Occupational Superannuation Standards Regulations (Amendment)

EXPLANATORY STATEMENT

STATUTORY RULES 1990 No. 202

(Issued by the authority of the Treasurer)

The Occupational Superannuation (Reasonable Benefit Limits) Amendment Act 1990 (the amending Act), which received Royal Assent on 16 June 1990 and which comes into effect on 1 July 1990, amends the Occupational Superannuation Standards Act 1987 by inserting a new Part IIIA into the Act.

Part IIIA allows the regulations to prescribe a number of new matters, including:

• information to be provided to the Insurance and Superannuation Commissioner;

• the time periods within which such information must be provided;

• the way in which the Commissioner is required to determine the amount of a benefit which is within the reasonable benefit limits;

• the way in which the Commissioner may make an interim determination where the Commissioner has not been provided with all of the information which is necessary to make a determination; and

• the time period within which the Commissioner is required to make his determination.

Section 22 of the Act, which was amended by the amending Act, provides that the Governor-General may make regulations which are required or permitted to be prescribed under the Act or necessary or convenient to be prescribed for carrying out or giving effect to the Act and in particular:

• prescribing fees payable in respect of any matter under the Act; and

• prescribing methods for determining the reasonable benefit limits and for determining whether a part of an eligible termination payment or the value of a superannuation pension or an annuity is within or exceeds those limits.

The amending regulations will insert:

• a new Part IA into the existing regulations; and

• new standards with which superannuation funds and approved deposit funds must comply if they are to be treated as complying funds and hence receive concessional taxation treatment.

Part IA of the Regulations prescribes the way in which the Insurance and Superannuation Commissioner will determine the amount of a superannuation or termination of employment benefit paid to a person which is within the person’s reasonable benefit limits and the amount (if any) which is in excess of those limits.

The reasonable benefit limit is the maximum superannuation and termination of employment benefits which a person can receive on a concessionally taxed basis. The reasonable benefit limit is prescribed at regulation 4A. The limit is calculated according to the person’s salary and a multiple which reduces on a sliding scale where the person’s salary is in excess of prescribed threshold amounts. The Income Tax Assessment Act 1936 provides that the amount of the benefit which the Insurance and Superannuation Commissioner determines to be excessive will be taxed at the person’s marginal rate of tax.

In making his determination of the amount of a benefit paid to a person which is within the reasonable benefit limits and the amount (if any) which is excessive, the regulations provide that the

Commissioner will, under regulation 4Q, 4R, 4S, 4T or 4U, count an amount of the benefit towards the reasonable benefit limit. In many cases, the amount of the benefit counted is less than the total amount of the benefit received. Generally, the amount of a benefit counted will depend on the source from which the benefit was paid and the taxation treatment of that benefit.

The Commissioner will also take into account:

• whether the person has received a superannuation or termination of employment benefit in the past. If so, the Commissioner will be required to take this benefit into account under regulation 4P. Regulation 4P also provides that previous benefits which were paid before 16 February 1990, or which relate to benefits which were originally paid prior to 16 February 1990, are not to be included as benefits previously received;

• whether the benefit should be assessed against the lump sum reasonable benefit limit (regulation 4X) or the pension reasonable benefit limit (regulation 4Z);

• whether the person is covered by the transitional arrangements under regulation 4ZA, which apply to persons with amounts in an approved deposit fund, deferred annuity fund or registered organisation as at 15 February 1990; and

• whether the person is covered by the transitional arrangement under regulation 4ZB which protects persons who were, at 15 August 1989, entitled to receive a superannuation pension which was in excess of the reasonable benefit limits.

The regulations also insert two new standards with which a superannuation fund must comply if it is to be treated as a complying superannuation fund and hence be eligible for concessional taxation treatment. Those standards are:

• that superannuation funds cannot, without the approval in writing of the Insurance and Superannuation Commissioner, use a factor for converting a superannuation pension to a lump sum which is greater than the factor which the Commissioner uses to convert a superannuation pension to a lump sum equivalent value; and

• that superannuation funds cannot accept contributions for which a deduction can be received under the Income Tax Assessment Act 1936 which are greater than the amount calculated using the formula under regulation 18B.

The regulations also provide that approved deposit funds cannot pay out a benefit which is less than $500 unless it is necessary to close the depositor’s account.

A more detailed commentary on the new regulations is attached.

ATTACHMENT

OCCUPATIONAL SUPERANNUATION STANDARDS REGULATIONS (AMENDMENT)

Clause 1: Principal Regulations

Clause 1 provides that in the regulations, a reference to the “principal regulations” means the Occupational Superannuation Standards Regulations.

Clause 2: Commencement

Clause 2 provides that the regulations are to commence on 1 July 1990.

Clause 3: Insertion of Part IA into the Principal Regulations

Clause 3 provides for a new Part IA to be inserted into the Principal Regulations. The new Part IA will prescribe the rules with which the Insurance and Superannuation Commissioner will be required to comply when making a determination of the amount of a benefit paid to a person which is within the reasonable benefit limits and the amount of a benefit (if any) which is in excess of the reasonable benefit limits.

The reasonable benefit limit is the maximum amount of superannuation and kindred benefits that a person can receive on a concessionally taxed basis. It is based on the person’s salary and whether the person has received benefits principally in the form of a pension (or annuities) or principally in the form of a lump sum.

Interpretation

Regulation 4A will insert new definitions into the Principal Regulations which are to be used for the purposes, of proposed Part IA of the regulations. Notes on the definitions used in Part IA follow:

“accrued retirement benefit component” applies in relation to a superannuation pension which is paid as a result of the permanent disability of a person.

The component is that proportion of the capital value of the pension corresponding to that proportion of the number of days in the eligible service period to age 65 given by the number of days from the first day of the eligible service period to the commencement date of the pension.

That component which relates to service which the person would have had to age 65 if the person had not retired on disability grounds does not count towards the person’s reasonable benefit limit.

“approved early retirement scheme payment” is defined as having the same meaning as in subsection 27E(4) of the Income Tax Assessment Act 1936.

“benefit” is defined as including a superannuation pension, an annuity or an eligible termination payment.

“bona fide redundancy payment” is defined as having the same meaning as in subsection 27F(1) of the Tax Act.

“commencement day” in relation to a superannuation pension or annuity is defined as the first day of the period to which the first payment of the pension relates. Where a pension is paid in arrears, the commencement day would be at a date before the day on which the first payment was made.

“deferred annuity” is defined as an annuity which is not presently payable.

“defined benefit superannuation fund” is defined as a superannuation fund to which Regulation 3 of the Principal Regulations relates if ‘superannuation fund’ in that regulation had the same meaning as in section 15E of the Act. This ensures that unfunded superannuation schemes provided in the public sector are covered by the definition.

“disability annuity” is defined as an annuity that has been paid to a person as a result of the permanent disability of the person. A permanent disability is a disability which has been certified by 2 medical practitioners as being likely to prevent the person from ever being able to work in a job for which the person is reasonably qualified by way of education, training or experience. A “disability superannuation pension” is defined as having a corresponding meaning.

“eligible service period” in relation to an eligible termination payment is defined as having the same meaning as in subsection 27A(1) of the Tax Act.

“eligible service period” in relation to a superannuation pension is defined as meaning the period commencing on the date on which the person receiving the pension joined the superannuation fund making the payment and ending on the first day on which the pension was payable. However, where a person has rolled over an eligible termination payment into the superannuation fund making the payment of the superannuation pension, the eligible service period of the superannuation pension is to be taken to have commenced on the day on which the eligible service period of the eligible termination payment rolled over commenced.

“eligible service period” in relation to an annuity payable to a person is defined as meaning the sum of the number of days in the eligible service period of the eligible termination payment rolled over to purchase the annuity and

the number of days from that time to the commencement day of the annuity.

“ETP” is defined as meaning eligible termination payment.

“gainful employment” is defined as employment for at least 520 hours per year for which the person was paid a salary of at least the lesser of 20 per cent of full-time adult average weekly ordinary time earnings or the person’s Highest Average Salary.

“HAS” means Highest Average Salary which is the average of the three highest salaries paid to a person over any 3 consecutive financial years, including a year in which the person did not earn salary for the whole of the financial year. Financial year means 1 July to 30 June.

“index number” is defined as the amount of the full-time adult average weekly ordinary time earnings first published by the Australian Statistician for the middle month of a particular quarter.

“invalidity payment” is defined as having the same meaning as in section 27G of the Tax Act.

“lump sum RBL” means the lump sum reasonable benefit limit applying to a person. The lump sum reasonable benefit limit is the greater of:

• the amount calculated by multiplying the person’s highest average salary by a the lump sum reasonable benefit multiple; and

• $175,000.

In other words, the minimum lump sum reasonable benefit limit that can apply to a person is $175,000.

Where the person received an eligible termination payment before, or a superannuation pension or annuity that did not meet the pension and annuity standards that had a commencement day before the age of 55, the reasonable benefit limit is reduced by 2.5 per cent for each year that the person received the benefit prior to age 55.

“lump sum reasonable benefit multiple” means the multiple that is to be applied to the person’s highest average salary to determine the person’s lump sum reasonable benefit limit. The way in which the multiple is calculated will depend on whether the eligible service period in relation to the benefit being paid to the person commences on or after 1 July 1990. Where the eligible service period commences after 1 July 1990, the multiple is calculated as the sum of:

7 times $39,970, or where the person’s highest average salary is less than $39,970, 7 times the person’s highest average salary;

5 times the part of the person’s highest average salary which falls between $39,970 and $74,220;

3 times the part of the person’s highest average salary which is greater than $74,220;

divided by the person’s highest average salary.

Where the eligible service period commenced prior to 1 July 1990, a transitional multiple applies to the person. The transitional multiple is calculated as follows:

the proportion of the eligible service period that occurred prior to 1 July 1990 multiplied by an old benefit multiple plus the proportion of the eligible service period that occurred after 1 July 1990 multiplied by a new benefit multiple.

The old benefit multiple is the multiple calculated in accordance with Schedule 2. In general, it is the multiple of salary that would apply to a member of a superannuation fund as at 30 June 1990, if that member remained in the fund until retirement. The new benefit multiple is the multiple that would apply to the person if the eligible service period did not commence prior to 1 July 1990.

