Explanatory Memorandum(Circulated by authority of the Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service, the Hon Kelly O'Dwyer MP)
Chapter 4 Inactive low-balance accounts and consolidation into active accounts
Outline of chapter
4.1 Schedule 3 to this Bill amends the SUMLM Act to include an additional circumstance when superannuation providers and retirement savings account (RSA) providers must provide statements and pay amounts to the Commissioner.
4.2 Where a MySuper account or choice account has been inactive for 13 months and the balance of the account is less than $6,000, the balance of that account must be paid to the Commissioner, unless the member has chosen to opt in to have insurance through that superannuation account.
4.3 To complement this extension of the unclaimed money and lost member regime, the Schedule gives the Commissioner greater powers to consolidate amounts held for a person who has an active account with a superannuation provider or RSA provider, without needing to be directed to do so by the person.
Context of amendments
4.4 Historically, there has been a high level of member disengagement with superannuation. In addition, past and current restrictions on a member's ability to choose a fund, have forced individuals to hold accounts across multiple funds. Consequently, current outcomes do not reflect the needs of the target cohort of members.
4.5 Currently, the SUMLM Act requires a superannuation provider or RSA provider to pay the balances of accounts to the Commissioner where:
- the person has reached preservation age and the fund has not received an amount in respect of the person within the last two years and the fund has been unable to contact the person after five years;
- the person is deceased and the fund has been unable to pay the benefit to the rightful owner;
- the amount from a super-split on divorce cannot be paid to a fund for the receiving spouse;
- a member meets the definition of 'lost member' and the account balance is less than $6,000;
- a member meets the definition of 'lost member' and their account has been inactive for 12 months and the fund is unable to contact the member; or
- a member was a temporary resident who has left Australia.
4.6 The SUMLM Act also only allows the Commissioner to consolidate the amounts he or she holds for a person with amounts held in a fund when the person directs the Commissioner to do so. This can mean the Commissioner holds amounts for an individual where the amounts could instead be consolidated into an active superannuation account.
Summary of new law
4.7 The amendments in Schedule 3 provide greater protections for people with low balances and inactive accounts by requiring a superannuation or RSA provider to pay these amounts to the Commissioner where the balance of these inactive accounts is less than $6,000 and insurance cover is not being provided in the account.
4.8 The measure applies based on the activity and balance of an account, which is either a MySuper or choice product, not on the combined balance or activity of all accounts held by the person with the fund.
4.9 The amendments in Schedule 3 complement the transfer of inactive amounts to the Commissioner by giving the Commissioner the power to proactively consolidate the amounts he or she holds with an active account held by the person in a superannuation fund where the reunited balance would be greater than $6,000.
4.10 The initial transfer of inactive low-balance accounts to the Commissioner will take place during the 2019-20 financial year which will also be when the Commissioner begins to proactively reunite monies currently held.
4.11 For the transfers to begin at the commencement of the 2019-20 financial year, the first unclaimed money day is 30 June 2019.
4.12 The changes in the Bill do not replace existing consolidation processes which will remain available to members. These changes supplement the current arrangements to streamline consolidation for disengaged members, ensuring that superannuation savings are protected from erosion by fees.
4.13 Reducing the number of accounts with low balances will generate system-wide efficiencies by reducing administration costs for funds and better targeting default insurance cover.
4.14 Overall, the amendments in Schedule 3 will increase the rate of consolidation of superannuation savings in the superannuation sector, decrease low-balance erosion and reduce insurance premium and fee duplication for many members.
Comparison of key features of new law and current law
|In addition to the existing conditions for transfers to the Commissioner, the balance of an account must be paid to the Commissioner where:
|Amounts are paid to the Commissioner where the definition of 'unclaimed money' is met, the amounts relate to lost members, or the amounts relate to temporary residents who have subsequently departed Australia.
|Without being directed by the person, the Commissioner must pay the amounts he or she holds on behalf of a person into a superannuation fund that has received contributions for the person and where the consolidated account balance will be equal to or greater than $6,000.
|The Commissioner may only pay an amount to a superannuation fund where directed to do so by the individual.
