studies Roger obtains employment as a teacher in Singapore. Roger arranges to move back with his parents and commence teaching in Singapore. As Roger satisfies the Commissioner that he no longer intends to be resident of Australia he can request the Commissioner to pay the balance of his account with the Reserve.

Withdrawal of account balance as a result of the individual's death

7.28 An individual's legal personal representative may ask the Commissioner to pay to the representative an amount equal to the individual's account balance wth the Reserve. There is no dollar limit on this type of withdrawal. [Clause 68 of Part 7]

Consequences of withdrawal requests

7.29 All withdrawal requests discussed in paragraphs 7.10 to 7.28 above must be made in writing and in a form approved by the Commissioner. Where the requirements of the relevant circumstances are satisfied (eg. disability, non-residence etc) the Commisioner must comply with the request.

7.30 All requests are to be for the whole of the account balance. This ensures that there are no partial withdrawals. Where a withdrawal is made from an account with the Reserve the whole of that account is debited and the account balance with the Reserve is reduced to zero.

7.31 All payments of account balances made direct to individuals or their legal personal representatives will constitute eligible termination payments (ETP) from an untaxed source and as such will also be subject to deduction of tax at source under the pay as you earn (PAYE) system of tax collection.

Notification of Commissioner's refusal of requests

7.32 Where a person makes a request for a withdrawal of their account balance with the Reserve and the Commissioner refuses the request, the Commissioner must provide the person with a written notice of refusal. [Clause 69 of Part 7]

Recovery of account balances

7.33 Where an individual is entitled to be paid an amount by the Commissioner and that amount is not paid the amount may be recovered as a debt due to the person by the Commonwealth by an action in a court of competent jurisdiction. This enables the individual to take action to recover the amount due to them directly through the courts rather than through other administrative processes. This will provide an additional avenue for individuals to recover amounts to which they are entitled. [Clause 70 of Part 7]

Chapter 8 - Refunds on deposits

Overview

8.1 This chapter explains the circumstance in which an employer may make a request, or the Commissioner may decide, to refund a deposit made to the Superannuation Holding Accounts Reserve.

Purpose of the provisions

8.2. There are two situations in which a refund of a deposit from the Reserve may be made.

•

The first is where the Commissioner becomes aware that false or misleading information has been supplied or where there has been some other defect or irregularity in the deposit.

•

The second is where the employer notifies the Commissioner of some error in the deposit.

Explanations of provisions

False or misleading statements

8.3 Where a person paid or purported to pay an amount to the Commissioner in respect of an individual and that individual's account with the Reserve has been credited with that amount but the deposit form contained information that was false, misleading or had some other defect or irregularity, the Commissioner may decide to refund that amount to the person who made the payment. The Commissioner will action a transfer or withdrawal request (under Part 7) in preference to refunding the amount (under Part 8) to the employer. [Clause 72 of Part 8]

Example of false statements

8.4 An employer makes a total deposit of $3,000 being $100 each for 30 employees. The deposit is initially accepted by the ATO, however, upon closer examination the Commissioner discovers that one of the entries on the deposit form relates to Mickey Mouse with the address being given as Disneyland. The Commissioner, knowing this information to be incorrect, decides to refund the $100 that relates to Mickey Mouse. This type of statement should be contrasted with that of a mistake where the employer merely spells the employee's name incorrectly.

8.5 As a consequence the employer will not be entitled to an income tax deduction for that amount. Where the employer has been allowed an income tax deduction the amount of the refund must be included in the employer's assesssable income in the year the refund is made. The employer may also be subject to a SGC for the year that the false deposit was made where Mickey Mouse was a false name for a real worker. A further consequence is that the employer may become subject to criminal liability under Part III of the Taxation Administration Act 1953.

Mistaken deposit

8.6 Where a person paid or purported to pay a deposit to the Commissioner in respect of an individual and that individual's account with the Reserve has been credited with that amount but the person who makes the deposit discovers that it contains an error, the person may request the Commissioner to refund that amount to the person who made the payment.

8.7 Requests for refunds must be made within 14 days of the amount being credited to the employee's account.

8.8 Where circumstances exist in which a refund may be made and an employee has requested to withdraw or transfer their account balance, the Commissioner shall give priority to finalising the refund request. [Clause 73 of Part 8]

Example of a mistaken deposit

8.9 An employer has 100 employees for whom he or she wishes to make a deposit of $100 for each employee. The total deposit is to be $10,000. The employer's salary clerk makes a mistake in relation to one of the employees and adds a zero making the deposit for that individual $1,000. Within 14 days the employer recognises the mistake and requests the Commissioner to refund the additional $900. The Commissioner may then refund that amount.

Example of a conflict between a refund and a withdrawal.

8.10 Where the Commissioner is investigating a suspected false and misleading statement in relation to a deposit and the individual whose account was credited with the amount in question requests the Commissioner to either transfer or withdraw that amount from their account, the Commissioner shall finalise the potential refund before processsing the withdrawal request.

8.11 Where a person makes a request for a refund of an amount paid in error and the Commissioner refuses the request the Commissioner must provide the person with a written notice of refusal.

Recovery of refunds

8.12 Where an individual is entitled to be refunded an amount from the Commissioner and that amount is not refunded, the amount may be recovered as a debt due to the person by the Commonwealth by an action in a court of competant jurisdiction. This enables the individual to take action to recover the amount due to them directly through the courts rather than through other administrative processes. This will make it easier for individuals to recover amounts to which they are entitled. [Clause 74 of Part 8]

Chapter 9 - Inactive accounts

9.1 This chapter explains the circumstances where an account is considered to be inactive and the Commissioner may transfer the balance of the account to the Consolidated Revenue Fund and register the account on the Insurance and Superannuation Commission's register of unclaimed money.

