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Advice

Subject: Unclaimed money where there is never any contact with the member

Question 1

Do benefit entitlements payable to members of eligible rollover fund (ERF) become unclaimed money under section 12 of the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA) in circumstances where:

· the member has reached the eligibility age;

· the ERF has not received an amount in respect of the member within the last two years; and

· after the end of the period of five years of membership the superannuation provider has not had any contact with the member, despite making reasonable efforts to do so.

Answer: Yes, please see explanation below.

Question 2

If the answer to Question 1 is yes, is the trustee of ERF required to report the amount to the Commissioner as unclaimed money following the next unclaimed money day under section 16 of the SUMLMA and pay the Commissioner (for the Commonwealth) the amount following the next unclaimed money day under section 17 of the SUMLMA?

Answer: Yes, a superannuation provider must, for each unclaimed money day, give the Commissioner a statement, in the approved form, of information that includes all unclaimed money as at the end of the day, and must pay the Commissioner the amount in relation to each unclaimed money day (worked out under subsection 17(1A) of the SUMLMA) at the end of the scheduled statement day for the unclaimed money day.

Question 3

If the answer to Question 1 is yes, is it "reasonably arguable" that the condition in paragraph 12(1)(d) of the SUMLMA cannot be satisfied where, after the end of the period of five years of membership, the superannuation provider has not had any contact with the member (such that administrative penalties cannot be imposed under section 284-75 of Schedule 1 of the Taxation Administration Act 1953 (TAA 1953))?

Answer: This would be considered based on the facts at the time the breach occurred and the reasons why the administrative penalty was applied. If the provider was dissatisfied with the Commissioner's decision to apply an administrative penalty in the administration of Division 2, 4 or 5 of Part 3 of the SUMLMA they may object against the decision in the manner set out in Part IVC of the TAA 1953 (section 20P of the SUMLMA).

Relevant facts

· The fund is an eligible rollover fund (ERF) located in Australia.

· As an ERF, the fund frequently receives transfers of member account balances initiated by other funds rather than the member, and without the member making any initial contact with the fund. The account balances are generally relatively small.

· The fund does not pay defined benefits.

· The Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA) contains procedures for the payment of unclaimed superannuation money and lost member accounts to the Australian Taxation Office (ATO).

Explanation

Unclaimed money is defined in sections 12 and 14 (in respect of deceased members) of the SUMLMA. The interpretive issue is whether, under paragraph 12(1)(d) of the SUMLMA the test 'after the end of a period of 5 years since the superannuation provider last had contact with the member' can be satisfied if

· the superannuation provider is an ERF, and

· the member has been a member of the superannuation provider for at least 5 years and

· the superannuation provider has never had contact with the member.

Is an ERF a special case

'Superannuation provider' is defined in section 8 of the SUMLMA to mean (relevantly) 'the trustee of a regulated superannuation fund'. An ERF is a regulated superannuation fund that additionally meets the requirements of Regulation 10.01 of the SISR. There is nothing in the SUMLMA or in the extrinsic materials that indicates that ERF's are to receive exceptional treatment in respect of what are taken to be unclaimed monies. Accepting that it will often be the case for an ERF that an individual becomes a member of the ERF without any communication between the ERF and that individual, the issue becomes one of interpreting the application of the test in paragraph 12(1)(d) of the SUMLMA to that circumstance.

Interpretation of paragraph 12(1)(d) of the SUMLMA

The ATO cannot adopt an interpretation of a provision that is not available on its words. 'Contact with the member' in this context is a reference to a communication with the member (Ref Macquarie Dictionary). 'Last' is a reference to the most recent such communication. On one reading there can be no most recent contact if there has never been any contact and the test in paragraph 12(1)(d) of the SUMLMA is not capable of any application. The second arm of paragraph 12(1)(d) of the SUMLMA states "the provider has been unable to contact the member again after making reasonable efforts". The reference to contacting the member 'again' also supports a view that the provision does not contemplate circumstances where a person has become a member of a superannuation fund without ever having had any communication with the fund and no subsequent communication has occurred.

However the test must be read in the context in which it occurs and, additionally, we are required to prefer an available interpretation that promotes the purpose of the provision. Section 7 of the SUMLMA refers to unclaimed money as ''money in an inactive account which the superannuation provider is unable to ensure is received by the person entitled to receive it".

