Explanatory Statement

Issued by authority of the Minister for Revenue and Assistant Treasurer

EXPLANATORY STATEMENT

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 1)

The Tax Laws Amendment (Simplified Superannuation) Act 2007 and related Acts give effect to the Simplified Superannuation reforms, announced in the Government's 5 September 2006 statement A Plan to Simplify and Streamline Superannuation - Outcomes of Consultation , making superannuation easier to understand, improving incentives to work and save, and providing greater flexibility over how superannuation savings can be drawn down in retirement.

Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the SIS Act to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to the SIS Act.

The Superannuation Industry (Supervision) Regulations 1994 set out the contribution acceptance and payment rules for superannuation providers, the operating standards in relation to the disclosure of certain information, the standards for pensions, annuities, and benefit accruals, and the rules relating to the roll-over and transfer of benefits.

The purpose of the Regulations is to amend the Superannuation Industry (Supervision) Regulations 1994 to:

·
allow superannuation funds to cash a member's benefits to give effect to an excess contributions tax release authority;
·
prohibit a superannuation fund from accepting member contributions where a tax file number is not quoted or the amount of the contribution exceeds the non-concessional contributions cap;
·
amend the work test for a transitional period to allow certain people to make personal contributions;
·
allow superannuation funds to accept non-mandated employer contributions for persons aged 70 to 74;
·
align the provisions relating to spouse contributions splitting with the new terminology introduced as part of the simplified superannuation reforms;
·
require a trustee of a self managed superannuation fund to notify the Commissioner of Taxation of certain fund changes;
·
prescribe a standard portability form to be used when a member seeks to transfer superannuation benefits between funds, as well as reduce the time a superannuation fund has to action a member's request to transfer benefits;
·
introduce new pension and annuity standards; and
·
update references as a result of the consolidation of superannuation taxation laws.

Details of the Regulations are set out in the Attachment A.

The SIS Act specifies no conditions that need to be met before the power to make the Regulations may be exercised.

The Regulations commence on registration, on 5 April 2007 and on 1 July 2007.

Commencement on registration is required for certain transitional amendments to the work test as these amendments allow certain contributions to be made only until 30 June 2007.

Commencement of the spouse contributions splitting amendments on 5 April 2007 is necessary to ensure that the changes, introduced as an integrity measure, are in force soon after the regulations are registered.

Commencement on 1 July 2007 corresponds with the commencement of the related amendments in the Tax Laws Amendment (Simplified Superannuation) Act 2007 and related Acts.

The Regulations are legislative instruments for the purposes of the Legislative Instruments Act 2003.

The draft Regulations amending the contribution and acceptance rules, the operating standards in relation to the disclosure of certain information, the standards for pensions, annuities, and benefit accruals, and the rules relating to the roll-over and transfer of benefits were made available on the Simpler Super website for public consultation.

ATTACHMENT A

Details of the Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 1)

Regulation 1 specifies the name of the Regulations as the Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 1).

Regulation 2 provides that Regulations 1, 2 and 3 and Schedule 1 commence the day after registration, Regulation 4 and Schedule 2 commence on 5 April 2007 and Regulation 5 and Schedule 3 commence on 1 July 2007.

Regulation 3 provides that Schedule 1 amends the Superannuation Industry Supervision Regulations 1994 (SIS Regulations).

Regulation 4 provides that Schedule 2 amends the SIS Regulations.

Regulation 5 provides that Schedule 3 amends the SIS Regulations.

Schedule 1 - Amendments commencing after registration

Commutation of income streams

Items 1 to 14

Where an individual is given a release authority under section 292-405 of the Income Tax Assessment Act 1997 (ITAA 1997), the person must withdraw an amount equal to their excess non-concessional contributions tax liability from the superannuation system by providing the release authority given to them by the Commissioner of Taxation to their superannuation provider. Where such a person fails to withdraw the required amount, the Commissioner of Taxation is able to present a release authority directly to the superannuation provider of that person.

Some income streams have restrictions placed on when commutations can occur and the maximum payments that can be made from them. Items 1 to 14 make it possible to remove excess amounts which have been used to start a non-commutable income stream.

Regulations 1.05 and 1.06 of the SIS Regulations set out the standards which must be met by a pension or annuity, including when a pension or annuity may be commuted.

Items 1 to 12 amend paragraphs 1.05(2)(f), 1.05(9)(h), 1.05(10)(d), 1.06(2)(e), 1.06(7)(g) 1.06(8)(d) which provide the exceptions when a non-commutable income stream may be commuted, to also allow commutation in accordance with a release authority.

Items 13 and 14 amend the definition of a non-commutable allocated annuity and non-commutable allocated pension to ensure that where a non-commutable income stream is commuted to meet a release authority the pension or annuity still satisfies the annuity and pension standards in the SIS Regulations.

