Bills Digest no. 46 2008–09
Temporary Residents' Superannuation Legislation
Amendment Bill 2008
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Temporary Residents' Superannuation
Legislation Amendment Bill 2008
Date
introduced: 25
September 2008
House: House of Representatives
Portfolio: Treasury
Commencement:
Schedule 1 commences on a
day to be fixed by proclamation, or 6 months after Royal Assent,
whichever is earlier. All other sections commence on the day of
Royal Assent.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Bill amends
the Superannuation (Unclaimed Money and Lost Members) Act
1999 (S(UMLM) Act), the Taxation Administration Act
1953 (TAA) and the Income Tax Assessment Act 1997
(ITAA) so that when temporary visa holders leave Australia without
taking their superannuation, relevant amounts are reportable and
payable to the Commissioner of Taxation (the Commissioner) as
unclaimed superannuation.
The government announced in the 2007-08 Mid-Year Economic and
Fiscal Outlook a measure to require the future superannuation
contributions and existing balances for temporary residents to be
paid to the Australian Government, with effect from 1 July 2008.
Under the measure, temporary residents who permanently depart
Australia can claim their superannuation (subject to the existing
withholding tax arrangements) by contacting the Tax Office within
five years of departing the country.
Temporary residents who become permanent residents will have
their superannuation transferred into a superannuation fund
(subject to the same tax arrangements that apply to Australian
residents) with interest.
Currently, superannuation contributions, earnings and benefits
are concessionally taxed in Australia on the basis that they will
be used to meet the retirement income needs of Australians.
Accordingly, where those benefits are accessed early prior to
reaching a preservation age, additional tax is generally imposed to
recover the tax concessions.
Temporary residents are currently able to claim their
superannuation after permanently departing Australia by applying
for a Departing Australia Superannuation Payment (DASP) from their
superannuation fund. The DASP is the value of their superannuation
minus tax (which is 30 per cent for the taxed element of a benefit
and 40 per cent for an untaxed element).
Despite the ability to claim their superannuation many temporary
residents do not do so, leaving significant amounts of small and
lost balances in the superannuation system and contributing to the
total amount of lost monies in the system. According to the
Australian Taxation Office s 2006-07 Annual Report there are over
six million lost superannuation accounts on the Lost Member
Register maintained by the Australian Taxation Office (ATO), with
an aggregate value of approximately $12 billion.[1]
To address this, the amendments contained in Schedule 1 to the
Bill will:
- identify the amount of superannuation as unclaimed
superannuation of the person who was previously a holder of a
temporary visa, where at least six months have passed since the
person s temporary visa ceased to be in effect and they have left
Australia
- require superannuation providers that hold such unclaimed
superannuation for departed temporary visa holders to pay such
amounts to the Commissioner, and
- allow departed temporary visa holders to recover any amounts
paid to the Commissioner as unclaimed superannuation where certain
conditions have been satisfied (subject to the DASP withholding
tax).
It is important to note that the government is concerned by the
growing amount of superannuation which has been identified as lost
over the last decade. Superannuation funds are required to report
details of lost members to the ATO, and these details are recorded
on the Lost Members Register to assist individuals in locating
their accounts. One purpose of this Bill is to reduce operational
costs on both the ATO and superannuation funds in managing these
lost accounts.
Through this Bill the government wants to ensure that
superannuation tax concessions are well targeted at individuals who
will retire in Australia, and as such temporary residents who have
departed Australia ought not to be treated with such support.
On 5 May 2008, the Government sought submissions and comments on
the proposal from stakeholders in order to assist in settling the
detailed administrative and legislative design of features of the
announced policy. [2]
By the end of May, the government received 47 written
submissions from the stakeholders, including the Association of
Superannuation Funds of Australia Ltd (ASFA), through the
consultation process.
The submissions from the stakeholders raise some important
questions about the associated issues that would arise through the
passage of this Bill. They are:
- increasing business compliance costs
- potential loss of insurance cover for temporary residents while
working in Australia, and
- the unintended consequence of shifting nature of hiring of
temporary workers in Australia and its impact on the Australian
economy.