Detailed explanation of new law
Payments and statements for inactive low-balance accounts
4.15 Schedule 3 amends the SUMLM Act to insert a new circumstance when statements and certain amounts must be provided to the Commissioner-inactive low-balance accounts.
4.16 An inactive low balance account is an account that relates to a MySuper product account or choice product account, the balance of which is less than $6,000 and the provider has not received an amount for crediting to that account in the last 13 months. [Schedule 3, items 21 and 30, sections 8 and 20QA of the SUMLM Act]
4.17 If the account is in an RSA or approved deposit fund, the same conditions as described in paragraph 4.16 apply but not for a MySuper product or choice product, which are not relevant in the context of an RSA or approved deposit fund. [Schedule 3, items 20, 21 and 30, section 8 and paragraph 20QA(1)(b) of the SUMLM Act]
4.18 An amount that could be received, so that the account was not inactive, includes a superannuation guarantee payment from an employer or another type of concessional contribution, a personal after-tax contribution or other non-concessional contribution, an amount rolled-over from another superannuation provider or the Commissioner, or a co-contribution amount.
4.19 Crediting of investment earnings to an account does not mean the account was active.
Madeline has an account with a superannuation fund that was opened by a previous employer. Madeline did not choose a fund.
Madeline has since left that employer and the employer contributions from her new employer are being paid into a different fund.
The first account has not received an amount in more than 13 months, and so is inactive. Its balance is $3,000. This account would meet the definition of inactive low-balance account.
4.20 The amounts transferred to the Commissioner as inactive low-balance accounts will be included on the Unclaimed Money Register to assist people to find their superannuation balances. [Schedule 3, item 25, paragraph 19(1)(d)]
4.21 An account in an SMSF or small APRA fund will not be an inactive low-balance account. This recognises the close relationship between members and trustees in these funds. [Schedule 3, item 30, subparagraph 20QA(1)(a)(i) of the SUMLM Act]
4.22 An account which is supporting or related to a defined benefit interest will also not be an inactive low-balance account. [Schedule 3, item 30, subparagraph 20QA(1)(a)(vii) of the SUMLM Act]
4.23 An account through which an insurance benefit is being provided is also not an inactive low-balance account. [Schedule 3, item 30, subparagraph 20QA(1)(a)(ix) of the SUMLM Act]
4.24 Regulations may prescribe conditions of release, which if met by the person, will mean the account held for the person will not be an inactive low-balance account. [Schedule 3, item 30, subparagraph 20QA(1)(a)(vi) and 20QA(1)(b)(iv) of the SUMLM Act]
4.25 This recognises that where a person has retired they may no longer be contributing to their superannuation account, and may instead be drawing the balance down as either an income stream or in lump sums.
Statements on inactive low-balance accounts
4.26 The amendments inserted into the SUMLM Act by Schedule 3, and the obligations on a superannuation provider to submit statements to the Commissioner about inactive low-balance accounts and pay these amounts to the Commissioner, are modelled on the existing lost member regime in Part 4A of the SUMLM Act.
4.27 That is, a superannuation provider is required to give the Commissioner a statement which includes details of the inactive low-balance accounts in the fund. The provider must identify the accounts on the 'unclaimed money day'. The statement is due on the scheduled statement day that relates to the unclaimed money day. [Schedule 3, item 30, section 20QB of the SUMLM Act]
4.28 The Commissioner already has the power to specify in a legislative instrument the unclaimed money day and the scheduled statement day that relates to that unclaimed money day. The existing instrument specifies those days as 30 June and 31 December and the scheduled statement days as 31 October and 30 April respectively. The power which allows the Commissioner to specify these days in a legislative instrument is expanded to also apply to inactive low-balance accounts. [Schedule 3, items 22, 23 and 24, section 8 and paragraphs 15A(a) and 15A(b) of the SUMLM Act]
4.29 The first unclaimed money day for inactive low-balance accounts is 30 June 2019. [Schedule 3, item 38]
4.30 The Commissioner may, under the TAA 1953, defer the time for the superannuation provider to give the statement. If the information is not given by the required time, the TAA 1953 provides for offences and administrative penalties.