New Minimum Pension Standards

Item 15

This item inserts a new regulation 6.17C into the payment standards in Part 6 of the SIS Regulations. The new provision requires that the trustee of a regulated superannuation fund providing a pension under subregulation 1.06(2), (7) or (8) must not pay the pension, or allow the pension to be commuted, except in accordance with the relevant subregulation.

Pensions provided under subregulations 1.06(2), (7) or (8) are commonly referred to as 'complying pensions'. The rules for these pensions require that commutation can only occur in limited circumstances, including where the commutation amount is applied to commence another 'complying' income stream.

Cashing in ADFs

Item 16

Item 16 amends the limitation on trustees of approved deposit funds on cashing benefits only to close an account that is less than $500, to also allow for the cashing of benefits in accordance with a release authority.

Definition of 'gainfully employed'

Items 17 and 18

Items 17 and 18 amend the meaning of 'gainfully employed on a part-time basis' in subregulation 7.01(3) of the SIS Regulations so that a person must be gainfully employed (that is, self-employed or employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment) for at least 40 hours in a period of not more than 30 consecutive days during a financial year. This is a technical amendment to give effect to the original intent for application in the SIS Regulations.

Transitional arrangements for acceptance of contributions

Items 19 to 22

Regulation 7.04 of the SIS Regulations outlines the conditions for accepting contributions. Once a person turns age 65 they must satisfy a work test before they can make contributions to a superannuation fund. Once they turn age 75 they are generally unable to make any superannuation contributions. As a result of the timing of the Simplified Superannuation announcements about caps for non-concessional contributions, some people may have inadvertently missed the opportunity to take advantage of the higher transitional cap of $1 million for non-concessional contributions made before 30 June 2007.

Items 19 to 22 insert new subregulation 7.04(1E) to provide an exception to the acceptance of contributions rules that relate to an individual who was age 64 at any time between 10 May 2006 and 5 September 2006. These people will be able to contribute to a regulated superannuation fund during the period 10 May 2006 to 30 June 2007 without having to satisfy the work test (that is, gainfully employed on at least a part-time basis during the financial year). (Item 22)

New subregulation 7.04(1E) also provides an exception to the acceptance of contributions rules that relate to an individual who was age 74 at any time between 10 May and 5 September 2006. These people will be able to contribute to a regulated superannuation fund during the period 10 May 2006 to 30 June 2007 if the person has been gainfully employed on at least a part-time basis in either the 2005-06 or 2006-07 financial years. (Item 22)

These exceptions only apply to contributions made by the member.

Conditions of release

Items 23 and 24

Items 23 and 24 insert new items into Schedule 1, Parts 1 and 2 of the SIS Regulations. These new items provide that a new condition of release for regulated superannuation funds and approved deposit funds is triggered when a member or the Commissioner of Taxation has given the fund a release authority under section 292-410 of the ITAA 1997 or a transitional release authority under section 292-80A of the Income Tax (Transitional Provisions) Act 1997 (Transitional Act).

A superannuation provider that only holds a defined benefit interest for the person cannot be given a release authority under section 292-410 of the ITAA 1997 or section 292-80A of the Transitional Act.

The amendments also provide that the restriction on cashing, once such a condition of release is satisfied, is that the payment is subject to the restrictions contained in subsection 292-415(1) of the ITAA 1997 and subsection 292-80C(1) of the Transitional Act. These restrictions relate to timeframes and amounts that can be released.

Schedule 2 - Amendments commencing on 5 April 2007

Spouse Contributions Splitting

Under the Simplified Superannuation reforms, from 10 May 2006 there is a cap on the amount of non-concessional contributions that can be made for a person. Contributions in excess of the cap are subject to tax at the rate of 46.5 per cent, which is levied on the individual who must withdraw an amount equal to their tax liability from their superannuation fund.

This ensures the excess contributions are removed from the superannuation system and do not continue to benefit from the concessional tax treatment afforded to investment earnings generated by a superannuation fund.

Currently, Division 6.7 of the SIS Regulations provides that certain contributions may be split between spouses superannuation accounts. Allowing people to continue to split non-concessional contributions with their spouse would require the implementation of a complex mechanism to allow for the retrieval of contributions from the non-member spouse's account to prevent a potential circumvention of the cap.

Therefore, item 1 amends the definition of an 'untaxed splittable contribution' in regulation 6.41(3) of the SIS Regulations, to prevent the splitting of non-concessional contributions contributed after 5 April 2006 and updates the definition to include concepts introduced by the Tax Laws Amendment (Simplified Superannuation) Act 2007.

However, members will still be able to split contributions made prior to that date.

Schedule 3 - Amendments commencing on 1 July 2007

New Minimum Pension Standards

Item 1

Item 1 inserts into the SIS Regulations a new definition of 'account-based pension'. This is a pension for which there is an account balance attributable to the recipient and which meets the standards of new subregulation 1.06(9A).

Item 5

Currently, a member of a superannuation fund can be classified as being lost where the fund has not received a contribution or rollover in respect of the member within the last two years. Item 5 increases this period to five years.