“net business income” is defined as the amount by which the gross income of the business exceeds the deductions allowable under the the Tax Act with respect to the business, other than deductions allowable under Division 16C of Part III of the Tax Act. Division 16C of Part III allows a deduction to primary producers for amounts deposited with income equalisation deposits. These amounts are not considered to be allowable deductions for the purposes of these regulations because they are special purpose deductions which ensure that the income of a primary producer is smoothed rather than being deductions relating to expenses incurred in producing income. By including deposits made to income equalisation deposits in the year of income in which they are deposited but not the associated deductions, the income of a primary producer for reasonable benefit limit purposes is maximised.

“net business losses” in relation to a financial year commencing on or after 1 July 1990 means the amount by which the deductions allowable under the Tax Act in respect of the business exceed the gross income of the business. Net business losses which occurred prior to 1 July 1990 were, under the former rules for the administration of the reasonable benefit limits, taken to be zero. If losses prior to this date were taken off Highest Average Salary it could result in the person being overfunded and, through the

retrospective effect of the definition, denied the opportunity to make further superannuation until that overfunding had abated contributions. Net business losses which occurred prior to 1 July 1990 are therefore ignored.

“non-qualifying component” is defined in relation to an eligible termination payment that is an immediate annuity eligible termination payment, as having the same meaning as in section 27A of the Tax Act.

“pension and annuity standards” is defined as meaning the standards prescribed in regulation 4ZC.

“pension RBL” means the greater of:

• the person’s highest average salary multiplied by the pension reasonable benefit multiple; and

• $281,250.

In other words, where the person is subject to the pension reasonable benefit limit, the minimum benefit that the person can receive on a concessionally taxed basis is $281,250.

“pension reasonable benefit multiple” means the multiple that is to be applied to the person’s highest average salary to determine the person’s pension reasonable benefit limit. The way in which the multiple is calculated will depend on whether the eligible service period in relation to the benefit being paid to the person commences on or after 1 July 1990. Where the eligible service period commences after 1 July 1990, the multiple is calculated as the sum of:

0.75 times $39,970, or where the person’s highest average salary is less than $39,970, 7 times the person’s highest average salary;

0.55 times the part of the person’s highest average salary which falls between $39,970 and $74,220;

0.35 times the part of the person’s highest average salary which is greater than $74,220;

divided by the person’s highest average salary and multiplied by 15.

Where the eligible service period commenced prior to 1 July 1990, a transitional multiple applies to the person. The transitional multiple is calculated as follows:

the proportion of the eligible service period that occurred prior to 1 July 1990 multiplied by an old benefit multiple plus the proportion of the eligible

service period that occurred after 1 July 1990 multiplied by a new benefit multiple.

The old benefit multiple is the multiple calculated in accordance with Schedule 2. In general, it is the multiple of salary that would apply to a member of a superannuation fund as at 30 June 1990, if that member remained in the fund until retirement. The new benefit multiple is the multiple that would apply to the person if the eligible service period did not commence prior to 1 July 1990.

“post-June 83 component” in relation to an eligible termination payment has the same meaning as in subsection 27A(1) of the Tax Act as in force on 30 June 1990. This means that the component is to be calculated disregarding any excessive component;

“pre-July 83 component” in relation to an eligible termination payment has the same meaning as in subsection 27A(1) of the Tax Act as in force on 30 June 1990. This means that the component is to be calculated disregarding any excessive component;

“RBL amount” is defined as the sum of the amounts of any superannuation pensions, eligible termination payments or annuities paid to a person which are counted towards a person’s reasonable benefit limits under regulation 4Q, 4R, 4S, 4T or 4U. The amount of a benefit which counts towards the reasonable benefit limits of a person can be, depending on the source of the benefit, less than the actual amount of the benefit paid to the person. The differences in these amounts arise from the different tax treatment of different benefits.

“rebatable superannuation pension” is defined as having the same meaning as in subsection 159SJ(1) of the Tax Act;

“rules” means, in relation to a superannuation fund, the rules governing the establishment and operation of the fund. The rules can be in the form of a trust instrument or any other document or legislation;

“salary” is defined as salary, wages, commissions, fees, allowances or gratuities paid to a person during a financial year including:

• other earnings;

• the value of fringe benefits which are covered by section 57, 57A or 58 of the Fringe Benefits Tax Assessment Act 1986. These sections of the Fringe Benefits Act apply to persons employed by religious institutions and public benevolent institutions and to live-in residential care workers. Fringe benefits other than fringe benefits covered by these provisions are not to be

included in salary for reasonable benefit limit purposes;

• remuneration of a director of a company; and

• income paid from an overseas source where the person is either an Australian resident or an Australian citizen, provided that the income would meet the definition of salary if it were paid from an Australian source.

The definition of salary also provides that the following types of income are not to be considered to be salary:

• distributions from a trust estate;

• allowances to cover expenses incurred by an employee on behalf of the person’s employer or business;

• eligible termination payments which are covered by subsection 27A(1) of the Tax Act;

• superannuation pensions; and

• annuities.

“standard indexation rate” is defined as meaning the rate determined in writing by the Commissioner before the start of a financial year, for that financial year. The standard indexation rate will be based on the Consumer Price Index (All Capital Cities) and will be used to value superannuation pensions which are indexed at the Consumer Price Index.

“superannuation fund” is defined as having the same meaning as in section 15E of the Occupational Superannuation Standards Act 1987. This definition of superannuation fund is wider than the definition of superannuation fund at regulation 3 in that it also covers superannuation schemes established under a law of the Commonwealth or of a State or Territory.

“taxed element” is defined as having the same meaning as in subsection 27A(1) of the Tax Act as in force on 30 June 1990.

“undeducted purchase price” is defined as having the same meaning as in subsection 27A(1) of the Tax Act.

“untaxed element” is defined as having the same meaning as in subsection 27A(1) of the Tax Act as in force on 30 June 1990.

Paragraph 4A(2)(a) provides that where salary is paid from an overseas source, the amount of that salary is to be

converted into Australian currency using the average of the exchange rates for the currency in which the salary is paid for the start and end of the financial year in which the salary was paid. Where the salary is not paid for the whole of a financial year, the applicable exchange rates are the rates that apply for the periods over which the overseas salary was paid.

Paragraph 4A(2)(b) provides that the salary of a person is increased by the person’s share of net business income and decreased by the person’s share of net business losses.

Paragraph 4A(2)(c) provides that where a person is an associate of an employer, the person’s salary for reasonable benefit limit purposes may be reduced by the Insurance and Superannuation Commissioner to an amount that would be payable to a person who was at arm’s length from the employer. The reduced salary, which is referred to as the “arm’s length salary”, then becomes the person’s salary for reasonable benefit limit purposes.

In determining the amount which should be the “arm’s length salary”, the Commissioner is to have regard to a number of factors, including the nature of the work performed, the hours worked and the salary that would be payable to a person who was not an associate of the employer for similar work and hours.

The power to reduce a salary for a person who is an associate of the employer for reasonable benefit limit purposes is necessary to protect the revenue against artificial arrangements whereby a person who is associated with an employer could be paid an artificially high salary for the purpose of receiving superannuation benefits which are concessionally taxed and which are greater than the benefits which could be received if the he or she were not associated.

Special rules relating to HAS

Regulation 4B provides for a number of special rules relating to highest average salary, including the circumstances in “Which a person’s highest average salary can be indexed and the way in which the highest average salary can be indexed.

Subregulation 4B(1) provides that where a person has not received salary for three consecutive financial years, the person’s highest average salary will be as follows:

• where the person had earned salary for 2 consecutive financial years, the average salary for those 2 years;

• where the person had earned salary for 1 full financial year but less than 2 financial years,

the salary for that year becomes the person’s highest average salary; and

• where the person had earned salary for less than 1 financial year, highest average salary is the current salary converted to an annual rate.

Subregulation 4B(2) specifies the circumstances in which a person is eligible for indexation of highest average salary. The subregulation proposes that highest average salary be indexed in the following circumstances:

• where the person was aged 55 years or over on 1 July 1990;

• the person was in gainful employment for at least 3 consecutive financial years after having reached the age of 55 years;

• the person had not received an eligible termination payment prior to the age of 65 years that was not rolled over, other than an eligible termination payment:

• that was paid prior to 16 February 1990;

• that was paid between 16 February 1990 and 1 July 1990 by an employer to whom the person was not associated;

• that consisted only of undeducted contributions, concessional components or non-qualifying components or a combination thereof. These components of an eligible termination payment are not subject to the reasonable benefit limits; or

• that was as a result of the commutation of a deferred annuity (that is, an annuity which is not presently payable), provided that the eligible termination payment is not paid more than 7 days prior to the person’s 65th birthday;

• the person had not received a superannuation pension or annuity prior to age 65, other than:

• a superannuation pension or annuity the first payment of which relates to a period prior to 16 February 1990; or

• a superannuation pension or annuity which meets the pension and annuity standards;

• the person has received, or become entitled to receive, an invalidity payment; or

• the person has received, or become entitled to receive, an approved early retirement scheme payment or a bona fide redundancy payment.

Subregulation 4B(3) provides for the method of indexing highest average salary. The method used depends on the circumstances under which the person qualifies for indexation.

Paragraph 4B(3)(a) provides that where the person qualifies for indexation of highest average salary because the person is aged 55 or more at 1 July 1990, highest average salary is to be indexed by the movement in the average weekly ordinary time earnings index for the March quarter of the later of:

• the last financial year in which the person’s highest average salary was measured; and

• the financial year in which the person reached the age of 55

to the average weekly ordinary time earnings index for the quarter 2 quarters prior to the quarter in which the eligible termination payment, superannuation pension or annuity was paid, or commenced to be paid to the person.

Paragraph 4B(3)(b) provides that where a person qualifies for indexation of highest average salary because he or she has been engaged in gainful employment for 3 consecutive financial years, highest average salary is to be indexed by the movement in the average weekly ordinary time earnings index for the March quarter of the later of:

• the financial year in which the person’s highest average salary was measured; and

• the financial year in which the person reached the age of 55 years

to the average weekly ordinary time earnings index for the last year in which the person was in gainful employment after the age of 55 years.

Paragraph 4B(3)(c) provides that where a person has not taken an eligible termination payment, superannuation pension or annuity (other than a pension or annuity which meets the pension and annuity standards) prior to the age of 65 years, the highest average salary is to be indexed by the movement in the average weekly ordinary time earnings index from the March quarter of the last financial year in which the highest average salary was measured to the average weekly, ordinary time earnings index for the quarter 2 quarters before the quarter in which the eligible termination payment, superannuation pension or annuity was paid, or commenced to be paid to the person.