In a
submission
to the Treasury of its views about the proposed bill, the ASFA
suggested a reconsideration of the policy framework.[3]
In the submission, ASFA raised its broad concerns as
follows:
- Rather than targeting specific problem-accounts, the government
has adopted a broad brush approach
- A significant number of superannuation fund members will suffer
a loss of benefits
- There may be adverse impacts on the Australian labour
market
- There is an element of retrospective taxation in the
proposal
- The measure does nothing to improve the retirement living
standards of retirees
- The measure will impose additional costs on every APRA
regulated superannuation fund in Australia, and
- The measure may breach the Constitution
ASFA argued that the retrospective nature of the
change is a problem because:
- many temporary residents have contributed money to
superannuation with the intention of leaving it within the
Australian system until they have met a condition of release other
than the DASP condition of release. This course of action would
have been planned under current legislation and, in many cases,
with financial advice;
- Where these people are forced to withdraw their benefits under
the DASP provisions under penalty of forfeiture, the action will
result in an imposition of tax that is substantially more than was
their original reasonable expectation. In the majority of cases the
resulting tax rate will exceed their personal income tax rate when
employed in Australia;
- In the absence of any opportunity for these people to undo
their previous actions, the effect of the change is the imposition
of a retrospective tax.[4]
Additionally, ASFA contended that the measure breached the
constitution for the following reasons:
Subsection 51(xxxi) of the Australian
Constitution grants parliament the power to acquire property on
just terms from any person for any purpose in respect of which the
Parliament has power to make laws.
The proposed structure of the arrangement is to
impose a tax on fund trustees of the equivalent of 100% of a
temporary resident s account balance in the fund. The expectation
is that the trustee will recover the tax paid from the members
account and the member will retain a property interest in the
monies held by the ATO and will be able to reclaim the money on
departure from Australia.
(There is a presumption in this that fund
trustees have the capacity, under the relevant trust deed, to
recover the tax from the member. This may be a false
presumption.)
Arguably the proposal to not pay any interest
on moneys that are transferred to the ATO and the proposal to
confiscate amounts that remain unclaimed five years after the
temporary resident has left the country would appear to be a breach
of subsection 51(xxxi).[5]
The law with respective to section 51(xxxi) is notoriously
complex, particularly as to when the purported property in question
is something conferred by, or related to, Commonwealth legislation.
Property may also be affected by other laws, particularly taxation
(section 51(ii)), an independent head of power which is not
directly affected by section (xxxi). Further, even if a law is one
to which section 51(xxxi) applies, whether interest is required to
be paid appears to depend on the particular circumstances it is not
an automatic requirement.[6] It is notable that neither the Explanatory Memorandum
nor the second reading speech addresses the point raised by
ASFA.
However, the main point that ASFA enunciated was the increased
business costs of superannuation providers to observe the thrust of
the policy associated with the complexity of compliance.
Through another submission, the Corporate Super Association
(CSA) highlighted their concern with the following points:[7]
It is essential that conflict be avoided
between award and contractual requirements and any new requirements
under the legislation (to avoid double support requirements). If
employers are to be required to comply with provisions in the
legislation that conflict with award and contractual requirements,
any contractual or award requirements are to be overridden, and the
legislation should provide absolute protection for employers and
trustees who comply with the requirements in the legislation.
We deplore the suggestion that no earnings
should be paid on the proposed ATO accounts for temporary
residents. We consider that this breaches fundamental principles of
equity, and that interest should be paid at same rate related to
the long term Treasury bond rate.
We are concerned about the insurance aspects of
the proposal and consider that the proposals will involve employers
in higher insurance costs or expose the employees to risks where
they are not protected. We believe that costs are increased even
where the employees continue to be members of the
employer-sponsored fund, because the annual removal of balances
will in a number of cases reduce the capital from which the
insurance is funded.
The consequence of the policy was noted to be an increase in the
underlying cash balance of the Commonwealth by some $877 million in
net terms over the Forward Estimates.
The explanatory memorandum says that this measure will have a
positive revenue impact to the government as follows: [8]
|
2007-08
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
Nil
|
$251m
|
$378m
|
$299m
|
$224m
|
The explanatory memorandum notes that, in
relation to Commonwealth implementation costs, provisions, for
costs of $10 million per annum for the Australian Taxation office
(ATO) and $2 million per annum for the Department of Immigration
and Citizenship (DIAC) over the forward estimates period were made
in the 2007-08 Mid-Year Economic and Fiscal Outlook.