Items 8 and 14

Items 8 and 14 insert into the SIS Regulations new provisions describing the meaning of annuity and pension for purposes of the SIS Act. An annuity or pension is a benefit which meets the standards of new subregulations 1.05(11A) and 1.06(9A) respectively, and which does not permit the capital supporting the income stream to be added to by way of contribution or rollover once it has commenced. The income stream also needs to meet rules requiring a minimum payment to be made prior to a commutation.

The existing provisions containing the meaning of annuity and pension will remain in the SIS Regulations as new subregulations 1.05(1A) and 1.06(1A). These provisions will relate to annuities and pensions which commence before 20 September 2007. Annuities and pensions which commence in the period between 1 July 2007 and 20 September 2007 will be able to meet either the new standards or the existing standards.

Items 8 and 14 also insert new subregulations 1.05(1B) and 1.06(1B) into the SIS Regulations. The new provisions clarify that the meaning of annuity or pension includes a complying life expectancy or market-linked income stream that commences on or after 20 September 2007 from the commutation of another complying income stream, provided that the new income stream also meets the standards of subregulation 1.05(11A) or 1.06(9A).

In the case of a new market-linked pension, for example, this involves meeting the standards of both existing subregulation 1.06(8) and new subregulation 1.06(9A). In practice, this means that the allowable term of the new market-linked pension has to be chosen such that the total value of payments in each year is at least equal to the minimum payment amounts in Schedule 7 of the SIS Regulations.

Items 12 and 18

These items set out the new minimum standards for annuities and pensions.

Under the new standards, income streams effectively fall into two classes - those where there is an account balance attributable to the recipient and those where there is not.

Account-based income streams must meet the minimum payment rules set down in new Schedule 7 of the SIS Regulations.

Non account-based income streams can meet the new standards in either of two ways.

The first is by meeting the minimum payment rules in clause 2 of Schedule 7 of the SIS Regulations. The formula in clause 2 can only be used in cases where the terms of the income stream do not provide for a residual capital value, commutation value or withdrawal benefit of greater than 100 per cent of the purchase price of the income stream.

The second is by meeting the requirements set out at subparagraphs 1.05 (11A)(b)(ii) and 1.06 (9A)(b)(ii).

Lifetime annuities and pensions which meet the standards of existing subregulations 1.05 (2) or 1.06 (2) of the SIS Regulations will also meet the new standards.

The new minimum standards will not be restricted to income streams which commence on or after 20 September 2007. This means that existing allocated pensions will be able to operate under the new minimum payment rules from 1 July 2007 without the need to commute and restart a new pension.

Items 12 and 18 also add new subregulations 1.05(11B) and 1.06(9B) which limit the ability to transfer an annuity or pension to another person where the recipient dies on or after 1 July 2007. The effect of these new provisions is to prevent an annuity or pension from being transferred to a person who is ineligible to be paid a benefit in that form under new subregulation 6.21(2A) (see item 51 ).

Items 13 and 19

These items add a new definition of 'indexation arrangement' for the purpose of the rules contained in proposed new subregulations 1.05(11A) and 1.06(9A). An indexation arrangement is defined as an arrangement that results in the amount of annuity or pension payments increasing by the same percentage each year, or which results in the amount of annuity or pension payments in each year being adjusted in line with the consumer price index or a measure of average weekly earnings published by the statistician. Unless the Australian Prudential Regulation Authority otherwise approves, the indexation arrangement must result in payments from the annuity or pension being adjusted at least annually.

Items 20 and 22

SIS Regulations 1.07A and 1.07C contain rules which require a minimum pro-rata payment to be made from an income stream prior to a commutation. An exception to this rule applies where the income stream account balance, immediately after the commutation, is equal to or greater than the required minimum payment for the year as reduced by the amount of income payments already made in the year (existing paragraphs 1.07A (2)(ba) and 1.07C (2)(ba)). Items 20 and 22 amend these provisions to substitute the words "payments to the annuitant or pensioner" for "income payments". The effect of the change is that any payments already made from the income stream (either as income or by way of commutation) to the recipient in the relevant year count for purposes of determining whether the exception to the pro-rata minimum payment rule applies.

Item 21

SIS Regulation 1.07B contains integrity rules which require a minimum payment to be made prior to the commutation of certain types of income streams. Item 21 adds references to the relevant provisions in the new pension and annuity standards, and also amends references to existing provisions where these references have been altered by the new regulations.

Item 23

This item inserts a new regulation 1.07D into the SIS Regulations which sets out a minimum payment condition that must be satisfied prior to the commutation of an account-based income stream. The condition requires that the annuity or pension must pay an amount, in the financial year in which the commutation is to take place, of at least the pro-rata of the minimum annual payment amount that is required under new Schedule 7. This rule is closely based on the existing integrity rules for allocated income streams and market-linked income streams.