Paragraph 4B(3)(d) provides that where a person is eligible for indexation of highest average salary because they have received, or commenced to have received an invalidity payment, the highest average salary is to be

indexed by the movement in the average weekly ordinary time earnings index from the March quarter in the financial year in which the person received or became entitled to receive the invalidity payment to the average weekly ordinary time earnings index for the quarter 2 quarters before the quarter in which the eligible termination payment, superannuation pension or annuity was paid, or commenced to be paid to a person. This ensures that a person who has received an invalidity payment is treated, for reasonable benefit limit purposes, as if he or she were still in the workforce.

Paragraph 4B(3)(e) provides that where a person is entitled to indexation of highest average salary because they have received or become entitled to receive an approved early retirement scheme payment or a bona fide redundancy payment, the highest average salary is to be indexed by the movement in the average weekly ordinary time earnings index from the March quarter for the financial year in which the person received or became entitled to receive the payment to the earlier of:

• the March quarter for the financial year 2 years after the financial year in which the person received or became entitled to receive the payment; and

• the quarter 2 quarters before the quarter in which the eligible termination payment, superannuation pension or annuity was paid.

This ensures that a person who has received a bona fide redundancy payment or an approved early retirement scheme payment is treated, for reasonable benefit limit purposes, as if he or she were still in the workforce for up to two years from the time of receiving the payment.

Subregulation 4B(4) provides that a person is not eligible for indexation of highest average salary:

• where paragraph 2(b) or (c) applies, and the current benefit is paid within 12 months of the end of the financial year on which the person’s highest average salary was based; or

• where paragraph 2(d) or (d) applies, and the current benefit is paid within 12 months of the person receiving or becoming entitled to receive the invalidity payment, bona fide redundancy payment or approved early retirement scheme payment.

This provision does not apply where a person is eligible for indexation of highest average salary because they were over the age of 55 years on or before 1 July 1990.

The indexation of highest average salary provisions are also not to apply where they would result in a reduction in highest average salary.

Subregulation 4B(5) provides that where a person is eligible for indexation of highest average salary under one or more of the tests specified in subregulation 4B(2), the person’s highest average salary should be indexed using the test which gives the person the higher or highest amount.

Subregulation 4B(6) provides that where a person’s highest average salary is indexed and the indexed highest average salary is not a multiple of $10, the highest average salary should be rounded to the nearest increased multiple of $10.

Indexation

Regulation 4C provides for the indexation of certain amounts. The amounts to be indexed are:

• the amount referred to in subparagraph (a)(ii) of the definition of ‘lump sum RBL’. The amount is currently specified as $175,000;

• the threshold amounts referred to in the definition of lump sum reasonable benefit multiple and pension reasonable benefit multiple. These amounts are currently specified as $39,970 and $74,220;

• the amount referred to in the definition of pension RBL. This amount is currently specified as $281,250; and

• the amount of $2,500 referred to in regulation 4H.

The amounts specified are to be indexed annually, commencing on 1 July 1991. The amount specified in the regulations (called the “base amount”) is to be substituted by a new number worked out by multiplying the base amount by the index for full time adult average weekly ordinary time earnings for the March quarter immediately preceding 1 July and dividing the product by the index for average weekly ordinary time earnings for the previous March quarter. This provision will ensure that the real value of these amounts is maintained.

Subregulation 4C(2) provides that, where the Australian Statistician publishes an index number in respect of a quarter which is in substitution for an index number which was previously published, the later index number is to be disregarded for the purposes of this Part.

Subregulation 4C(3) provides that where the Australian Statistician changes the reference base for an index number, for the purposes of this Part regard is only to be had to index numbers published in terms of the new reference base after the change took place.

Subregulation 4C(4) provides that where an amount is indexed under subregulation 4C(1) and the indexed amount is not a multiple of $10, the amount should be rounded to the nearest increased multiple of $10.

Capital Value of superannuation pensions

Subregulation 4D(1) provides for the calculation of the capital value of a superannuation pension that commences to be paid. For the purposes of determining whether the amount of a superannuation pension is within the reasonable benefit limits and the amount (if any) which in excess of the reasonable benefit limits the amount of the pension is converted to a lump sum value.

The lump sum value of a superannuation pension is calculated by multiplying the total amount of the pension expected to be paid within 12 months of the commencement date of the pension, (referred to in the regulation as the ‘annual value’) by the relevant pension valuation factor and adding to this any residual capital value of the pension. The undeducted purchase price is deducted from this amount as it is not counted towards the person’s reasonable benefit limits.

The residual capital value of the pension is defined as the net present value of the actual residual capital value, calculated in accordance with a method determined in writing by the Commissioner. In view of the variety of assumptions which could be used to calculate the net present value, the Commissioner will consult with industry representatives before determining the appropriate methodology.

Subregulation 4D(2) provides that where the superannuation pension is a ‘superannuation pension’ to which subsection 15E(1) of the Act applies or is a superannuation pension that is not payable for life, the capital value of the pension is to be calculated in accordance with a method determined by the Commissioner in writing. Given that the capital value of the pension will depend on a number of variables, it is not possible to prescribe a single method for valuing all such pensions. Each pension product will therefore be valued on a case by case basis.

Extension of certain time periods

Regulation 4AA provides that where a person is required to provide information to the Commissioner under section 15F of the Act or under section 15J of the Act, and the person does not provide the information within the time period prescribed in regulation 4F or 4J, and the person applies to the Commissioner for an extension of time prior to the day on which the original time period would have expired, the Commissioner may approve, in writing, additional time in which to provide the information.

By allowing the Commissioner to extend the time period in which information may be provided under section 15F or 15J of the Act, regulation 4AA provides the Commissioner with the scope to allow additional reasonable time for a person to provide the information required under the Act before the penalty provisions of the Act come into force. This will be particularly important in the period shortly after 1 July 1990 when the superannuation industry is learning about the new requirements imposed by the Occupational Superannuation (Reasonable Benefit Limits) Amendment Act 1990 and the Occupational Superannuation Standards Regulations. (The Act, at subsections 15G(10) and 15G(11) also contains an additional discretion for the Commissioner not to treat a superannuation fund or approved deposit fund as non-complying where he considers it reasonable and where the fund has become non-complying because it has failed to provide the information required to be provided by the Act.)

Information under section 15F of the Act

Regulation 4F provides that where a payer is required to provide information under subsection 15F(1) of the Act, the period within which the information must be provided is the period ending on 30 September 1990. The regulation also provides that the prescribed information for the purposes of subsection 15F(1) of the Act is that information specified in Schedule 4.

Information under section 15F of the Act

Subregulation 4G(1) provides that the prescribed information for the purposes of subsection 15G(1) and (3) of the Act is the information specified in Schedule 5. Subsection 15G(1) of the Act relates to the provision of information by a payer to the Commissioner whilst subsection 15G(3) relates to the provision of information by a payer to an individual.

Subregulation 4G(2) sets out the period within which information for the purposes of subsection 15G(3) and paragraph 15G(13)(a) of the Act has to be provided by a payer to a person and by a payer to the Commissioner.

Where a person has provided his or her tax file number to the payer on or before the 10th day of the month after the month in which the payment day falls, the prescribed time period is 14 days after the end of the month in which the payment day falls.

Where a person has advised the payer on or before the 10th day of the month after the month in which the payment day falls that he or she has made an application for a tax file number or has an application pending, the prescribed time period is 14 days after the end of the month after the month in which the payment day falls.

In all other cases the prescribed time period is 14 days after the end of the month in which the payment day falls.

Subregulation 4G(3) provides that for the purposes of subregulation 4G(2) no information for the purposes of subsection 15G(3) or paragraph 15G(13)(a) of the Act is required to be provided before 14 September 1990. This will be particularly important in the period shortly after 1 July 1990 when the superannuation industry is learning about the new requirements imposed by the Occupational Superannuation (Reasonable Benefit Limits) Amendment Act 1990 and the Occupational Superannuation Standards Regulations.

Subregulation 4G(4) provides that where the time period for providing information for the purposes of subsection 15G(1) of the Act is extended under subsection 15G(13) of the Act, the time period for providing information for the purpose of subsection 15G(3) of the Act is extended by the same number of days.

Subregulation 4G(5) provides that for the purposes of paragraph 15G(13)(b) of the Act the prescribed period for provision of the required information is the period ending on 30 September 1990.

Subregulation 4G(6) provides that the prescribed information that is required to be provided by payers pursuant to subsection 15G(7) of the Act is that information set out in Schedule 6. Subsection 15G(7) of the Act relates to the provision of information concerning the payment of benefits between 16 February 1990 and 30 June 1990.

Exempted Payments

New Regulation 4H provides that for the purpose of subsection 15G of the Act the amount is $2,500. This means that any ETPs provided by superannuation funds and employers which are under this amount do not have to be advised to the Commissioner. This will ease the administrative burden on payers of ETPs.

Information under section 15J of the Act

Subregulation 4J(1) provides that for the purposes of paragraph 15J(1)(b) of the Act a person must provide details of a transaction to which that paragraph relates within 28 days of the transaction taking place. Paragraph 15J(1)(b) of the Act provides that a person rolling over an eligible termination payment within the roll-over period must provide certain prescribed information to the Commissioner.

Subregulation 4J(2) provides that the information required to be provided by a person in relation to the

rolling over of an eligible termination payment is the information specified in Schedule 7.

Subregulation 4J(3) provides that for the purposes of subsection 15J(2) of the Act the information required to be provided by a payer who directly rolls over an eligible termination payment on behalf of a person is the information specified in Schedule 5 other than the information in that Schedule relating to superannuation pensions and annuities.

Subregulation 4J(4) provides that for the purposes of paragraph 15J(2)(d) of the Act a payer must provide the prescribed information concerning the direct rollover of an eligible termination payment on behalf of a person within 14 days after the end of the month in which the transaction took place.

Period for determination of reasonable benefit limits

Subregulation 4K(1) sets out the time period within which the Commissioner is required to make a determination or interim determination in relation to the amount of an eligible termination payment, superannuation pension or annuity paid to a person that is within the person’s reasonable benefit limits or that is in excess of the person’s reasonable benefit limits.

The prescribed time period is dependant on when the Commissioner receives the notice required under subsection 15K(1) of the Act. Where the notice is received before 1 February 1991, the Commissioner is required to make a determination within the period of 9 months reduced by the number of days between 1 July 1990 and the day on which the notice is received.

Where the notice is received after 1 February 1991, the Commissioner is required to make his determination within 60 days after receiving the notice.

The additional period of up to 9 months from 1 July 1990 for the making of a determination in relation to benefits paid between 1 July 1990 to 1 February 1991 is to allow receipt of information by the Commissioner in relation to rollover amounts held on behalf of individuals at 15 February 1990 and benefits paid out between 15 February 1990 and 30 June 1990, which are necessary for the determination of the person’s reasonable benefit limits.