[9] Similarly, it
notes that:
Superannuation funds are estimated to, on
average, have implementation costs of $33,000 per provider and
ongoing annual costs of $2,500 per provider.[10]
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There were over 239,152 temporary resident visas granted with
work rights and over 87,300 business long-stay 457 visas issued in
the financial year ending in June 2007,[11] and the quantum of temporary visa has
been increasing.
For the temporary residents who did not take back their
superannuation amount at the time of departure from Australia, this
Bill would result in their unclaimed superannuation balance to be
transferred to the ATO after six continuous months from the day of
departure. And hence, the ATO will be authorised to issue a notice
to relevant superannuation funds to comply with the provisions of
this legislation.
Departed temporary residents will be able to claim, for an
indefinite period, their superannuation benefits less the DASP tax,
back from the ATO.
Upon notice from the Commissioner, the provider agency of
superannuation to departed temporary residents will have to pay
that superannuation to the Commissioner.
In the process, the Government expects that this bill will
assist to reduce the number of small and lost accounts relieving
the burden from superannuation funds to manage ever increasing
number of such accounts.
The Bill will require the ATO to implement a system to match
those individuals identified by the DIAC as departed temporary visa
holders with account information provided by superannuation funds,
and then will notify superannuation funds about the status.
The ATO will pay individuals (or their legal personal
representatives) where amounts are claimed late, and roll over
amounts into a superannuation fund if directed by the
claimants.
The DIAC will identify those individuals who are to be
considered for the purpose of notification by the ATO to the
relevant superannuation agencies.
Under the provisions of the current law, the
superannuation of a departed temporary visa holder who does not
take a DASP upon departure remains in the fund until it is claimed
or becomes payable to the Commissioner as unclaimed money (eg.,
reached age 65, no contributions received and no contact). The
departed temporary visa holder can later claim the amount back from
the Commissioner.
Under the provisions of the proposed law, the
superannuation of a departed temporary visa holder, who does not
take a DASP upon departure, could be paid to the Commissioner as
unclaimed superannuation. The departed temporary visa holder can
later claim back the amount from the Commissioner.
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For the purpose of Part 3A of the S(UMLM) Act,
several new concepts are inserted into the definition provision at
section 8.
Items 5-7 and 9-12 deal with the amendment of
Part 3A of the S(UMLM) Act, with the insertion of new concepts at
section 8 of the S(UMLM) Act. The meaning of concepts including
approved form, engage in conduct, general interest
charge, leave Australia, legal personal representative, schedule
statement day, superannuation interest, and
terminal medical condition are in general
associated with the duties and obligations of superannuation funds
in terms of submission of statement and payments for a departed
temporary resident from Australia.
Item 13-15 deal with the insertion of
new subsections 16(7), 17(2A) and a note into
subsection 17(1) of the S(UMLM) Act in respect of the submission of
statements to the Commissioner of unclaimed money with a
superannuation provider. Under subsection 12(1) of the S(UMLM) Act
(member reached age 65) and section 16 of the S(MULM) Act, a person
is not required to specify an amount in a statement for the
purposes of section 17 of the S(UMLM) Act and paying the amount
thereof. These amendments waive the obligation to submit another
statement under section 16 of the S(UMLM) Act or to transfer the
money under section 17, suggesting that the provider will not
commit an offence under subsections 16(5) and 17(6) of the S(UMLM)
Act in complying with Part 3A of the S(UMLM) Act. The Commissioner
s requirement to make a payment under Part 3A and not under section
17 of the S(UMLM) Act has been suggested for the money received by
the Commissioner under both section 17 and Part 3A of the S(UMLM)
Act.
Item 16 inserts new sections 20A
20P into the S(UMLM) Act. These provisions deal with the
Commissioner s notice to a superannuation provider asking for a
statement; making payment to the Commissioner by a certain time;
encompass how, when and under what circumstances a superannuation
provider identifies a temporary visa holder; and when it withdraws
an identity provided under section 20C of the S(UMLM) Act.