The minimum payment condition in regulation 1.07D does not apply to a commutation resulting from the death of the recipient of the income stream. It also does not apply to a commutation for the sole purpose of paying a superannuation contributions surcharge, giving effect to an entitlement of a non-member spouse under a payment split or meeting the rights of a client to return a financial product under the cooling-off period provisions in the Corporations Act 2001.

The formula for calculating the pro-rata minimum payment amount is as follows.

Minimum annual amount x days in payment period / days in financial year

The minimum annual amount for the pro-rata calculation is worked out in accordance with the formula for calculating the minimum annual payment amount in new Schedule 7.

For income streams that commence in the year in which they are commuted, the pro-rata minimum payment amount is calculated using the number of days in the payment period from the commencement day of the income stream to the day on which the commutation takes place. For commutations in subsequent years, the pro-rata minimum payment amount is calculated using the number of days in the payment period from 1 July in the financial year in which the commutation takes place to the day on which the commutation takes place.

Example Jaylee commences an account-based pension on 1 July 2007 at age 60. She decides to commute the pension on 31 July 2008. The account balance of the pension on 1 July 2008 is $100,000. The minimum required payment from the pension in 2008-09 is $4,000 (4 per cent of $100,000). The pro-rata minimum payment amount for the pension will be $4,000 × 31 ÷ 365 = $339.73. As no payments have been made from the pension in 2008-09, the pension needs to pay Jaylee a minimum payment of $339.73 prior to the commutation.

Item 24

This item amends regulation 1.08 to clarify that this provision does not have application to account-based income streams. To this end, the meaning of 'prescribed pension' in subregulation 1.08(3) is amended to exclude an account-based pension, an allocated pension and a market linked pension.

Item 25

This item amends Part 6 of the SIS Regulations to remove the requirement for compulsory age-based cashing for benefits in a deferred annuity. As a result of the changes, the payment of a deferred annuity must commence as soon as practicable after the annuitant dies, or if the annuitant dies before age 65, when they would have attained that age.

Item 27

This item inserts a new definition of 'cashing restriction' into the SIS Regulations. In relation to a condition of release this term means a cashing restriction specified in column 3 of the relevant item in Schedule 1.

Item 35

This item inserts a new definition of 'transition to retirement income stream' into subregulation 6.01(2). A transition to retirement income stream is defined as an account-based income stream that meets the standards of subregulations 1.05(11A) or 1.06(9A) and which limits the total amount of payments in any year to no greater than 10 per cent of the account balance at the start of each year.

The definition also requires the income stream to meet certain restrictions on commutation which currently apply to non-commutable allocated annuities and pensions. These restrictions ensure that if the annuity or pension is commuted, the proceeds of the commutation cannot be cashed as a lump sum unless the annuitant or pensioner has satisfied a condition of release with a 'nil' cashing restriction, or the commutation is for certain specified purposes. The specified purposes are: to cash an unrestricted non-preserved benefit; to pay a superannuation contributions surcharge; or to give effect to a payment split under family law.

Because annuity providers are not subject to the payment standards under the SIS Regulations, the new Regulations also include a requirement for the payment of transition to retirement benefits in the form of an annuity meeting the new minimum standards to be made in accordance with the standards that apply to regulated superannuation funds under SIS Regulations 6.16, 6.18, 6.19 and 6.22A.

Item 37

This item inserts a new paragraph 6.01(7)(b) into the SIS Regulations to extend the meaning of 'retirement' for a person who has reached age 60.

Currently, a person who has reached age 60 is taken to have retired if an arrangement under which the person was gainfully employed has come to an end on or after they attained that age. Under the new regulations, a person in this age group will also be taken to have retired where they have left an employment arrangement and the trustee is reasonably satisfied that the person has no intention of ever working again.

Item 37 is designed to avoid an anomalous outcome which would otherwise arise when the superannuation preservation age increases to 60. In the absence of this change, persons who leave an employment arrangement before age 60, but choose not to access their benefits until after that age, would not be covered by the existing definition of retirement.

Items 42 to 44

These items amend the provisions relating to the voluntary cashing of superannuation benefits to make it clear that these provisions do not have application to cashing of benefits in the event of the death of a member. Cashing in consequence of the death of a member will be covered by regulation 6.21.

Items 47 to 49

Currently, the SIS Regulations require that a member's benefits in a regulated superannuation fund must be cashed if the member has reached age 65 and does not meet a work test. Items 47 and 48 remove the provisions in the SIS Regulations which impose this requirement. As a result of the changes, compulsory cashing of a member's benefits is only required where a member has died. Item 49 makes a consequential change.

Items 50 and 51

These items place limits on the ability to cash death benefits in the form of an annuity or a pension where a member dies on or after 1 July 2007. New subregulation 6.21(2A) (inserted by item 51 ) requires that a deceased member's benefits can only be cashed in annuity or pension form in favour of the classes of recipients described. Under new subregulation 6.21(2B), death benefits being paid in the form of an annuity or pension to a child of a deceased member under subregulation 6.21(2A) have to be cashed as a lump sum no later than the time at which the child attains the age of 25, unless the child has a permanent disability.