Subregulation 4K(2) sets out the time period within which, for the purposes of subsection 15K(6) of the Act, the Commissioner is required to revise a determination. Where the notice required to be provided under subsection 15J(1) of the Act is received before 1 February 1991, the Commissioner is required to revise the relevant determination within the period of 9 months after the day on which the notice is received, reduced by the number of days between 1 July 1990

and the date on which the notice is received. Where the notice is received after 1 February 1991, the Commissioner, for the purposes of subsection 15K(6) of the Act, has 60 days after receiving the notice to revise the relevant determination. The additional initial period of 9 months is provided for the same reasons as those outlined in relation to subregulation 4K(1).

Subregulation 4K(3) provides that for the purposes of subsection 15K(7) of the Act, the prescribed period whereby a person may elect to commute a superannuation pension or annuity is 6 months after the commencement day of the pension or annuity.

Subregulation 4K(4) sets out the time period within which, for the purposes of subsection 15K(7) of the Act, the Commissioner is required to revise a determination. (Subsection 15K(7) applies where a person elects to commute a superannuation pension or annuity within 6 months of the commencement of the pension or annuity). Where the notice required to be provided under subsection 15K(7) of the Act is received before 1 February 1991, the Commissioner is required to revise the relevant determination within the period of 9 months after the day on which the notice is received, reduced by the number of days between 1 July 1990 and the date on which the notice is received. Where the notice is received after 1 February 1991, the Commissioner for the purposes of subsection 15K(7) of the Act has 60 days after receiving the notice to revise the relevant determination. The additional initial period of 9 months is provided for the same reasons as those outlined in relation to subregulation 4K(1).

Subregulation 4K(5) sets out the time period within which, for the purposes of subsection 15K(8) of the Act, the Commissioner is required to revise a determination. (Subsection 15K(8) applies where a person advises the Commissioner that the Commissioner of Taxation has reduced the amount of an ETP). Where the notice required to be provided under subsection 15K(8) of the Act is received before 1 February 1991, the Commissioner is required to revise the relevant determination within the period of 9 months after the day on which the notice is received, reduced by the number of days between 1 July 1990 and the date on which the notice is received. Where the notice is received after 1 February 1991, the Commissioner for the purposes of subsection 15K(8) of the Act has 60 days after receiving the notice to revise the relevant determination. The additional initial period of 9 months is provided for the same reasons as those outlined in relation to subregulation 4K(1).

Request for information by pavers

Subregulation 4L(1) provides that for the purpose of subsection 15P(1) of the Act the required information is:

• a copy of any determination made by the Commissioner. The determination requested must be in relation to an eligible termination payment previously paid to a person or a superannuation pension or annuity that had commenced to be paid to a person; and

• the indexed value of the amount of the ETP, superannuation pension or annuity that has been counted towards the person’s reasonable benefit limits.

Subregulation 4L(2) provides that for the purposes of subregulation 4L(1) the indexed value of the amount of the eligible termination payment, superannuation pension or annuity that has been counted towards the person’s reasonable benefit limits is to be the RBL amount of the eligible termination payment, superannuation pension or annuity indexed by the movement in the average weekly ordinary time earnings index for the quarter in which the benefit on which information has been requested was paid or commenced to be paid to the average weekly ordinary time earnings index for the quarter 2 quarters prior to the quarter in which the current eligible termination payment, superannuation pension or annuity was paid or commenced to be paid.

Subregulation 4L(3) provides an exemption to subregulation 4L(2). Subregulation 4L(2) does not apply in relation to an eligible termination payment, superannuation pension or annuity where the current benefit referred to in paragraph 15P(1)(a) or (b) of the Act was paid, in the case of an eligible termination payment, or the commencement day in relation to a superannuation pension or annuity occurs, within 12 months of the payment or commencement of payment of the previous benefit.

Interim determination

Regulation 4M sets out the rules that the Commissioner is to apply when making an interim determination of the amount of a benefit paid to a person which is within the reasonable benefit limits and the amount of a benefit (if any) which is in excess the reasonable benefit limits. When a payer is required to provide information concerning a benefit payment to the Commissioner, some of the information is prescribed information whilst the provision of other information will be optional. The rules set out the values that will be used by the Commissioner in making an interim determination where the optional information is not provided by the payer.

This approach has been adopted for administrative reasons. The number of variables on which information is required to value a benefit, particularly pensions, is large and all of the information necessary to determine a person’s reasonable benefit limit may not be available to the payer,

eg. all information on a person’s highest average salary. In some instances, therefore, all of the information necessary for the Commissioner to make a final determination may not be provided or be able to be reasonably provided by the payer. This approach allows a value to be substituted for an unknown variable where it is reasonable to do so and an interim determination made.

Paragraph 15M(1)(b) of the Act provides that where an interim determination is made, the Commissioner must advise the person of this and the information which must be received by him to make a final determination. When the information is received, the interim determination is revised and the person advised of the final determination.

The rules that the Commissioner is to apply are as follows:

• where a person’s HAS is not known, the Commissioner is to assume that:

- the person’s lump sum RBL is $175,000 or, where the person is less than 55 years of age, that amount discounted in accordance with paragraph (b) of the definition of lump sum RBL; or

- the person’s pension RBL is $281,250; or

- if the person is covered by regulation 4ZA or 4ZB, the greater RBL applicable under those regulations;

• where the amount of the reversion applicable to a superannuation pension is not known, the Commissioner is to assume that an amount of 85% applies to the reversion;

• where the rate of indexation of a superannuation pension is not known, the Commissioner is to assume that the pension is indexed at the rate that is published by the Commissioner in relation to the financial year in which the pension is paid;

• where it is not known whether a superannuation pension is a rebatable superannuation pension, the Commissioner is to assume that it is;

• where it is not known whether a superannuation pension or an annuity is a disability superannuation pension or disability annuity, the Commissioner is to assume that the superannuation pension or annuity is not a disability superannuation pension or disability annuity;

• where is is not known whether the superannuation pension or annuity meets the pension or annuity standards, the Commissioner is to assume that it is not;

• where the person’s old RBM is not known, the Commissioner is to assume that if the benefits paid to the person are to be assessed against the lump sum RBL, that the old RBM is 7 and where the benefits are assessed against the pension RBL, that the old RBM is 11.25;

• where it is not known whether an ETP is the result of the commutation or the residual capital value of a superannuation pension or annuity that has commenced to be paid, the Commissioner is to assume that it is not;

• where it is not known whether an ETP that is the result of the commutation or the residual capital value of a superannuation pension or annuity that has commenced to be paid has been rolled over, the Commissioner is to assume that the ETP has not been rolled over;

• where is it not known whether a superannuation pension that has commenced to be paid is payable for life, the Commissioner is to assume that the pension is payable for life; and

• where the Commissioner does not know whether proposed regulation 4ZB applies to a person, the Commissioner is to assume that the regulation does not apply. (Regulation 4ZB provides a transitional arrangement for those people who were members of certain superannuation funds as at 15 August 1989.)

Amendment of interim determinations

Subregulation 4N(1) provides that the period within which a person can apply to the Commissioner for an amendment of an interim determination is 60 days after the notice of the determination was given.

Subregulation 4N(2) provides that a person must apply for an amendment of an interim determination in accordance with a form that has been approved in writing by the Commissioner.

Subregulation 4N(3) provides that a person is only able to apply for an amendment of an interim determination where the person is able to provide relevant information that was not available to the Commissioner when the original determination was made.

Subregulation 4N(4) provides that the Commissioner after receiving an application for amendment of an interim determination, has 60 days to amend the original determination.

Subregulation 4N(5) provides that where a person has not made an application for an amendment of an interim determination within the prescribed period of 60 days, that the person is still able to make an application if:

• circumstances beyond the person’s control prevented the person making an application within the 60 days; and

• the person is able to provide relevant information that was not available to the Commissioner when the original determination was made.

Previously received benefits

Regulation 4P provides that when the Commissioner is to make a determination in relation to a benefit paid or commencing to be paid to a person, the Commissioner is to take into account any ETPs, superannuation pensions or annuities previously paid or commenced to be paid to the person.

Subregulation 4P(1) provides that the Commissioner will not take into account certain benefits as benefits previously received. These benefits can be separated into 6 main categories:

i) eligible termination payments, superannuation pensions and annuities which were paid or commenced to be paid prior to 16 February 1990;

ii) ETPs made directly by employers to arm’s length employees prior to 1 July 1990;

iii) ETPs paid as a result of the commutation or residual capital value of a superannuation pension or annuity which commenced prior to 1 July 1990, or of a pension or annuity which did not meet the pension and annuity standards, or a residual pension or annuity payable on the partial commutation of such pensions and annuities.

Where the superannuation pension or annuity had a commencement day prior to 16 February 1990, the capital value of the pension or annuity is not counted towards the reasonable benefit limits. The commutation of such a pension or annuity is merely changing the form in which the benefit is paid, not the fact that it commenced to be paid prior to 16 February 1990.

Where the pension or annuity had a commencement day on or after 16 February 1990 and before 1 July 1990 or where a pension or annuity does not meet the pension and annuity standards, the capital value of the pension or annuity will be counted towards a person’s reasonable benefit limits. If the ETP arising from the commutation or residual capital value of such a pension or annuity were counted when it was paid, an element of the pension or annuity would be double counted. It is therefore necessary to disregard these benefits. Similarly, to count any residual pension or annuity arising out of the partial commutation of such a pension or annuity would also mean that there is an element

of double counting. Such residual pensions and annuities are therefore not to be counted as benefits previously received;

iv) superannuation pensions or annuities which are payable as a result of the death of a person and which are a reversion of another pension or annuity that was already payable to the other person, or the ETP arising out of the commutation of such a pension or annuity.

Where a superannuation pension or annuity has a reversion on the death of the primary beneficiary, the value of that reversion is included in the value of the pension or annuity paid to the primary beneficiary when it commenced to be paid and is counted towards that person’s reasonable benefit limit. There would be an element of double counting if the reversionary pension or annuity were also counted against the reasonable benefit limits of the recipient of the reversionary benefit;

v) ETPs paid to a person in the capacity of a trustee of a trust estate.

Where a person is acting as the trustee of an estate, that trustee is bound to apply any monies in accordance with the will. The trustee does not generally have use of the money. Where an ETP is paid to an estate, it would therefore be inequitable to count that ETP towards the reasonable benefit limits of the trustee; and

vi) an ETP in relation to which the Commissioner has made a determination and which has subsequently been rolled over or a superannuation pension or annuity which meets the pension and annuity standards and which has been commuted.