4.31 The statement from the provider must be given in an approved form. The Commissioner can require information about the administration of inactive low-balance accounts and tax file numbers to be in the form. [Schedule 3, item 33, subsection 25(2A) of the SUMLM Act]
4.32 If the statement includes false or misleading information, the TAA 1953 provides for offences and administrative penalties. This will make the penalties for inactive low-balance accounts consistent with broader taxation administration.
4.33 If there are no accounts that are inactive low-balance accounts at the end of the unclaimed money day the provider is still required to submit a statement to the Commissioner which includes this information. The exception to this is where the provider is an SMSF or small APRA fund. An SMSF or small APRA fund does not need to provide a statement to the Commissioner. [Schedule 3, item 30, subsection 20QB(2) and 20QB(4) of the SUMLM Act]
4.34 The statement must also include information about an account that, between the end of the unclaimed money day and the day on which the superannuation provider gives the statement to the Commissioner, ceases to be an inactive low-balance account. [Schedule 3, item 30, subsection 20QB(3) of the SUMLM Act]
On 30 June 2020, Max's superannuation provider considers the amount payable to Max is an inactive low-balance account as it satisfies all the conditions in subsection 20QA(1) of the SUMLM Act.
The statement is due by 31 October 2020.
However, on 2 August 2020 Max's employer makes a superannuation guarantee contribution to Max's account.
Although the account is no longer an inactive low-balance account and therefore does not need to be paid to the Commissioner, Max's superannuation provider is still required to include, in the statement to the Commissioner, information for Max's account.
4.35 Where an account meets more than one definition in the SUMLM Act and therefore would meet more than one requirement to provide a statement, Schedule 3 sets out how the account should be treated and on which statement it should appear. That is, the priority for statements to the Commissioner for amounts payable under the SUMLM Act will be: unclaimed money, an amount for a temporary resident who has departed Australia, then a lost member. [Schedule 3, item 30, subsection 20QB(6) of the SUMLM Act]
4.36 Where the account would meet those definitions, the account would be reported to and payable to the Commissioner under those Parts of the SUMLM Act. Only where the account did not meet those definitions but met the definition of inactive low-balance account would the account be included in a statement under this new Part in the SUMLM Act.
4.37 Where a superannuation provider is required to give the Commissioner a statement and the provider becomes aware of a material error in, or omission from, that statement, the provider must give the Commissioner the corrected or omitted information in the approved form no later than 30 days after becoming aware of the error or omission. [Schedule 3, item 30, section 20QC of the SUMLM Act]
Paying inactive and low-balance accounts to the Commissioner
4.38 As with the existing provisions in the SUMLM Act, Schedule 3 of the Bill requires a superannuation provider to pay the balance of an inactive low-balance account to the Commissioner by the scheduled statement day. That is, the balance which relates to a MySuper or choice account that is inactive, has a balance less than $6,000 and insurance is not being provided under the account. [Schedule 3, item 30, section 20QD of the SUMLM Act]
4.39 The amount payable is the amount that would have been due and payable by the superannuation provider if the member had requested that the balance for the particular account be rolled over to a complying superannuation fund (within the meaning of the SIS Act), this includes earnings.
Amelia has one superannuation account with a balance of $5,000 and holds death and total permanent disability insurance within her superannuation. She decides to take a two-year study break from work.
After six months of no contributions, Amelia's fund writes to her indicating that her insurance will cease if after 13 months of inactivity her account has not received a contribution. Amelia decides she wants to maintain her insurance and notifies her fund of this. As a result Amelia's insurance cover remains and her account does not transfer to the Commissioner seven months later because, while account is below $6,000 and inactive, insurance continues to be provided in the account.
4.40 If the amount to be paid to the Commissioner is nil or below nil then no amount is payable. [Schedule 3, item 30, subsection 20QD(7) of the SUMLM Act]
4.41 The Commissioner may, under section 255-10 in Schedule 1 to the TAA 1953, defer the time at which the amount is due and payable by the superannuation provider. The amount the provider must pay is a tax-related liability for purposes of the TAA 1953 and as such a general interest charge and administrative penalties are connected with such liabilities. The amendments in Schedule 3 make the penalties for inactive low-balance accounts consistent with broader taxation administration.