Item 52

Subregulation 6.21(1A) is omitted from the regulations by item 48 . Item 52 removes a reference to this subregulation in subregulation 6.21(3).

Item 53

This item removes subregulations 6.21(3A), (4), (5) and (6) which are made redundant by the removal of the work test for compulsory cashing.

Items 57 and 58

Subregulation 6.25(1) of the SIS Regulations requires that the benefits of a member in an approved deposit fund must be cashed as soon as practicable after the member reaches age 65 or dies. Items 57 and 58 amend subregulation 6.25(1) to remove compulsory age-based cashing of benefits in approved deposit funds. As a result of the change, compulsory cashing is only required where a member dies.

Items 82 and 83

These items amend the definition of a 'defined benefit pension' in regulation 9.04E of the SIS Regulations to enable funds with less than 50 members to pay an account-based pension. The term 'account-based pension' is defined at Item 1 .

Item 95

Schedule 1 of the SIS Regulations sets out the conditions of release and associated cashing restrictions for benefits in regulated superannuation funds and approved deposit funds. This item inserts a heading to Schedule 1 for the purpose of identifying the content of the Schedule.

Items 96 and 98

These items amend the cashing restriction for the 'attaining preservation age' condition of release in Schedule 1 to include a 'transition to retirement income stream'.

Items 97 and 99

These items create a new condition of release which allows the benefits of a lost fund member to be paid out to the member where their benefit in the fund at the time of release is less than $200.

Item 102

This item inserts into the regulations a new Schedule 7 containing the payment rules for annuities and pensions that apply under new subregulations 1.05(11A) and 1.06(9A).

The minimum annual payment amount for an account-based income stream will be determined under the formula contained in clause 1 of Schedule 7. Under this formula the minimum payment amount is calculated by multiplying the account balance of the income stream on 1 July of the relevant year (or the commencement day in the case of the first year of the income stream where that is a day other than 1 July) by the percentage factor in column 3 of the table that corresponds to the beneficiary's age on 1 July in the financial year (or on the commencement day in the case of the first year of the income stream).

In cases where an income stream commences on a day other than 1 July, clause 3 requires the minimum payment amount for the first year of the income stream to be applied proportionately to the number of days remaining in the financial year that include and follow the commencement day.

Clause 4 states that, where the commencement day of an annuity or pension is on or after 1 June in a financial year, no payment is required to be made for that financial year.

The minimum annual payment amount for a non-account based income stream will be determined under the formula contained in clause 2 of Schedule 7. Under this formula the minimum payment amount is calculated by multiplying the purchase price of the income stream by the percentage factor in column 3 of the table that corresponds to the beneficiary's age on the commencement day (in the case of the first year of the income stream) or on the anniversary of the commencement day.

Clause 5 provides that minimum payment amounts determined under Schedule 7 are to be rounded to the nearest 10 whole dollars.

Cashing in favour of the Commissioner of Taxation

Items 54, 55, 59 and 60

Items 54, 55, 59 and 60 amend regulations 6.22 and 6.26 of the SIS Regulations which limit the cashing of benefits, to allow a trustee who has received a release authority in respect of a member under section 292-410 of the ITAA 1997 to cash the member's benefits in favour of the Commissioner of Taxation in accordance with the authority in satisfaction of the member's tax liability.

Amendments relating to portability

Items 61 to 64 and 101

Division 6.5 of the SIS Regulations provides for the compulsory rollover and transfer of superannuation benefits in regulated superannuation funds (portability of superannuation benefits).

The Government announced in A Plan to Simplify and Streamline Superannuation its intention that it be easier for people to transfer their superannuation by reducing the time frame within which a transfer request must be processed from 90 days to 30 days and to set out a standard form to request the transfer of benefits.

Item 62 inserts a definition of 'illiquid investment' into the SIS Regulations at new subregulation 6.31(3). The definition of 'illiquid investment' is intended to cover investments that have low liquidity and investments in more complex asset types that undertake pricing on a monthly basis or longer. An illiquid investment may prevent a regulated superannuation fund from processing a transfer request within the maximum timeframe of 30 days as required under proposed subregulation 6.34(5). Examples of illiquid investments may include:

i)
private equity;
ii)
certain property funds;
iii)
hedge funds;
iv)
capital guaranteed funds; and
v)
structured funds.

Item 61 inserts the heading Defined benefit component, as a result of the inclusion of the definition of illiquid investment.

Item 101 inserts at Schedule 2A a standard portability form, including standard proof of identity requirements, for requests to transfer the whole amount of a member's superannuation benefits in a fund.

Item 63 inserts new subregulations 6.33(2), (3) and (4) which require the trustee of a superannuation fund to seek further information from the member, as provided for in these regulations to action the member's portability request, within 10 working days of receiving the request. If the trustee has not received the information within 10 working days, the trustee must make further inquiries with the member.