In these cases the Commissioner, under regulation 4V, will disregard the ETP rolled over or the amount of the superannuation pension or annuity which has been commuted. These benefits are also not to be counted as benefits previously received.

Subregulation 4P(1) also provides that no part of the abovementioned benefits are to be counted towards the reasonable benefit limits of a person.

Subregulation 4P(2) provides that when making a determination in relation to a benefit paid to a person, the Commissioner must take into account the RBL amount of certain benefits previously received. The RBL amount of a benefit is defined at subregulation 4A(1) as the amount of the benefit which is counted towards the reasonable benefit limits under regulation 4Q, 4R, 4S, 4T or 4U. The benefits which are to be taken into account as benefits previously received are:

• an ETP made to the person on or after 16 February 1990, other than an ETP made directly by an employer to an

employee who is not an associate of the employer prior to 1 July 1990;

• the capital value of a superannuation pension which commenced on or after 16 February 1990. The capital value of a superannuation pension is the lump sum equivalent value of the pension calculated in accordance with Regulation 4D;

• the amount of the ETP rolled over to purchase an annuity which had a commencement day on or after 16 February 1990.

Subregulation 4P(3) provides that where a person:

• rolls over an amount which is the whole or a part of the residual capital value of a superannuation pension; or

• commutes the whole or a part of a superannuation pension and rolls over the whole or part of the ETP arising from the commutation,

the amount which the Commissioner is to take into account as the capital value of the superannuation pension previously received is to be reduced by the amount of the ETP rolled over (other than any part of the ETP which consists of undeducted contributions or concessional components) provided that the capital value of the pension to be taken into account as a benefit previously received cannot be reduced to a negative amount.

Subregulation 4P(4) provides that where a person:

• rolls over an amount which is the whole or a part of the residual capital value of an annuity; or

• commutes the whole or part of an annuity and rolls over the whole or a part of the ETP arising from the commutation,

the amount of the annuity which the Commissioner took into account as the benefit previously received is to be reduced by the amount of the ETP rolled over (other than any part of the ETP consisting of undeducted contributions or concessional components), provided that the amount taken into account as a benefit previously received cannot be reduced to a negative amount.

The purpose of subregulations 4P(3) and 4P(4) is to ensure that the amount taken into account as a benefit previously received reflects the amount of concessionally taxed benefits which the person has actually received in hand. Where the person rolls-over the residual capital value of a superannuation pension or annuity, or an ETP arising from the commutation of a superannuation pension or annuity,

part of the value of that pension or annuity has ceased to be received as the ETP has again entered an environment which is concessionally taxed.

Subregulation 4P(5) provides for the indexation of the RBL amount of a benefit (that is, the amount of an ETP, superannuation pension or annuity which has been counted towards the reasonable benefit limits) previously received by a person. Subregulation (5) provides that a benefit previously received will be indexed by the movement in the index for average weekly ordinary time earnings published by the Australian Statistician for the middle month of a particular quarter, from:

• the quarter in which the ETP previously received was paid or the quarter in which the commencement day of the superannuation pension or annuity previously received occurs; to

• the quarter 2 quarters before the quarter in which the current benefit was paid or in which the commencement day of the current superannuation pension or annuity occurs.

The purpose of subregulation 4P(5) is to ensure that the real value of benefits previously received is taken into account when the Commissioner is determining whether a current benefit is within the reasonable benefit limits or is in excess of those limits.

Subregulation 4P(6) provides for an exception to the requirement that the Commissioner take into account the indexed value of previously received benefits. The subregulation provides that the previously received benefits will not be indexed in the following case:

• where a person had an amount deposited with an approved deposit fund or a rolled-over amount held by a life assurance company or registered organisation as at 15 February 1990; and

• the person’s reasonable benefit limit is determined under paragraph 4ZA(1)(c) or (d). These provisions provide that where the amount held (or the amount plus earnings where the person was the age of 50 or more at 15 February 1990) is greater than the person’s lump sum or pension reasonable benefit limit, that amount becomes the person’s limit; and

• the sum of the amount of the current benefit and the amount of any previously received benefits is less than either:

- where the person was aged 50 or more at 15 February 1990 - the rollover amounts held in any approved deposit fund, life assurance company

or registered organisation as at 15 February 1990 plus any earnings on those amounts; or

- if the person was under age 50 at 15 February 1990 - the rollover amount held in any approved deposit fund, life assurance company or registered organisation as at 15 February 1990.

Together with regulation 4ZA, subregulation 4P(6) will ensure that persons with rolled-over amounts held in approved deposit funds, life assurance companies or registered organisations as at 15 February 1990 will not be retrospectively affected by the application of the reasonable benefit limits to benefits held in approved funds and deferred annuity funds.

Subregulation 4P(7) provides that a benefit previously received will not be indexed where the current benefit is received or where the commencement day of a superannuation pension or annuity occurs within 12 months of the previous benefit. Not applying indexation to benefits previously received where the next benefit is received within 12 months is also consistent with subregulation 4B(4) which provides that Highest Average Salary cannot be indexed within 12 months of being measured.

Subregulation 4P(8) provides that where a benefit previously received is indexed under subregulation (5), only the whole dollars will be taken into account.

Amounts of ETPs paid by superannuation funds or approved deposit funds counted towards reasonable benefit limits

Regulation 4Q provides that where an ETP is paid by a superannuation fund or approved deposit fund, the amount of the ETP to be counted towards a person’s reasonable benefit limits is:

• 100% of the pre-July 83 component of the ETP;

• 100% of the taxed element of the post-June 83 component of the ETP; and

• 85% of the untaxed element of the post-June 83 component of the ETP.

Where an ETP contains an untaxed element, because the tax on contributions has not been paid in respect of that element, the untaxed element is subject to a higher rate of tax in the hands of the recipient. By counting 85% of the untaxed element of the post-June 83 component towards a person’s reasonable benefit limits, regulation 4Q ensures that, in after tax terms, the same amount of an untaxed element of an ETP is counted towards the reasonable benefit limits as is counted of a taxed element towards the reasonable benefit limits.

Amount of superannuation pensions counted towards reasonable benefit limits

Subregulation 4R(1) provides that the amount of a superannuation pension (other than a disability superannuation pension) to be counted towards the reasonable benefit limits of a person is:

• the amount of the capital value (that is, the lump sum equivalent value of the pension calculated under regulation 4D) of the pension which relates to the proportion of the eligible service period of the pension which occurred prior to 1 July 1983;

• where the pension is a rebatable superannuation pension - the amount of the capital value of the pension which relates to the proportion of the eligible service period of the pension which occurred after 30 June 1983; or

• where the pension is not a rebatable superannuation pension (that is, the person is not entitled to a rebate in respect of the pension) - 80% of the amount of the capital value of the pension which relates to the proportion of the eligible service period of the pension which occurred after 30 June 1983.

Where a person is not entitled to a rebate for a superannuation pension, the pension is taxed at a higher rate in the hands of the recipient than a pension for which the person is entitled to a rebate. Whether a pension is rebatable depends on whether tax was paid on any contributions to fund the pension. By only counting 80 per cent of the post 30 June 1983 proportion of a pension for which the person will not receive a rebate towards the reasonable benefit limits of a person, subregulation 4R(1) ensures that, in after tax terms, the same amount of a non-rebatable pension is counted towards the reasonable benefit limits as is counted of a rebatable pension.

Subregulation 4R(2) provides that where a pension is a disability superannuation pension, only the accrued retirement benefit component of the pension is counted towards a person’s reasonable benefit limits. The accrued retirement benefit component of a pension is defined at subregulation 4A(1). Essentially, it is that part of the pension which is taken to have accrued up until the date of disability of the person. The future service element of a disability pension is not counted towards the reasonable benefit limits of a person. This is consistent with the amount of an ETP paid on permanent disablement which is counted towards the reasonable benefit limits of a person. Where a person retires on the grounds of invalidity, that part of the ETP which relates to service which the person may have served but for invalidity is not counted towards a person’s reasonable benefit limit as it is the amount paid to compensate for early retirement arising from the disability.

Subregulation 4R(2) also provides that the full amount of the accrued retirement benefit component of a disability pension which relates to the proportion of the eligible service period which occurred prior to 1 July 1983 and, if the pension is a rebatable pension, the full amount of the accrued retirement benefit component which relates to the proportion of the eligible service period which occurred after 30 July 1983, are counted towards the person’s reasonable benefit limit. Where the pension is not a rebatable pension, only 80% of the post 30 June 1983 proportion of the accrued retirement benefit component of the pension is counted towards the person’s reasonable benefit limits.

Amount of ETP paid by life assurance companies or registered organisations counted towards reasonable benefit limits

Regulation 4S provides for the amount of an ETP paid by a life assurance company or registered organisation which is to be counted towards the reasonable benefit limits of a person.

Paragraph 4S(a) provides that where the ETP is made as a result of the commutation of the whole or a part of an annuity which meets the pension and annuity standards, the whole of the ETP (other than undeducted contributions, concessional components or non-qualifying components) is counted towards the reasonable benefit limits of the person.

Where an annuity meets the pension and annuity standards and is commuted, the amount which was previously counted towards the reasonable benefit limits of the person as the value of the annuity ceases to be taken into account under Regulation 4V. Paragraph 4S(a) then ensures that the ETP arising from the commutation (other than undeducted contributions and concessional components) are taken into account. Paragraph 4T(b) ensures that, where the ETP arises from a partial commutation of the annuity, the amount of the residual annuity is taken into account.

Paragraph 4S(b) provides that where the ETP is the result of the commutation of a deferred annuity (that is, an annuity which was not in payment), the whole of the ETP (other than undeducted contributions, concessional components and non-qualifying components) is counted towards the reasonable benefit limits of the person. Given that the annuity had not commenced to be paid, the value of the annuity has not been counted towards the reasonable benefit limits of the person. It is therefore necessary to count the full amount of any ETP arising out of the commutation of a deferred annuity.

Any other ETP paid by a life assurance company or registered organisation is, under subregulation 4P(1), not counted towards a person’s reasonable benefit limits.

Regulation 4T provides that where an annuity commences to be paid to a person, the value of the annuity to be counted towards the reasonable benefit limits of a person is the sum of the following components of the ETP rolled-over to purchase the annuity:

• 100% of the pre-July 1983 component;

• 100% of the taxed element of the post-June 1983 component; and

• 85% of the untaxed element of the post-June 1983 component.

