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CONTENTS
Superannuation Industry (Supervision) Amendment Bill
1997
Date Introduced: 1 October 1997
House: House of Representatives
Portfolio: Treasury
Commencement: 1 July 1996
To introduce rules that will allow retrospective approval of a
superannuation fund as a 'complying fund' when certain procedural
matters have not been successfully complied with but the
substantive regulatory rules have been met.
The Superannuation Industry (Supervision) Act 1993
(SIS) contains a number of rules relating to the operation of
superannuation funds, such as rules relating to equal
representation for employers and members in employer sponsored
funds; rules restricting the in-house use of assets; standards for
trustees, custodians and investment managers; the accounting
requirements of funds; and the disclosure of information by funds
that offer membership to the public. SIS can be regarded as a
substantial regulatory regime that imposes a large range of duties
and responsibilities on the trustees and other officials
responsible for the management of superannuation funds. While the
degree of regulation is substantial, it is designed to protect the
interests of superannuation funds, which may be considered to be
especially necessary when contributions to superannuation by
employees is compulsory under the Superannuation Guarantee
scheme.
The need for compliance with SIS for non-exempt funds (basically
those with more than five members) is paramount to the fund being
able to claim concessional tax treatment. Funds that comply with
SIS (known as complying funds) are able to receive the concessional
tax rate of 15% on certain components of their income. The
principal components of income that will be taxable are undeducted
contributions and earnings of the fund. If SIS is not complied with
the concessional rate will not be available and the relevant tax
rate will apply to the fund. As most funds are incorporated bodies,
the rate of tax will generally be that applicable to companies
(currently 36%). In other cases the rate of tax applicable to
trustees will apply, which is the same as the personal rates of
tax, with a maximum rate of 47% plus, in certain circumstances, the
Medicare levy.
While the concessional tax treatment is applied to the fund, the
principal beneficiaries of the concession are the members of the
fund. As the fund pays less tax it has more funds to invest which
will, assuming reasonable returns, increase the amount of funds to
be distributed to members (such reasoning does not apply to defined
benefit funds where the final benefit available does not depend on
the earnings of the fund but allows such funds to minimise the
ultimate cost of providing the defined benefits if the fund is
funded). If there is a breach of the SIS rules and the fund
therefore loses its complying status, the principal losers will be
the members of the fund, rather than the trustee or other person
whose actions or inactions resulted in the breach of SIS.
Due to the potential effects on members of a fund losing its
complying status, the Insurance and Superannuation Commission (ISC)
has not withdrawn complying status for breaches of the procedural,
rather than substantive, SIS rules. This was achieved by the use of
the transitional provision contained in section 333 of SIS which
allowed the ISC to declare that a temporarily modifiable provision
would operate as varied by the ISC. The section provides that
declarations modifying a provision would have no effect after 30
June 1996. The provisions of the SIS Act that could be modified
covered not only procedural matters but also many of the
substantive provisions of the SIS regime. The ability to modify the
application of certain provisions was designed to allow a
settling-in period for funds to become fully acquainted with the
SIS rules.
The reason for the amendments contained in this Bill is stated
in the Second Reading Speech to be that now that the ability to
modify the temporarily modifiable provisions has lapsed
superannuation funds may lose their concessional treatment for
breaches of procedural requirements rather than a substantive
provision which applies a duty or obligation on an official of a
fund. There are also provisions of the SIS Act that can be modified
by the ISC at any time, but these address a considerably smaller
number of matters than the temporarily modifiable provisions and do
not include many procedural matters.
The Bill is proposed to act retrospectively to enable the ISC to
modify provisions for the 1996-97 financial year and later years
and to enable the proposed provisions to operate from the time that
the current power to temporarily modify provisions expired. The
matters that may be validated under the Bill are significantly
narrower than the those contained in the temporality modifiable
provisions and principally relate to procedural issues.
Section 42 of the SIS Act deals with when a fund will be treated
as a complying fund. Item 2 of Schedule 1 of the
Bill will insert new subsections into section 42 of the SIS
Act.
Proposed subsection 42(1AA) provides that a fund is to be
treated as a complying fund for 1994-95 and later years of income
where:
- the fund came into existence during the taxation year or was an
approved deposit fund (ADF) that became a superannuation fund
during the year;
- the fund had a trustee who elected to be treated under the SIS
Act and these matters occurred during the allowable time;
- either the trustee did not breach the SIS rules before the
election was completed or, if the rules were breached, the ISC is
satisfied that there were special circumstances that make it
reasonable for the fund to be treated as having complied; and
- the fund was a resident, complying fund for the period after
the election was completed to the end of the year.
A fund will also be taken to be a complying fund if it has taken
the necessary steps to apply to be so treated; the steps were
defective and within 28 days (or such longer period as allowed) of
finding out that the steps were defective the necessary
rectification was made; the ISC is notified of the
rectification;either the trustee did not breach the SIS rules
before the election was completed or, if the rules were breached,
the ISC is satisfied that there were special circumstances that
make it reasonable for the fund to be treated as having complied;
and the fund was a resident, complying fund for the period after
the election was completed to the end of the year.
Further, if an application for treatment as a complying fund has
been delayed, the fund has satisfied the ISC that proposed
subsection 50(1) should apply and the reason for the delay is a
reason contained in the regulations, the fund is to be treated as a
complying fund (item 3).
Also, if a fund is wound up prior to gaining approval as a
complying fund; has notified the ISC of the intention to wind-up
the fund; has notified members of the winding-up in accordance with
the SIS rules and has under the regulations the fund is to be
treated as a transitional fund during the period; then the fund is
to be treated as a complying fund for the year.
Chris Field
20 November 1997
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 1997
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Published by the Department of the Parliamentary Library,
1997.
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Last updated: 21 November 1997
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