For a whole balance transfer request, the trustee may only require further information that is mandatory information in the prescribed form in Schedule 2A (whether the form in schedule 2A is used or not). Once the fund has a correctly completed standard portability form (with all mandatory information provided) or alternatively does not have a standard form but has all the information that is mandatory on the form, the fund will have 30 days to transfer the benefits. However, the trustee may roll over or transfer an amount even if the trustee does not have all the mandatory information (which includes the proof of identity requirements).

For a partial transfer request, the trustee may ask for further information that was specified as necessary under paragraph 6.34(2)(b) for the transfer.

For a transfer request to an SMSF, if the trustee decides that further documentation is required under subregulation 6.34(3), the trustee may ask for that documentation.

Item 64 inserts a new regulation 6.34 - Rollover or transfer of withdrawal benefit - into the SIS Regulations.

New paragraph 6.34(2)(a) provides that a whole balance transfer request may be made using the prescribed form in Schedule 2A or in another manner.

New paragraph 6.34(2)(b) provides where a member wants to request the transfer of a partial amount of their superannuation benefits, the member will need to contact their fund to find out the information that is necessary to enable the transfer of the partial amount. For example, required information may include the mandatory information specified in the standard form, the amount of the member's benefit to be transferred and the type of benefits to be transferred.

New subregulation 6.34(3) provides in the case of a request to transfer benefits to a self managed superannuation fund (SMSF), in limited circumstances certified documentation showing the member making the request is a member of the SMSF may be required. In particular, if the trustee is aware of another member (who is unrelated to the member making the request) who has transferred benefits to the same SMSF, the trustee may decide that the additional documentation will be required before transferring the benefits.

New subregulation 6.34(5) reduces the time in which a transfer must be made from 90 days to 30 days from receipt of all the information required in accordance with new subregulations 6.34(2), (3) and (4).

The new Regulations allow an exception from the requirement to transfer benefits within 30 days in the case of an 'illiquid investment'. New subregulation 6.34(6) provides an exception from the 30 day rule for an 'illiquid investment' entered into before 1 July 2007. New subregulation 6.34(7) provides an exception to the 30 day rule for an 'illiquid investment' that is entered into on or after 1 July 2007 where certain requirements are met, including a signed agreement that the member understands and accepts the impact on portability of the 'illiquid investment' and the member makes an investment choice under SIS Regulation 4.02.

Spouse Contributions Splitting

Items 65 to 79

Items 65, 66, 69, 70 and 71 remove definitions of repealed terms and insert definitions of terms introduced as part of the Simplified Superannuation reforms.

Item 67 amends the definition of 'maximum splittable amount' to restrict the amount of taxed splittable contributions (that is, contributions included in the assessable income of the fund) that can be split to the lesser of:

a)
85 per cent of the concessional contributions for a financial year; and
b)
the concessional contributions cap for the financial year.

Example 1 Nick has taxed splittable contributions of $75,000 in the 2007-08 financial year. The maximum he can split with his spouse is $50,000, which is the lesser of 85% of his concessional contributions (being $63,750) and the cap (being $50,000) for the financial year. Example 2 Tim has taxed splittable contributions of $35,000 in the 2007-08 financial year. The maximum he can split with his spouse is $29,750, which is the lesser of 85% of his concessional contributions (being $29,750) and the cap (being $50,000) for the financial year. Example 3 Richard, aged 52, has taxed splittable contributions of $115,000 in the 2007-08 financial year. The maximum he can split with his spouse is $97,750, which is the lesser of 85% of his concessional contributions (being $97,750) and the cap (being $100,000 as he qualifies for the higher transitional concessional contributions cap) for the financial year.

As excess concessional contributions are included in the definition of the non-concessional contributions these amendments are necessary to support the administrative arrangements for the tax on excess non-concessional contributions.

Item 68 also amends the definition of 'maximum splittable contribution' to restrict the amount of untaxed splittable employer contributions (that is, contributions by the Commonwealth, a State or Territory to a public sector superannuation scheme that is not included in the assessable income of the fund) that can be split to 100 per cent of the concessional contribution cap for the financial year.

Items 72 to 79 remove concepts that cease to apply from 1 July 2007 and update references and terms introduced as part of the Simplified Superannuation reforms.

Acceptance of contributions and accrual of benefits

Item 80

Item 80 inserts new regulation 7.04 which amends the existing acceptance of contributions contained in the SIS Regulations to give effect to various measures outlined in the Simplified Superannuation reforms. Regulation 7.05 is also amended to extend the circumstances when a defined benefit fund may grant an accrual of benefits to people who are aged between 70 and 75.

The maximum age limit for deductibility of an employer contribution has been increased from age 70 to 75 (new section 290-80 of ITAA 1997). New regulations 7.04 and 7.05 provide for an increase in the age for which such contributions can be accepted and benefits can be accrued. That is, from the current age of 70 to a day that is on or before the day that is 28 days after the end of the month in which the employee turns age 75.