The sum of these components is the purchase price of the annuity.

However, where the annuity commenced to be paid as a result of the partial commutation of another annuity which met the pension and annuity standards, paragraph 4T(b) provides that the amount of the residual annuity to be counted towards the reasonable benefit limits of the person is the amount of the ETP rolled over to purchase the annuity reduced by the amount of the ETP arising from the commutation of the other annuity which met the pension and annuity standards. The amount of the ETP arising from the commutation of the annuity is counted under paragraph 4S(a).

Amount of ETP paid by an employer counted towards reasonable benefit limits

Regulation 4U provides that where an ETP is paid by an employer to an employee (an ex gratia payment), the amount of the ETP to be counted towards the reasonable benefit limits of the person is:

• where the person is an associate of the employer, the sum of:

- 100% of the pre-July 1983 component of the ETP; and

- 85% of the post-June 1983 component of the ETP; and

• where the person is not an associate of the employer, 85% of the post-June 1983 component of the ETP, phased in over a 5 year period. The full 85% will not be counted until 1994/95.

ETPs made directly by an employer to an employee who is an associate have been subject to the reasonable benefit limits since 1985. However, ETPs made directly by an employer to an employee who is not an associate have not been previously subject to the reasonable benefit limits. Paragraph 4U(b) ensures that the application of the reasonable benefit limits to these ETPs is not retrospective and that it is phased in.

Only 85% of the post-June 1983 component of an ETP made by an employer to an employee is counted towards the reasonable benefit limits as payments made directly by employers are not funded, and the tax on contributions has therefore not been paid. The ETP is therefore taxed at a higher rate in the hands of the recipient. By counting 85% of the untaxed element of the payment, regulation 4U ensures that, in after tax terms, the same amount of the untaxed element of an ETP is counted towards the reasonable benefit limits of a person as is counted of a taxed element towards the reasonable benefit limits of a person.

Revised determinations

Regulation 4V provides that where the Commissioner revises a determination in relation to a person because the person has either:

• rolled over an ETP in relation to which the Commissioner has already made a determination; or

• commuted the whole or part of a superannuation pension or annuity in relation to which the Commissioner has already made a determination;

the amounts that were previously counted towards the person’s reasonable benefit limits in relation to the ETP rolled over or the pension or annuity which was commuted and which met the pension and annuity standards are to be disregarded by the Commissioner for the purposes of the revised determination and any later determination.

A superannuation pension or annuity which met the pension and annuity standards may have been assessed against the pension reasonable benefit limit rather than the lump sum limit. The pension reasonable benefit limit is much higher than the lump sum reasonable benefit limit and a condition for a person to be eligible to receive concessionally taxed benefits at that limit is that the person takes at least half of his or her benefits as a pension or annuity which meets the pension and annuity standards. Where such a pension or annuity is commuted, it is possible that the benefits paid to the person should have been assessed against the lump sum reasonable benefit limit and not the pension limit. By providing that the Commissioner is to disregard the pension or annuity which was commuted (and, under paragraphs 4S(a) and 4T(b), counting the ETP and any residual pension arising from the commutation) regulation 4V ensures that the benefits received by the person are assessed against the correct reasonable benefit limit.

By providing that the Commissioner is to disregard any ETP rolled over, regulation 4V also ensures that such an ETP is only counted towards a person’s reasonable benefit limit at the point at which it is paid from the roll over institution.

Determinations

Regulation 4W provides for the circumstances in which the Commissioner will determine that a benefit is within the reasonable benefit limits and the circumstances in which the Commissioner will determine that a part or whole of a benefit is in excess of those limits.

Paragraph 4W(1)(a) provides that where the sum of the amounts of benefits to be taken into account as benefits previously received by a person is equal to or greater than the person’s lump sum or pension reasonable benefit limit (whichever is applicable to the person), the Commissioner will determine that the whole of the amount of the current ETP, superannuation pension or annuity which is counted towards the person’s reasonable benefit limits is in excess of those limits.

Paragraph 4W(1)(b) provides that where the sum of the amounts of benefits taken into account as benefits previously received by a person and the amount of the current ETP, superannuation pension or annuity to be counted towards the reasonable benefit limits is in excess of the person’s reasonable benefit limits, the Commissioner is to determine that the amount of that excess is in excess of the reasonable benefit limits.

Paragraph 4W(1)(c) provides that where paragraphs 4W(1)(a) or (b) do not apply, the Commissioner is to determine that the whole of the ETP, superannuation pension or annuity to be counted towards the person’s reasonable benefit limits is within those limits.

Subregulation 4W(2) provides that where a benefit is paid to a person as a result of the death of another person and the benefit is not a superannuation pension which is the reversion of a pension which was already payable to the other person or an ETP arising out of the commutation of such a pension, the Commissioner is to determine that the whole of the amount of the ETP, superannuation pension or annuity to be counted towards the reasonable benefit limits is reasonable.

The purpose of subregulation 4W(2) is to ensure that, subject to subregulation 4W(3), a benefit paid to a person as a result of the death of another person can never be excessive even where it is in excess of the person’s reasonable benefit limits. (Subsection 15G(5) of the Act provides that payers of ETPs, superannuation pensions or annuities are not required to advise the Commissioner of payments made to a spouse or child as a result of the death of a person, where such payments are made within 6 months of the death of the other person or within 3 months of the grant of probate of the will, or letters of administration of the estate, whichever occurs later. This will ensure that most death benefits paid to a spouse or child are no counted

towards the reasonable benefit limits.) Subject to subregulation 4W(3), subregulation 4W(2) ensures that those which are counted towards the reasonable benefit limits are always treated as reasonable.

Subregulation 4W(3) provides that subregulation 4W(2) does not apply where the person was an associate of the person’s employer immediately before his or her death. Where the person was an associate, the benefit will be assessed against the reasonable benefit limit of the person to whom the benefit was paid. Given that there is a non-arms length relationship between an associate and his or her employer, and in many cases the employer and employee are often the same person, this provision is necessary to protect the revenue against the use of superannuation funds for the provision of unreasonably large death benefits for other than bona fide purposes.

Assessment of benefits against lump sum RBL

Regulation 4X provides for the circumstances in which an ETP, superannuation pension or annuity paid to a person or commencing to be paid to a person is to be assessed against the lump sum reasonable benefit limit.

Paragraph 4X(1)(a) provides that where the current benefit paid to a person is an ETP and the sum of:

• the ETP (other than a part of the ETP which consists of undeducted contributions, concessional components or non-qualifying components); and

• the qualifying portions of any previous ETPs or superannuation pensions or annuities which did not meet the pension and annuity standards,

is more than 50% of either the person’s pension reasonable benefit limit or the qualifying portions of all benefits paid or payable to the person, the person’s benefits are to be assessed against the lump sum reasonable benefit limit. The qualifying portion of a benefit is the amount of the benefit (other than amounts disregarded under regulation 4Y) paid to the person, indexed by movements in average weekly ordinary time earnings.

Paragraph 4X(1)(b) provides that where the current benefit paid to a person is a superannuation pension or annuity that complies with the pension and annuity standards and the sum of:

• the capital value of the current pension or annuity; and

• the qualifying portions of any pensions or annuities paid to the person which met the pension and annuity standards,

is less than 50% of either the person’s pension reasonable benefit limit or the qualifying portions of all benefits paid to the person, whichever is the lesser, the pension or annuity will be assessed against the lump sum reasonable benefit limit of the person.

Paragraph 4X(1)(c) provides that where the current benefit paid to a person is a superannuation pension or annuity that does not meet the pension and annuity standards and the sum of:

• the capital value of the current pension or annuity; and

• the qualifying portion of any previous pensions or annuities which did not meet the standards or any previous ETPs paid to the person,

is more than 50% of the person’s pension reasonable benefit limit or the sum of the qualifying portions of all benefits paid to the person, the pension or annuity will be assessed against the lump sum reasonable benefit limit of the person.

The purpose of subregulation 4X(1) is to ensure that where a person does not take at least half of his or her total benefits (including the indexed value of previously received benefits) in the form of a superannuation pension or annuity which meets the pension and annuity standards, the current benefit paid to a person will be assessed against the lump sum reasonable benefit limit.

Subregulation 4X(2) modifies subregulation 4X(1) where the current benefit is paid, or the commencement day of the current superannuation pension or annuity occurs prior to the person reaching the age of 55 years. In this case, any reference to 50% of the sum of the qualifying portions of all benefits paid or payable to the person in subregulation 4X(1) are to be read as including a reference to the person’s lump sum reasonable benefit limit. This means that where a person, prior to reaching the age of 55 years, does not take at least half of:

• the sum of the qualifying portions of all benefits paid or payable to the person;

• the person’s pension reasonable benefit limit; or

• the person’s lump sum reasonable benefit limit discounted in accordance with paragraph (b) of the definition of ‘lump sum RBL’ in subregulation 4A(1)

in the form of a pension or annuity which meets the pension and annuity standards, the person is subject to the lump sum reasonable benefit limit.

Qualifying portion

Regulation 4Y gives the meaning of qualifying portion

for the purposes of determining whether a benefit is assessed against the lump sum reasonable benefit limit.

Paragraph 4Y(1)(a) provides that where the benefit previously received is an ETP, the qualifying portion is calculated by indexing the amount of the ETP (other than a part of the ETP which consists of undeducted contributions, concessional components, non-qualifying components or excessive benefits) by the movement in average weekly ordinary time earnings from the quarter in which the ETP was paid to the quarter 2 quarters before the quarter in which the current benefit was paid or where the current benefit is a superannuation pension or annuity, the quarter in which the commencment day of the pension or annuity occurrs.

Paragraph 4Y(1)(b) provides that where the benefit previously received was a superannuation pension, the qualifying portion of the superannuation pension is the amount of the capital value of the superannuation pension (that is, the lump sum equivalent value of the superannuation pension) indexed by the movement in average weekly ordinary time earnings from the quarter in which the commencement day of the superannuation pension occurred to the quarter 2 quarters before the quarter in which the current benefit was paid, or, where the current benefit is a superannuation pension or annuity, the quarter in which the commencement day of the pension or annuity occurs.

Paragraph 4Y(1)(c) provides that where the benefit previously received was an annuity, the qualifying portion of the annuity is the amount of the ETP rolled-over to purchase the annuity (other than any part of the ETP which consists of undeducted contributions or concessional components) indexed by the movement in the index for average weekly ordinary time earnings from the quarter in which the commencement day of the annuity occurred to the quarter 2 quarters before the quarter in which the current benefit was paid or, where the current benefit is a superannuation pension or annuity, the quarter in which the commencement day of the pension or annuity occurs.