The Explanatory Memorandum (EM) to the Superannuation (Unclaimed Money and Lost Members) Bill 1999 provides that 'the aim of the Bill is to re-unite people with their superannuation'. At the time the Bill was passed the definition of unclaimed money required that

· the member has reached eligibility age

· the benefit is immediately payable

· the account has been inactive for 2 years, and

· the provider is unable to ensure the member will receive the benefit after making reasonable efforts

The test was complimented by cashing requirements applying to regulated funds that required benefits to be compulsorily paid for members who had reached age 65 and did not satisfy a work test (see regulation 6.21 of the SISR as it was at the time). [i.e. this had the effect of making a benefit immediately payable] There is nothing to suggest that the compulsory cashing requirements did not apply to ERF's in the same manner as they applied to other regulated superannuation funds.

In 2007, as part of the Simpler Super suite of changes, the compulsory cashing requirements were relaxed so that compulsory cashing only applies when a member dies. At that time the definition of unclaimed money was amended and the definition now requires that

· the member has reached eligibility age

· the account has been inactive for 2 years, and

· after the end of a period of 5 years since the superannuation provider last had contact with the member, the provider has been unable to contact the member again after making reasonable efforts (the paragraph (d) test)

The EM to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 (which introduced the relevant amendments) explained the change as follows:

7.10 Prior to the removal of compulsory cashing on 10 May 2006, the effect of the definition in paragraph 7.9 was that the benefits of inactive members over the age of 65 who could not be contacted by their fund became unclaimed money. This arose because funds were required under law to cash the benefits of members over the age of 65 where they were unable to determine that the member satisfied the work test.

7.11 With the removal of compulsory cashing under Simplified Superannuation, the benefits of inactive members who have reached age 65 and who cannot be contacted by their fund are no longer immediately payable under law. The benefits of these members therefore do not become unclaimed money unless the rules of the particular fund require that a benefit is immediately payable to a member. The amendments change the definition of 'unclaimed money' to restore the previous effect of the law. This is achieved by removing the requirement for a benefit to be immediately payable in respect of a member.

Of particular note is the stated intention that the amendments restore the previous effect of the law. The EM also states 'Under the amendments, superannuation providers are required to make reasonable efforts to contact their inactive members over the age of 65 every five years to determine whether their benefits are unclaimed money'.

Note that section 12 of the SUMLMA is supported by section 13 of the SUMLMA which requires a superannuation provider to make reasonable efforts to contact a member if, among other things, '5 years have passed since the provider last had contact with the member'.

In this context the question is whether 'after the end of a period of 5 years since the superannuation provider last had contact with the member, the provider has been unable to contact the member again after making reasonable efforts' can be read as capturing the circumstance that the superannuation provider has not ever had contact with a member of more than 5 years standing and has been unable to make contact despite making reasonable efforts. Given the context, this is the interpretation that is the ATO view.

The alternative view (as mentioned above) would mean that for many members transferred to an ERF their money, bar death or contact being established by other means, never attains the status of unclaimed money and the ERF is never obligated under the SUMLMA to make reasonable efforts to contact the member.

The policy statements referred to indicate that would not be an intended result. While the form of words evidence an assumption that the superannuation provider has had contact with a member at some point, the test of whether there has been contact in the last 5 years in paragraph 12(1)(d) of the SUMLMA, and the obligation to attempt to make contact in section 13 of the SUMLMA, are not rendered inoperative by the absence of an initial contact. Rather the test is whether, at the time of applying the test, a person has been a member of the fund for more than 5 years and there has been no contact with the member over the last 5 years.

Relevant legislative provisions

Acts Interpretation Act 1901 section 15AA

Acts Interpretation Act 1901 section 15AB

Acts Interpretation Act 1901 section 35

Superannuation Industry (Supervision) Act 1993 section 52

Superannuation (Unclaimed Money and Lost Members) Act 1999 section 6

Superannuation (Unclaimed Money and Lost Members) Act 1999 section 7

Superannuation (Unclaimed Money and Lost Members) Act 1999 section 8

Superannuation (Unclaimed Money and Lost Members) Act 1999 section 12

Superannuation (Unclaimed Money and Lost Members) Act 1999 section 13

Superannuation (Unclaimed Money and Lost Members) Act 1999 section 14

Superannuation (Unclaimed Money and Lost Members) Act 1999 section 16

Superannuation (Unclaimed Money and Lost Members) Act 1999 section 17

Superannuation (Unclaimed Money and Lost Members) Act 1999 section 20P

Taxation Administration Act 1953 section 284-75

Superannuation Industry (Supervision) Regulations 1994 regulation 6.21

Superannuation Industry (Supervision) Regulations 1994 regulation 10.01