Non-personal member contributions (such as spouse contributions) will continue to not be allowed to be accepted into a fund for any person who has reached age 70.

To help prevent a person from inadvertently contributing more than the non-concessional contributions cap, new subregulation 7.04(3) provides that superannuation funds will be required to return an amount of certain member contributions that exceed the cap.

For the purposes of this new cap, the member contributions that are subject to these new Regulations are those given meaning by subregulation 5.01(1) of the SIS Regulations, but do not include a contribution that meets the requirements of section 292-95 or 292-100 of the ITAA 1997 (contributions arising from structured settlements or orders made for personal injuries, and, relating to the sale of certain small business assets), payments from the Commissioner of Taxation in relation to superannuation guarantee shortfall components, transfers from the Superannuation Holding Account, Government co-contributions, and contributions covered by a valid and acknowledged notice under section 290-170 of the ITAA 1997. These contributions are known as fund-capped contributions and are defined in new subregulation 7.04(7).

Superannuation funds will not be required to aggregate the total of member contributions received for a person either within the fund or across other funds. The rule applies on a contribution-by-contribution basis, not a yearly basis or any other basis. This measure will reduce the instances of inadvertent breaches where the contribution is a one-off in a financial year.

New subregulation 7.04(2) requires superannuation funds to return member contributions where the member's tax file number has not been quoted (for superannuation purposes) to the trustee of the superannuation fund. This prevents a person from avoiding the non-concessional contributions cap and tax. The Australian Taxation Office will find it difficult to match a person to their contributions and apply the contribution caps, if the person's tax file number is not quoted.

New subregulation 7.04(4) provides that superannuation funds are required to return the relevant member contribution amounts within 30 days of becoming aware that the amounts do not satisfy the regulations. The fund is not required to return this amount if the member's tax file number is quoted to the fund trustee within 30 days of receipt of the amount. The fund also does not have to return the amount if the fund receives a valid notice that the member is intending to claim a deduction on the member contribution during this time.

New subregulation 7.04(5) provides that if a fund complies with these return arrangements the fund is taken not to have breached these regulations.

Example 1 Donna, aged 31, deposits $500,000 in a superannuation fund on 27 June 2008 as a personal contribution. Donna has previously provided her tax file number to the fund. Donna intends to claim a tax deduction under section 290-170 of the ITAA 1997 in relation to $50,000 of that contribution however did not provide a notice of intent to claim such a deduction at the time of contribution. However, on 7 July 2008 Donna gives a valid notice to the fund that she intends to claim this deduction. The fund-capped contribution is only $450,000 and as a result the fund is able to accept the $500,000 member contribution in full and does not have to return any amount to Donna. Example 2 Lucy deposits $50,000 in a superannuation fund on 31 December 2007 as a personal contribution. On 2 January 2008 the fund becomes aware that Lucy has not provided her tax file number to the fund. Even though Lucy has also provided a valid notice under section 290-170 of the ITAA 1997 in relation to this amount the fund must return the amount (as outlined in the regulations) to Lucy by 1 February 2008 unless Lucy's tax file number is quoted to the fund trustee. Luckily for Lucy, this occurs on 25 January 2008. As a result the fund does not have to return this amount. Example 3 Hamish deposits $100,000 in a superannuation fund on 2 February 2008 as a personal contribution. Hamish has an existing account balance of $250,000 from contributions made in earlier years. On 3 February 2008, Hamish requests that the fund roll over his total balance in the fund, including this amount, to another superannuation fund. Hamish has not provided his tax file number to the fund. The fund can rollover the balance of Hamish's account in the fund (that is, the $250,000) into the new fund. However, the amount that was an attempted contribution on 2 February 2008 cannot be rolled over unless his TFN is quoted. This amount must be returned to Hamish by 4 March 2008.

In order to avoid causing member equity and pricing issues within funds new subregulation 7.04(4) also provides that the amount that is required to be returned will be adjusted in arrangements that are similar to those which apply to financial products in Part 7.9 of the Corporations Regulations 2001.

Amendments relating to self managed superannuation funds (SMSF)

Items 84 to 88

Item 84 would insert a new heading for SIS Regulation 11.07.

Items 85 and 87 amend regulation 11.07 of the SIS Regulations so that the current operating standard relating to the disclosure of certain information by a trustee of a superannuation entity applies only to funds other than SMSFs.

Item 86 amends paragraph 11.07(2)(b) to provide that a trustee must notify the Commissioner of Taxation (as regulator) of any change in the entity's contact details within 28 days of the change occurring instead of one month.

Item 88 amends subregulation 11.07A(3) so that the trustee must notify the Commissioner of Taxation of any change in the entity's status within 28 days of the change occurring.

The new regulations at items 86 and 88 ensure that the periods for notifying the Commissioner of Taxation of certain changes are consistent for trustees of all superannuation entities and the notification period which applies for changes in relation to corporations.