For instance, proposed section 20C of the Bill
deals with notice under Part 3A of the S(UMLM) Act requires the
Commissioner to give a written notice (section 20C notice) to a
superannuation provider for a fund identifying a person, if the
Commissioner is satisfied that all of the circumstances exist:
- There are reasonable ground to believe that the person has a
superannuation interest in the fund
- The person was previously a holder of a temporary visa, other
than a visa prescribed by the Superannuation (Unclaimed Money
and Lost Members) Regulation 1999 Regulation) that has ceased
to be in effect
- The person left Australia after starting to be the holder of
the visas
- At least six continuous months have passed since the visas
ceased to be in effect and the person left Australia and
- The person is not a holder of a temporary visa or permanent
visa
- The person is not an Australian citizen, or New Zealand
citizen, and
- The person has not made a valid application for a permanent
visa that has not been finally determined under the Migration
Act 1958.
In general terms, once a provider receives a notice from the
Commissioner under proposed section 20C of the
S(UMLM) Act, it is required to give a statement and make a payment
to the Commissioner by a certain time.
The Commissioner, however, is not required to give a notice
under section 20C of the S(UMLM) Act (even where all the
circumstances mentioned above exist) to a superannuation provider
that is either:
- The trustee of a state or territory public sector
superannuation scheme within the meaning of section 18 of the
S(UMLM) Act; or
- The trustee of an unfunded public sector scheme as defined in
the Superannuation Guarantee (Administration) Act
1992.
The Commissioner must revoke a notice given to a superannuation
provider under proposed section 20C if the
Commissioner is satisfied that the notice should never have been
given to the provider in the first place for a person (ie, the
circumstances for giving the notice did not exist in the first
place); or the circumstances relating to a person have changed
since the time the notice was given (ie, the circumstances for
giving the notice no longer exist)(proposed section
20J).
The proposed new section 20D of the Bill deals
with a superannuation providers requirement to give statements and
make payments to the Commissioner (following receipt of a notice
under proposed section 20(C) of the S(UMLM) Act)
in the approved form and by the required time
(proposed sections 20(D) and
20(E)). The statement must be given to the Commissioner by
the end of the next scheduled statement day after the notice which
the statement relates to was given.
The proposed new section 20E of the Bill
requires a superannuation provider that received a notice under
proposed section 20C from the Commissioner to give
the statement in the approved form, and to provide it by the next
scheduled statement day after 28 days have passed. The nature of
the required information must be relevant to the superannuation
interest in the fund of the person identified in the notice and /or
to the administration of Part 3A of the S(UMLM) Act and related tax
legislation.
The proposed new section 20F of the Bill
requires a superannuation provider that receives a section 20C
notice from the Commissioner which has not been revoked could be
required to make payments to the Commissioner in respect of the
person identified in the notice. The amount payable by the provider
to the Commissioner is the difference between the starting
amount, and the total of the amounts that have already been
paid or are payable by the provider in respect of the person.
The proposed new section 20G of the Bill
discharges superannuation providers from further liability to the
temporary resident, once it has made payments of the whole amount
to the Commissioner that is payable by the time under Part 3A of
the S(UMLM) Act.
Generally, if the Commissioner has received an amount under the
S(UMLM) Act for a person and the person was a departed temporary
visa holder, then those amounts can be claimed back (subject to any
withholding tax that may apply). The proposed new section
20H of the Bill authorises the Commissioner to pay an
amount in respect of a person to the person, or to a single fund
(if the person so directs and if the Commissioner is satisfied they
are an Australian citizen, New Zealand citizen or the holder of a
permanent visa or a visa prescribed by the Regulations). This
authority is exercisable either on application by the person, or at
the Commissioner s own initiative.
If a superannuation provider makes a payment because of a notice
under section 20C of the S(UMLM) Act in respect of a person, and
the Commissioner is satisfied that the amount paid exceeded the
amount that was payable (if any) in connection with the notice in
respect of the person, the proposed new Section 20K of the
Bill underlines the obligation of the Commissioner to
refund the excess to the provider of the originating fund (or to
the provider of the successor fund if the original fund no longer
exists). Similarly, accidental overpayments made to departed
temporary residents under proposed section 20H are
recoverable (proposed section
20L).