Subregulation 4Y(2) provides that where the current benefit is paid or commences to the paid within 12 months of the payment of the previous benefit, or where the previous benefit was a superannuation pension or annuity which commenced within 12 months of the commencement day of the current pension or annuity, the index number is to be 1. This means that the qualifying portion of a previously received benefit will not be indexed where the current benefit is received within 12 months of the previous benefit. This is consistent with the way in which benefits previously received are indexed.

Assessment of benefits against pension RBL

Regulation 4Z provides that where an ETP, superannuation pension or annuity paid or commencing to be

paid to a person is not assessed against the lump sum reasonable benefit limit under regulation 4X, it is to be assessed against the pension reasonable benefit limit.

Reasonable benefit limit where amount in approved deposit fund, life assurance company or registered organisation

Subregulation 4ZA(1) provides that where the Commissioner is to calculate a person’s reasonable benefit limits in relation to a benefit paid or commencing to be paid to the person and the person had an amount deposited with an approved deposit fund at 15 February 1990 or had a rolled-over amount held by a life assurance company or registered organisation at 15 February 1990, then the person’s reasonable benefit limit is to be the greater of the person’s lump sum or pension reasonable benefit limit (whichever is applicable to the person) and the following amounts:

• where the person was aged 50 or more at 15 February 1990, the sum of the aggregate of any rolled-over amounts held in an approved deposit fund, life assurance company or registered organisation as at that date, and any earnings on those amounts while they were held in those funds, companies or organisations, or where those amounts were rolled-over to another approved deposit fund, life assurance company or registered organisation or superannuation fund, any earnings on those amounts while held in those funds; and

• where the person was aged less than 50 at 15 February 1990, the sum of the rolled-over amounts held by approved deposit funds, life assurance companies or registered organisations on behalf of the person on that day.

Subregulation 4ZA(1) ensures that the application of the reasonable benefit limits to approved deposit funds, life assurance companies or registered organisations is not retrospective by ensuring that the amount (or amount plus earnings where the person was aged 50 or more at 15 February 1990) held by such a fund, company or organisation is fully protected in that this amount becomes the person’s reasonable benefit limit where it is greater than what the person’s reasonable benefit limit would otherwise be.

Subregulation 4ZA(2) provides that where an amount held by an approved deposit fund, life assurance company or registered organisation as at 15 February 1990 is rolled-over to a superannuation fund and is used to provide defined benefits, earnings are taken to have accrued on that rolled-over amount at 10% annually. (Where the amount is used to provide defined benefits, eg, benefits based on a period service, earnings on the rollover amount would not be able to be identified.)

Subregulation 4ZA(3) provides that for the purposes of determining the earnings on amounts held in an approved deposit fund, life assurance company or registered organisation as at 15 February 1990, where an amount is withdrawn from such a fund, company or organisation after 15 February 1990, and the person had rolled over an amount after 15 February 1990, (which was not an amount held in another fund, company or organisation at 15 February 1990), the withdrawal is taken to reduce the amount rolled over after 15 February 1990 before it reduces any amount held in the fund, company or organisation at 15 February 1990.

In other words, withdrawals from approved deposit funds, life assurance companies or registered organisations are to be taken to come from monies which were not held in the fund, company or organisation at 15 February 1990 before they are to be taken to come from such amounts. This will maximise the amount of earnings on amounts held by funds, companies and organisations at 15 February 1990, and will hence maximise the reasonable benefit limits of people covered by this transitional arrangement.

Reasonable benefit limit where recipient member of certain fund on 15 August 1989

Regulation 4ZB provides for a transitional arrangement to cover those people who were members of certain superannuation funds as at 15 August 1989. The Regulation provides that where the Commissioner is to calculate a person’s reasonable benefit limits in relation to a superannuation pension commencing to be paid to a person by a fund of which the person was a member on 15 August 1989, and the rules of that fund permitted, at that date, the provision of pensions which had a capital value which is greater than 11.25 times salary, the person’s reasonable benefit limits are the greater of the person’s lump sum or pension reasonable benefit limit (whichever is applicable) and the capital value (that is, the lump sum equivalent value) of the pension.

The transitional arrangement provided for under regulation 4ZB will ensure that where a person had an entitlement at 15 August 1989 to a pension which was in excess of the reasonable benefit limits, the value of the excessive pension will become the person’s reasonable benefit limit. This will protect pensions to which a person was entitled prior to the date on which the new arrangements for the administration of the reasonable benefit limits were announced.

Pension and annuity standards

Regulation 4ZC outlines the pension and annuity standards. If a person takes at least half of his or her total benefits in the form of a pension or annuity which

meets these standards, then the benefits will be assessed against the pension reasonable benefit limit rather than the lump sum reasonable benefit limit. Regulation 4ZC provides that the standards must be either contained in:

• the rules of the superannuation fund;

• the annuity contract; or

• in a written agreement between the trustees and the beneficiary to whom the pension is being paid.

Regulation 4ZC provides that the pension and annuity standards are as follows:

• that the pension must be indexed to the lesser of at least 5% or the rate of increase in the Consumer Price Index (All Capital Cities), as first published by the Australian Statistician. This will ensure that the real value of the pension is not eroded by inflation;

• the benefit must be payable for the life of the person and any reversionary beneficiary, and must not have a residual capital value. This will ensure that a person with a pension or annuity which meets the standards will be guaranteed to receive an income stream for his or her life and for the life of any reversionary beneficiary. It will also ensure that the pension is paid at a rate which means that the taxation concessions granted to the pension or annuity are not unduly deferred;

• the pension or annuity may have a guarantee period of 10 years. This means that if the primary beneficiary dies within 10 years of commencing to receive the pension, the remainder of the payments that would have been payable for 10 years may be paid:

- to the reversionary beneficiary as continued payments of the pension or annuity at the same rate as they would have been paid to the primary beneficiary. Where the reversionary beneficiary also dies within that 10 year period, the remainder of any payments not made to the reversionary beneficiary may be paid as a lump sum to the reversionary beneficiary’s estate; or

- where there is no reversionary beneficiary - as a lump sum to the primary beneficiary’s estate;

• the pension or annuity must generally not be able to be commuted except in one of the following circumstances:

- the commutation is made within 6 months of the pension or annuity commencing to be paid;

- the pension or annuity is commuted and paid to the beneficiary’s estate where the beneficiary dies within 10 years of commencing to receive the pension;

- the pension or annuity is excessive, and the Commissioner has, under section 15S of the Act, advised the superannuation fund, life assurance company or registered organisation that they must commute so much of the pension or annuity as is excessive; or

- where the benefit is an annuity - the ETP arising from the commutation is rolled-over to purchase another annuity which meets the standards.

This provision ensures that, other than in the limited circumstances outlined above, the pension or annuity will be paid as an income stream to the person;

• the pension or annuity must not have a reversionary component which is greater than 100% of the primary pension or annuity;

• the pension or annuity must not be able to be transferred to any person other than the primary beneficiary or a reversionary beneficiary upon the death of the primary beneficiary or another reversionary beneficiary; and

• the capital value of the pension or annuity, or the income from the benefit, must not be able to be used as a security for a borrowing.

Financial reports and disclosure of information standards

Clause 5 amends regulation 17 of the Principal Regulations by adding a new subparagraph 17(1)(f)(iv). This new subparagraph provides that where a person is entitled, as prescribed in Schedule 2, to an Old Reasonable Benefit Multiple which is higher than the Base Old Reasonable Benefit Multiple of 7 or 11.25 as set out in Schedule 2, the superannuation fund is required to include the higher Old Reasonable Benefit Multiple in the written statement provided to the person where the person ceases to be a member of the fund. This will ensure that a member is advised of his or her Old Reasonable Benefit Multiple. This is particularly important where the member retains entitlement to the higher Old Reasonable Benefit Multiple by rolling over the whole of the benefit from the superannuation fund.

Clause 6 inserts 2 new standards with which superannuation funds must comply if they are to be treated as complying superannuation funds.

Regulation 18A provides that for a superannuation fund to be a complying superannuation fund, the fund must not use a factor for converting a superannuation pension payable to a person, which is a pension which does not meet the pension and annuity standards, which is greater than the pension valuation factor which would be applicable to the pension as if the commencement day of the pension were the day on which the pension was commuted, unless the Commissioner approves another factor.

The ETP resulting from the commutation will not be counted towards the person’s reasonable benefit limit. If a superannuation fund uses a commutation factor to convert the pension to a lump sum which is greater than the factor which the Commissioner has used to value the pension, the ETP arising from the commutation could be greater than the value of the pension which has been counted towards the reasonable benefit limits.

This standard is necessary to ensure that funds cannot use an artificially high factor to evade the application of the reasonable benefit limits to the benefits paid to a person. At the same time, the discretion for the Commissioner to approve another factor recognises that there may be circumstances where another factor is appropriate, eg, on the recommendation of an actuary in a particular case.

Regulation 18B: Standards relating to contributions

Subregulation 18B establishes as operating standards with which superannuation funds must comply if they are to be treated as complying funds, standards relating to the level of contributions which a fund may accept and the circumstances under which it may accept contributions.

Subregulation (2) limits the amount of deductible contributions which may be accepted during a year of income to the amount calculated in accordance with the regulation. It does not limit non-deductible contributions.

New subregulations (3) and paragraph (4)(a) provide that contributions must not be accepted in respect of a person who is over 65 years unless that person was at least 60 years old on 1 July 1990 in which case contributions may be made up to the level of maximum deductible contributions until the person reaches 70 years of age. The method for calculating the level of contribution where this transitional arrangement applies is also set out. Contributions in respect of a person 70 years of age and over at 1 July 1990 may be made with the approval of the Commissioner in special circumstances under section 13 of the Act.

Paragraph (4)(b) allows funds which, at 25 May 1988, had a retirement age less than 65 years to continue to fund to that lower age until 30 June 1995.

Subregulation (5) provides that a superannuation fund which does not prohibit the provision of pensions or the rolling over of amounts to purchase annuities on behalf of members, to fund to the pension RBL. Other funds may only fund on the basis of the lump sum RBL.

It also allows the fund to choose whether it calculates the RBL on the basis of:

• the person’s reasonable benefit multiple multiplied by the person’s Highest Average Salary;

• the base or minimum RBL as defined in new subregulation 4A(1); or

• the person’s reasonable benefit multiple multiplied by 90 per cent of the person’s salary as last advised by an employer of whom the person is not an associate. This option is provided to ease the admininistrative burden for employer sponsored superannuation funds which may not know a member’s highest average salary.