Item 87 inserts new regulation 11.07AA into the SIS Regulations which prescribes an operating standard relating to the disclosure of certain information by a trustee of an SMSF. As well as notifying the Commissioner of Taxation of any change in the fund's name, address or details of the fund's contact person (as required under existing SIS Regulation 11.07), the trustee of an SMSF must also notify the Commissioner of Taxation, in writing, of any change in:

·
the membership of the SMSF;
·
the trustees of the fund; or
·
the directors of the fund's corporate trustee.

The trustee must notify the Commissioner of Taxation using the approved form within 28 days of the change occurring. The trustee must notify the Commissioner of Taxation of any changes which occur on or after 1 July 2007.

The Regulations ensure that the Commissioner of Taxation has up-to-date details of the fund's members and trustees, so that the Commissioner of Taxation may assist the trustees in meeting their obligations under the superannuation laws.

Consequential Amendments

Item 2

Item 2 amends the definition of 'capital gains tax exempt component' in subregulation 1.03(1) of the SIS Regulations to reflect the repeal of subsection 27A(1) of the Income Tax Assessment Act 1936 (ITAA 1936)from 1 July 2007. Given that the definition applies to contributions made before July 1999, it is appropriate to refer to the existing definition in the ITAA 1936.

Item 3

Item 3 amends the definition of 'eligible spouse contribution' in subregulation 1.03(1) of the SIS Regulations as the existing definition refers to provisions in the ITAA 1936 that have been repealed and rewritten into the ITAA 1997.

Item 28

Item 28 amends the definition of 'indexed' in subregulation 6.01(2) of the SIS Regulations to reflect the repeal of section 159SG of the ITAA 1936 from 1 July 2007.

Item 34

Item 34 inserts a new definition of 'permanent incapacity' at subregulation 6.01(2) to extend the operation of the condition of release to people who have never worked or who were not working at the time they were incapacitated.

Item 36

Item 36 amends the definition of 'undeducted contributions' as the existing definition refers to provisions in the ITAA 1936 that have been repealed and replaced by revised concepts in the ITAA 1997.

Items 38 and 40

Items 38 and 40 amend paragraphs 6.08(2)(a) and 6.10(3)(a) of the SIS Regulations to reflect that section 82AAT of the ITAA 1936 is repealed.

Items 39 and 41

Items 39 and 41 amend paragraphs 6.10(2)(a) and 6.11(3)(a) to reflect the repeal of section 27D of the ITAA 1936 from 1 July 2007.

Items 4, 6, 7, 9, 10, 11, 15, 16, 17, 26, 29, 30, 31, 32 and 33

The Tax Laws Amendment (Simplified Superannuation) Act 2007 replaces the concept of an 'eligible termination payment' in the ITAA 1936 with the concepts of an 'employment termination payment' and 'superannuation lump sum' in the ITAA 1997. These items update references to 'eligible termination payments' in the SIS Regulations to refer to both new concepts or where it is clearly intended to only apply to certain types of 'eligible termination payments', only the relevant term is substituted.

Item 32 and 33 also amends subregulation 6.01(2) to re-locate the definition of 'non-commutable income stream' in correct alphabetical order within the provision.

Items 45, 46 and 56

The Tax Laws Amendment (Simplified Superannuation) Act 2007 inserts a definition of 'departing Australia superannuation payment' into the ITA Act 1997. Items 45, 46 and 56 amend the notes after subregulation 6.20A(5), 6.20B(4) and 6.24A(5) to replace the references to the ITAA 1936, with references to the ITAA 1997.

Item 81

The Tax Laws Amendment (Simplified Superannuation) Act 2007 replaces the concept of a 'death benefit eligible termination payment' in the ITAA 1936 with the concept of a 'superannuation death benefit' in the ITAA 1997.

Item 81 amends subregulation 7A.14(2) to update the reference 'death benefit eligible termination payment' to refer to a 'superannuation death benefit' in the ITAA 1997.

Items 89 to 94

Under the Simplified Superannuation reforms, the provisions relating to the use of pre-1 July 88 funding credits will be simplified and moved from the ITAA 1936 (sections 275A and 275B) to the ITAA 1997 (section 295-265) with effect from 1 July 2007. As a result, a number of consequential amendments are required to provisions in Part 12 of the SIS Regulations which relates to pre-July 1988 funding credits and debits.

The new Regulations replace the concept of "pre-1 July 88 funding credit balance" in the SIS Regulations with the revised concept of "pre-1 July 88 funding credits available" ( Items 91 to 94 ) and update the definition in regulation 12.01 and subregulation 12.10(2) to refer to the new provisions in the ITAA 1997 (Items 89 and 90).

Item 100

Item 100 updates the reference to 'Australian Society of Certified Practising Accountants' in item 1 of Schedule 1AAA to reflect the new registered business name of the organisation - 'CPA Australia Limited'.