4.42 The Commissioner is able to refund an overpayment made to the Commissioner by a provider. [Schedule 3, item 30, section 20QJ of the SUMLM Act]
4.43 Where a family law payment split applies to an account, that is part of the member's account is payable to the non-member spouse, and the account is an inactive low-balance account, the superannuation provider must pay the amount for the non-member spouse to the Commissioner. [Schedule 3, item 30, subsection 20QD(4) of the SUMLM Act]
4.44 The requirement to pay an amount to the Commissioner does not apply to a superannuation provider which is a trustee of a State or Territory public sector superannuation scheme which gives a statement and makes a payment to a State or Territory authority as provided for in section 18 of the SUMLM Act. [Schedule 3, item 30, sections 20QG and 20QH of the SUMLM Act]
4.45 In the same way that there is a priority order for including accounts that meet numerous definitions in the SUMLM Act in a statement, there is also a priority order as to how amounts must be paid to the Commissioner. Where an account also meets the definition of 'unclaimed money', 'temporary resident' or a 'lost member', it will be paid to the Commissioner under those requirements in the SUMLM Act. [Schedule 3, item 30, subsection 20QD(5) of the SUMLM Act]
4.46 A provider has no further liability for an amount paid to the Commissioner. That is, the former member or a beneficiary is unable to seek the balance of the account from the provider. [Schedule 3, item 30, subsection 20QD(6) of the SUMLM Act]
Paying out amounts paid to the Commissioner as inactive low-balance accounts
4.47 Amounts that have been paid to the Commissioner as inactive low-balance accounts must be paid by the Commissioner:
- to a superannuation fund if directed by the member;
- to the person's beneficiaries, if the person has died and the Commissioner is satisfied that the original fund would have paid the amount to the beneficiaries; or
- to the person if the person has reached eligibility age, the amount is less than $200 or the person has a terminal medical condition within the meaning of the ITAA 1997.
[Schedule 3, item 30, section 20QF of the SUMLM Act]
4.48 If a provider receives an amount in respect of a person but is unable to credit an account held by the provider on behalf of that person within 28 days, the provider must return the amount to the Commissioner. [Schedule 3, item 30, section 20QL of the SUMLM Act]
4.49 If an amount is overpaid by the Commissioner, the Commissioner is able to recover that amount from the provider or the person to whom the overpayment was made. [Schedule 3, item 30, section 20QK of the SUMLM Act]
Consolidating accounts held by the Commissioner into active superannuation accounts
4.50 Schedule 3 to this Bill inserts a new Part into the SUMLM Act giving the Commissioner greater powers to consolidate amounts that have been paid to him or her as unclaimed money, inactive low-balance accounts and lost member accounts into an active superannuation account without needing to be directed to do so by the person to whom the amount relates. [Schedule 3, item 32, Part 4Bof the SUMLM Act]
4.51 The Commissioner must rollover amounts to a superannuation account for the person where:
- the amount has not already been paid out under Part 3 (unclaimed money), Part 3B (inactive low-balance accounts) or section 24E (lost members);
- the fund has received a contribution for the person in a timeframe specified in regulations;
- the fund will accept amounts from the Commissioner; and
- the balance of the account, once the Commissioner has transferred the amounts held by the Commissioner is greater than $6,000.
[Schedule 3, item 32, subsections 24NA(1) and (2) of the SUMLM Act]
4.52 The Commissioner will consider all available information at the time he or she transfers the amount. However, the Commissioner may not have up-to-date information at the time of the payment, for example, the balance of the account may have altered since it was last reported to the ATO. A transfer by the Commissioner will be taken to have been made consistently with the obligations in the SUMLM Act if the most recent information was used at the time of the payment.
