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. 2)

The purpose of these regulations is to support the implementation of the Government's Simplified Superannuation reforms announced in the 5 September 2006 statement A Plan to Simplify and Streamline Superannuation - Outcomes of Consultation. These regulations complement other regulations supporting the reforms which were registered on 2 April 2007 and 13 April 2007.

The Tax Laws Amendment (Simplified Superannuation) Act 2007 and related Acts give effect to the Simplified Superannuation reforms, 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, in part, 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 and benefit accrual standards, a member's minimum benefit and prescribe those schemes which are exempt public sector superannuation schemes.

The Regulations will amend the Superannuation Industry (Supervision) Regulations 1994 to require trustees to allocate contributions to accumulation and some defined benefit members within 28 days of the end of month in which the contributions are made, and prescribe additional schemes as exempt public sector schemes.

Details of the Regulations are set out in the Attachment .

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 1 July 2007.

ATTACHMENT

Details of Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 2)

Regulation 1 specifies the name of the regulations as the Supervision Industry (Supervision) Amendment Regulations 2007 (No. 2).

Regulation 2 provides that the regulations commence on 1 July 2007.

Regulation 3 provides that Schedule 1 amends the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) as amended by the Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 1).

Schedule 1 Amendments

Items 1 and 2

Items 1 and 2 amend sub-subparagraphs 1.05(11A)(b)(i)(B) and 1.06(9A)(b)(i)(B) to update the references to 'splitting order' to 'payment split'.

Items 3, 4 and 5

Regulation 1.07A contains integrity rules for a minimum payment to be made from an allocated pension or allocated annuity prior to a commutation. The pension and annuity standards contain provisions which require allocated annuities and pensions to comply with these rules. Items 3 to 5 update the references to the relevant provisions in the pension and annuity standards which are changed by earlier amendments.

Items 6 and 7

Items 6 and 7 amend paragraph 5.04(3)(b) of the SIS Regulations to provide that any amount allocated under regulation 292-170.03 of the Income Tax Assessment Regulations 1997 (1997 Tax Regulations) is a minimum benefit. This is to ensure that a trustee of certain defined benefit funds cannot put in place arrangements to circumvent the concessional contribution cap in Subdivisions 292-B and 292-D of the 1997 Tax Act.

Items 8, 9 and 10

Items 8, 9 and 10 amend regulations 7.06, 7.07 and 7.08 of the SIS Regulations to require a trustee of a regulated fund (including a defined benefit fund) to allocate a contribution in relation to an accumulation interest to a member of the fund within 28 days after the end of the month the contribution is received or, if it is not reasonably practicable to do so, within such longer period as is reasonable in the circumstances.

In addition, the trustee of a defined benefit fund with an accumulation interest will have until 30 June 2008 to allocate to a member any contribution made between 1 July 2007 and 31 May 2008 that is in relation to an accumulation interest. These funds previously did not have to allocate contributions for their accumulation benefit members.

The Regulations ensure that a member with an accumulation interest in a defined benefit fund is treated in the same way as a member with an accumulation interest in an accumulation fund. This is necessary given the introduction of the cap on concessional contributions and the need to ensure that amounts allocated from reserves are included to avoid circumvention of the cap.

Item 11

This item inserts new Division 7.3 after existing Division 7.2. Division 7.3 contains new regulations 7.09, 7.10 and 7.11, requiring amounts required to be allocated under regulation 292-170.03 of the 1997 Tax Regulations to be allocated to members.

Regulation 292-170.03 of the 1997 Tax Regulations set out how certain defined benefit funds must calculate notional taxed contributions. This requires the trustee to allocate contributions made to the fund giving regard to the present and prospective liabilities of the fund to its members.

Division 7.3 puts an obligation on a trustee of these funds to allocate these contributions to members. This is important for the integrity of the concessional contributions cap.

Regulation 7.09 provides that Division 7.3 applies to a regulated superannuation fund that must allocate contributions in accordance with regulation 292-170.03 of the 1997 Tax Regulations.

Regulation 7.10 provides that a requirement set out in the Division is an operating standard for regulated superannuation funds. Under section 34 of the SIS Act the trustee of a superannuation entity must ensure that an operating standard is complied with at all times.

Regulation 7.11 will require a trustee to allocate contributions to a member of the fund with an accumulation interest within 28 days after the end of the month or if it is not reasonably practicable to do so, within such longer period as is reasonable in the circumstances.

Items 12, 13, 14, 15 and 16

Items 12, 13 and 14 prescribe the Defence Force Retirement Benefits Act 1948, Papua New Guinea (Staffing Assistance) Act 1973 and the Superannuation Act 1922 in Part 3 of Schedule 1AA. As a consequence, these Commonwealth schemes will be exempt public sector schemes from 1 July 2007. This will ensure that members of these schemes are entitled to the 10 per cent offset, on any element untaxed in the fund that is paid to a member of a scheme from age 60 and above in the form of a superannuation income stream, introduced by the Simplified Superannuation reforms.

Items 15 and 16 omit the South Australian scheme established under the Superannuation (Benefit Scheme) Act 1992, and the Lyell McEwen Health Service Incorporated Superannuation Fund and the Police Occupational Superannuation Scheme, from Part 3 of Schedule 1AA to the SIS Regulations. As a consequence, these schemes will longer be exempt public sector schemes from 1 July 2007. The South Australian Government has advised the Minister for Revenue and Assistant Treasurer that these schemes no longer exist.


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