Explanation of the provisions

No activity for 10 years

9.2 Where there has been no amounts credited to a particular account during a period of 10 consecutive financial years the Commissioner must determine that the account is inactive.

9.3 Where an account is inactive the Commissioner will advise the Insurance and Superannuation Commissioner. The Commissioner of Taxation shall notify the Insurance and Superannuation Commission (ISC) of the details of the account and this may include the individual's tax file number where known. The ISC will register the details of that account on the register of unclaimed money. An individual's tax file number will not be available to anyone except the ISC.

9.4 The balance of that particular account shall be debited from the Superannuation Holding Accounts Reserve and credited to the Consolidated Revenue Fund [Clause 76 of Part 9]

9.5 The policy behind the inactive accounts provisions is to enable all inactive accounts to be registered on the Insurance and Superannuation Commission's register of unclaimed money. This will make it easier for people looking for old accounts to search the one register. Where a person has an amount on the register, that person may request the Insurance and Superannuation Commissioner to pay them that amount. The Insurance and Superannuation Commissioner may then obtain that amount from the Consolidated Revenue Fund and pay the person that amount. [Clauses 76 and 77 of Part 9]

Example of an inactive account

9.6 Peter, the executor of Robert's estate, is in the process of finalising the estate. Peter is aware that Robert worked as a casual fruit picker in his younger days but has no details of Robert's employers. In exercising his duties as trustee Peter makes enquiries with the ISC to see if Robert had any money that had not been claimed. The ISC discover's that there is an amount of $823 on the register of unclaimed money. The ISC may then pay that amount to Peter as the executor of Robert's estate.

Chapter 10 - Review of decisions

10.1 This chapter provides an explanation of avenues of reviewing the Commissioner's decisions made under provisions of this Bill.

Explanation of the provisions

10.2 A decision of the Commissioner, except a decision in relation to the rate of interest, the allocation day, the funding of interest or a decision relating to the approval of a form, is a reveiwable decision.

10.3 Where a person is disatisfied by a decision of the Commissioner they may, within 21 days of the decision, request the Commissioner to review that decision. The decision must set out the reasons for the request.

10.4 The Commissioner may confirm, revoke or vary the decision. The Commissioner must notify the individual of the decision. If the Commissioner does not confirm, revoke or vary the decision within 60 days of the receipt of the request the Commissioner is deemed to have confirmed the decision.

10.5 Where the individual is still not satisfied with the Commissioner's decision they may apply to the Administrative Appeals Tribunal (AAT) for a further review of the decision. Applications to the AAT are to be made within 28 days after the decision to which the individual is still dissatisfied was made. [Clauses 80 to 85 of Part 11]

Chapter 11 - Miscellaneous provisions

11.1 This chapter deals with a number of miscellaneous matters including:

•

treatment of partnerships and unincorporated associations;

•

delegation by the Minister for Finance;

•

the requirement for the Commisioner of Taxation to produce an annual report on the operations of this Bill;

•

the ability to make Regulations in relation to this Bill;

•

transitory arrangement for transfer from Consolidated Revenue Fund; and

•

issues relating to the use of tax file numbers.

Explanation of the provisions

Treatment of partnerships and unincorporated associations

11.2 Partnerships and unincorporated associations are not persons at law, but are deemed to be persons for the purposes of this Bill. Certain requirements are imposed relating to the obligations of partners in partnerships, and members and controlling officers of unincorporated associations.

11.3 An obligation incurred by the partnership or association is imposed on each partner or, in the case of unincorporated associations, its officers. The partners and the members of the association are jointly and serverally liable for the actions of the partnership or unincorporated association. Similarly, action may be taken against individual partners or officers for offences committed by the partnership or association. In this case it will be for the prosecution to prove that the defendant partners or members either aided or abetted etc or were knowingly concerned in the commission of the offence. [Clauses 86 to 91 of Part 12]

Delegation by the Minister for Finance

11.4 The Minister for Finance may delegate to an officer of the Department of Finance any or all of his or her powers under this Bill. This provision is for the purposes of administrative efficiency. [Clause 92 of Part 13]

Annual report

11.5 At the end of each financial year the Commissioner of Taxation must prepare and give to the Minister a report on the operation of this Act during that year.

11.6 The Minister must then provide a copy of that report to the Parliament. [Clause 93 of Part 13]

11.7 The Minister shall be the Treasurer.

Regulations

11.8 The Governor-General may make regulations for the purposes of this Bill. [Clause 94 of Part 13]

Transitional - transfers from the Consolidated Revenue Fund

11.9 The provision is made to enable the appropriation of the Consolidated Revenue Fund for the purposes of the Small Superannuation Accounts Bill 1995 until the enactment of the Financial Management and Accountability Bill 1995. [Clause 95 of Part 13]

Tax file numbers

11.10 An employee may quote his or her tax file number (TFN) either before or after an account is opened on his or her behalf. The employee may quote their TFN on his or her own initiative, or in response to a request by the Commissioner. [Clauses 78 and 79 of Part 10]

Chapter 12 - Glossary of commonly used terms

12.1 This chapter sets out a brief discription of commonly used terms in the Bill. Some of these terms are explained in detail in chapters of this document. In such cases the terms will not be explained in this glossary, but a reference will be given to the chapter and paragraph where the term is discussed.

Chapter 13 - Abbreviations