4.53 Regulations will set out a time period in which an account must have received a contribution in order for it to be considered 'active' and able to receive an amount from the Commissioner. It is expected that at first, the time period will be that the fund has received contributions in the previous financial year. Setting the time period in the regulations gives flexibility to set more recent time periods as systems adjust. [Schedule 3, item 32, paragraph 24NA(2)(c) of the SUMLM Act]
4.54 A person may also request that the Commissioner transfer an amount to a superannuation fund in the approved form. [Schedule 3, item 32, paragraph 24NA(1)(b) of the SUMLM Act]
4.55 There may be circumstances when a person holds more than one account across multiple funds that would meet the conditions described at paragraph 4.51.
4.56 Similar to the approach used for the Government co-contribution payment rules, regulations will set out rules to direct the Commissioner as to which fund the amount should be paid to. These rules would consider the balance of the account, the types of contributions being made to the account and any directions from the person about the payment of co-contributions. [Schedule 3, item 32, subsection 24NA(3) of the SUMLM Act]
4.57 There is no prescribed timeframe for the Commissioner to transfer the amounts. However, the Commissioner will transfer the amounts as soon as practicable taking into account the information available to the Commissioner to identify an active account.
4.58 If the Commissioner pays an amount for a person to a superannuation provider but the provider cannot credit the amount into an account held on behalf of the person, the provider has 28 days in which to refund the amount to the Commissioner. [Schedule 3, item 32, section 24NB of the SUMLM Act]
4.59 The new rules also apply to amounts paid to the Commissioner before Schedule 3 to this Bill commences.
4.60 The objects and simplified outline of the SUMLM Act are amended to reflect the changes made by this Schedule. [Schedule 3, items 1 to 4, paragraphs 6(d), 6(e), 6(ea) and section 7 of the SUMLM Act]
4.61 Existing subsection 24B(3) is repealed. The provision which includes accounts held in RSAs as accounts for the purpose of the SUMLM Act is moved to the definitions section and applies across the SUMLM Act. [Schedule 3, item 31, subsection 24B(3) of the SUMLM Act]
4.62 Amendments are also made to those provisions in the SUMLM Act which set out how the Commissioner must treat amounts made to him or her under the temporary resident provisions of the SUMLM Act where the Commissioner has also been paid inactive low balance accounts. [Schedule 3, items 26, 27 and 28, subparagraphs 20H(1)(b)(iiaa) and 20H(1)(b)(va), paragraph 20H(2B)(a) and subsection 20H(3) of Act the SUMLM Act]
4.63 Amendments are required to the TAA 1953 to make clear when the general interest charge is payable for breaches of the new provisions inserted in the SUMLM Act. New items are added into the table in subsection 8AAB(4) of the SUMLM Act to provide that a provider will be liable for the general interest charge if:
- a payment of an inactive low-balance account is not made to the Commissioner;
- a provider fails to repay an amount which was an inactive low-balance amount to the Commissioner that cannot be credited to an account; or
- a provider fails to repay an amount to the Commissioner paid under the new reunification rules that cannot be credited to an account.
[Schedule 3, items 34 and 35, subsection 8AAB(4) of the TAA 1953]
4.64 The TAA 1953 is also amended to provide that the liabilities listed above are tax-related liabilities. [Schedule 3, items 21 and 22, subsection 250-10(2) in Schedule 1 of the TAA 1953]
4.65 The ITAA 1997 is amended to provide for the tax treatment of the amount when paid as a benefit. [Schedule 3, items 1-15, section 301-125, paragraph 301-225(2)(b), subsection 307-5(1) (table item 5, column 2), paragraph 307-120(2)(e), subsections 307-142(1), 307-142(2), and 307-142(3) (after table item 3), paragraph 307-142(3A)(a), subsections 307-142(2B), 307-300(1), 307-300(2) (method statement, step 1, note), 307-300(3) (after table item 3), 307-300(3A) (note) and 307-350(2B) of ITAA 1997]
Application and transitional provisions
4.66 The first unclaimed money day for inactive low-balance accounts will be on 30 June 2019. [Schedule 3, item 38(1)]
4.67 The period to determine whether an account is inactive will include the period before the measure commences. [Schedule 3, item 38(2)]