If the Commissioner makes a payment in respect of a person on
the direction of the person to a fund, and the superannuation
provider of that fund has not credited the payment to an account
within 28 days after the payment was made, the proposed new
Section 20M of the Bill requires that the superannuation
provider must return that payment to the Commissioner.
The proposed new section 20N introduces a
disclosure regime under part 3A of the S(UMLM) Act allows for the
disclosure of migration and citizenship information by central
agencies for the purposes of administrating the measure. The
relevant agencies, in today s terms, are the Department of
Immigration and Citizenship and the Australian Taxation Office.
The proposed new section 20P of the Bill
provided a mechanism to settle disputes arising out of a decision
relating to a payment under section 20H of the S(UMLM) Act,
including the amount paid by the Commissioner and/or destination of
the payment. A person includes the person to whom the amount
belongs, the person s legal representative, or a beneficiary. The
section refers to Part IVC of the Taxation Administration Act
1953 which sets out the procedures for dispute resolution for
taxation decisions.
The proposed new section 25A of the Bill
(item 18) authorises the Commissioner to quote the
tax file number of a person and of the fund while giving notice to
a superannuation provider under section 20C of the S(UMLM) Act.
Proposed new subsection 25(2A) (item 17) allows a
statement in the approved form from a provider to the Commissioner
to contain the tax file number of the provider, of the fund and of
the person identified in a notice under section 20C of the S(UMLM)
Act (if it was quoted to the provider or in the notice).
Under the provision of new paragraph 29(1)(aa) (item
20), the Commissioner can request the tax file number of a
person to be quoted for the purpose of administering the S(UMLM)
Act or Superannuation (Unclaimed money and Lost Members)
Regulations 1999 (Regulations) from someone who claims to be
entitled to a payment under the S(UMLM) Act, someone who claims to
be a lost member or someone who claims to be entitled to a payment
under the S(UMLM) Act and a lost member.
However, the amendment to subsection 29(4) (item
21) allows the person, who refuses to provide tax file
number to the Commissioner, not to be prevented from receiving
payment (if any) that is payable under Part 3A of the S(UMLM)
Act.
Item 22 (the new section 49 of the
Bill) issues a clarification that the money paid to the
Commissioner under the S(UMLM) Act is not held on trust by the
Commissioner and it is not special public money under the
Financial Management and Accountability Act 1997.
Items 23-27 amend the TAA on the tax treatment,
penalty provisions and taxation objections against a notice under
proposed section 20C of the S(UMLM) Act and under
the relevant provisions in Part 3A of the S(UMLM) Act. The
provisions also represent the amendment to the tax-free treatment
of a payment by the Commissioner to a fund as a roll-over
superannuation benefit, identifying it as included in the
contribution segment of the superannuation interest in the
receiving fund, and thus treating it as tax free component of the
interest. The non-inclusion of this payment in the assessable
income of the receiving fund would ensure that an amount which is
already subject to the DASP withholding tax is not further taxed
when it is paid by a fund as a superannuation benefit from the
interest.
Items 28-35 and 37 amend the ITAA to ensure
that a payment from the Commissioner under section 20H of the
S(UMLM) Act is a superannuation benefit under ITAA; the ITAA sets
out how to work out the tax-free component and the taxable
component of the payment that is a superannuation benefit. Under
the TAA, amounts that are payable or repayable to the Commissioner
by a provider under Part 3 of the S(UMLM) Act are a tax-related
liability, whereby a general interest charge accrues on any unpaid
amount after the time the payment becomes due and payable. The
rules to work out the tax components of a superannuation benefit
that is a payment from the Commissioner under section 20H of the
S(UMLM) Act are set out under Subdivision 307-C of the ITAA. Like
any other superannuation benefit, a payment from the Commissioner
can consist of a tax-free component , and a taxable component .
Except for the ASFA and CSA, there are no outright objections
recorded against the Bill by any other stakeholders, nor by any of
the non-government political parties.
There are certain sensitivities involved with the superannuation
agencies, especially with the implementation of the ATO system of
reporting by the superannuation providers given the concerns raised
by them with respect to compliance costs. These issues should be
given full consideration to ensure that compliance costs are kept
at a reasonable level commensurate with the policy objectives of
the legislation.
Kali Sanyal
17 October 2008
Bills Digest Service
Parliamentary Library
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