Subregulation (6) defines a person’s maximum funding limit. It provides that the person’s maximum funding limit is the person’s RBL at a point five years into the future pro-rated over the person’s potential length of membership of the fund to age 65.

Where the person has rolled-over into the fund the whole of a benefit (other than undeducted contributions, concessional components or non-qualifying components) from another superannuation fund, approved deposit fund, life assurance company or registered organisation, it allows the person’s years of membership relating to the rolled-over benefit to be taken into account.

Subregulation (7) restricts the amount of deductible contributions that may be accepted by a defined benefit superannuation fund during each year of an actuarial period in relation to all members of the fund.

It provides that an actuary must work out a rate representing the maximum funding available as at the day of calculation (according to a prescribed formula) divided by the sum of the salaries of all members of the fund as at that day.

Once this actuarial rate is established, for each year of the actuarial period the maximum deductible contributions that may be accepted is the amount calculated by multiplying the actuarial rate by the sum of the salary amounts of all members of the fund as at the beginning of that year plus the salary amounts of members who joined during that year as at the day they became members.

The level of funding available takes into account the following items:

• the sum of each member’s maximum funding limits;

• the adjusted market value of the fund’s assets;

• the amount required to fund postponed retirements, deferred benefits for former members or their dependants and pensions payable to existing members or their dependants;

• the amount of undeducted contributions and concessional components held by the fund;

• the expected cost of insurance to cover the difference between the sum of the reasonable benefit limits of all members and the adjusted market value of the fund’s assets;

• the expected cost of insurance to cover the cost of salary continuance benefits of no greater than 75% of salary payable for no more than 2 years;

• amounts transferred after 30 June 1990 to other superannuation funds on behalf of members of the fund as at the calculation day;

• the cost of administration of the fund; and

• the amount of any salary continuance benefits greater than 75% of salary or which had been payable for more than 2 years to members of the fund as at the calculation day.

Subregulation (9) provides a formula for calculating the maximum deductible contributions which may be accepted in relation to a member of the fund during a year of income by a fund that is not a defined benefit superannuation fund.

The items listed above in relation to new subregulation (8) are taken into account but in relation to a particular member, rather than on a global or scheme basis. For example, the expected cost of the administration of the fund during the current year of income allocated to the member may be taken into account. Where such a cost is not allocated, the member’s pro rata share of the expected cost of administration may be used.

Subregulation (10) allows a fund which is not a defined benefit superannuation fund to calculate a maximum deductible contributions in relation to a member who joins during a year of income on the basis of his or her position in terms of costs, assets and liabilities as at the day he or she joined the fund.

Subregulation (11) reduces the maximum deductible contributions which may be accepted by a superannuation fund which has in-house assets at any time during a year of income.

Subregulations (12) and (13) provide that, where the method of calculation in new subregulations (8) and (9) respectively produce a zero or negative amount, the fund must not accept deductible contributions during that year.

Clause 7: Approved rules

Clause 7 amends Regulation 20 of the Principal Regulations so as to prohibit a complying approved deposit fund from allowing withdrawals (excluding management and exit charges) of less than $500 unless the withdrawal is necessary to close the depositor’s account.

This will reduce the number of separate notifications of benefits which are to be sent to the Insurance and Superannuation Commissioner and hence the costs of administration.

Clause 8: Insertion of Schedules

Clause 8 inserts new Shedules 2, 3, 4, 5, 6 and 7 into the Principal Regulations.

Schedule 2: Calculation of old RBM

New Schedule 2 sets out the method by which old reasonable benefit multiple is to be calculated.

Clause 1 sets out the meanings of terms used in Schedule 2. Notes on the terms used follow:

“account balance” for the purposes of Schedule 2 means amounts allocated to the member under the rules of the fund, including amounts that have not vested in the member.

“converted pension multiple” is the lump sum equivalent value of a pension that could have been paid under the rules of the fund as at 25 May 1988 calculated using the relevant pension valuation factor from Schedule 3.

“defined benefit” means a benefit defined in terms of salary or a specified amount.

“lump sum fund” is defined as a superannuation fund that is prohibited under its rules from providing pensions or rolling-over amounts to purchase annuities on behalf of members.

“maximum fund multiple” relates only to defined benefit funds and is defined as the higher of the greatest lump sum multiple, the greatest converted pension multiple, or the greatest combination of both that could have been paid to the person under the rules of the fund as at 25 May 1988.

“private sector fund” for the purposes of Schedule 2 is defined as a superannuation fund to which the former section 23F of the Tax Act would have applied on 25 May 1988 which

provided, on that day, benefits for any person that exceeded the reasonable benefit limits that were generally in force on that day.

“public sector superannuation fund” has the same meaning it would have under Regulation 3 if “superannuation fund” in that regulation had the meaning given by section 15E of the Act.

“retirement age” is defined as the lowest of age 65, or the maximum retirement age specified under the rules of the fund at 25 May 1988, or, where the benefit is based on a period of service, the age of a member at which the greatest lump sum multiple is applicable in the case of a lump sum fund and the age of a member at which the highest value is obtained by multiplying the pension multiple applicable to the person by the relevant pension valuation factor in the case of a fund which is not a lump sum fund.

Clause 2 provides that the base old RBM is 7 where the benefit is to be assessed against the lump sum RBL and 11.25 where the benefit is to be assessed against the pension RBL.

Clause 3 sets out the circumstances under which an old RBM greater than the base old RBM may apply.

Sub-clause 3(1) provides that an old RBM greater than the base old RBM may apply where the person is a member of a public sector superannuation fund or a private sector fund on 30 June 1990.

Sub-clause 3(2) provides that an old RBM greater than the base old RBM applies if the benefit consists in whole or in part of an ETP rolled over from a public sector fund or private sector fund and the whole of the ETP, other than undeducted contributions or concessional components, was rolled over from a public sector fund or private sector fund of which the person was a member on 30 June 1990 or ceased to be a member after 15 February 1990.

This will ensure that where a person wholly retains his or her benefit in the concessionally taxed environment, that benefit will continue to be protected by the transitional reasonable benefit multiple arrangements.

Sub-clause 3(3) extends the availability of an old RBM to those who had deferred all of his or her benefits (other than undeducted contributions and concessional components) in the fund until at least 30 June 1990.

Clause 4 provides that the old RBM applicable to defined benefits is the greater of the person’s maximum fund multiple and the base old RBM.

Clause 5 provides that the old RBM applicable to a benefit payable by or rolled over from a fund which only

provides benefits that are not defined benefits is the greater of the base old RBM and the multiple calculated under clause 6 or 7.

Sub-clause 5(2) provides that although either of the methods set out in Clause 6 or Clause 7 may be adopted for calculating the old RBM applicable to a non-defined benefit, once a method is chosen by a fund it must be used to calculate the old RBM for all members of the fund.

Clause 6 sets out a formula to be used to calculate the old RBM of a non-defined benefit. It projects forward to the retirement age of the fund from 30 June 1990 the proportion of a person’s salary being contributed to the fund during the financial year ending on 30 June 1990 or during an earlier financial year, whichever is the higher. It also projects forward the person’s account balance as at 1 July 1990 to take into account future earnings on that balance. The formula sums those projections and presents the outcome as the multiple of highest average salary that the fund would have provided to the member had he or she continued through to retirement based on the highest category of membership of the member up to 30 June 1990.

Clause 7 allows the same calculation as set out in Clause 6 to be done by reference to a table of Asset Factors and Contribution Factors.

Clause 8 provides that where a defined benefit superannuation fund could have provided a mixture of defined and non-defined benefits under its rules as at 25 May 1988, the old RBM is to be the greater of base old RBM and the sum of the person’s maximum fund multiple and the multiple that would be calculated under clause 5 in respect of the non-defined benefit.

Clause 9 ensures that where a fund has a retirement age lower than 55 years, the person’s old RBM is adjusted so that there is no retrospective discounting of that proportion of the benefit relating to service before 1 July 1990.

Clause 10 allows multiples of salary to be converted into multiples of Highest Average Salary by using a simple conversion factor.

Schedule 3:   Pension Valuation Factors

Schedule 3 sets out pension valuation factors to be used to calculate the capital value of a pension for RBL purposes.

Clause 1 provides that where a pension is to be indexed annually at a rate greater than 8% the pension valuation factor is to be calculated in accordance with arrangements determined in writing by the Insurance and Superannuation Commissioner. These pensions are very rare.

Clause 3 defines “age” as the age of the recipient on the commencement day of the pension. Where the age of the person falls between two ages specified in the table, the next greater age group is to be used. This will ensure that the pension is not overvalued for RBL purposes.

Clause 4 specifies that if a pension has no reversion, the “below 50%” group is to be used.

Clause 5 provides that where a pension is indexed to movements in salary, the relevant factor to be used is to be taken from the 8% indexation table. A rate of this level allows for average wage movements and promotional increases.

Clause 6 provides that where a pension is indexed by movements in the Consumer Price Index, the relevant factor to be used is to be taken from the indexation table corresponding to the indexation rate determined in writing by the Insurance and Superannuation Commissioner to be the standard indexation rate for the year in which the pension commences to be paid. The Commissioner will determine the standard indexation rate in accordance with the relevant Consumer Price Index movements for that year.

Schedule 4: Prescribed Information by approved deposit funds, deferred annuity funds and registered organisations

Schedule 4 prescribes the information that is required to be provided to the Insurance and Superannuation Commissioner under section 15F(1) of the Act. This information will enable the Commissioner to administer the transitional arrangements provided for under new Regulation 4F.

Schedule 5: Prescribed Information to be provided by Payers

Schedule 5 prescribes the information to be provided to the Insurance and Superannuation Commissioner under section 15G(1) of the Act and to the person who has received the benefit under section 15G(3) of the Act.

This information is necessary to enable an assessment of the benefit against the person’s reasonable benefit limits to be done.

Schedule 6: Prescribed information on benefits paid between 16 February 1990 and 30 June 1990

Schedule 6 prescribes the information required to be notified to the Commissioner by payers under section 15G(7) of the Act.

This information is necessary to assess the value of the benefit for reasonable benefit limit purposes.

Schedule 7: Prescribed information on rollovers

Schedule 7 prescribes the information to be provided to the Insurance and Superannuation Commissioner by a person under section 15J(1) of the Act and by a fund, employer or organisation under section 15J(2) of the Act.

This information will allow the amount of a benefit rolled over to be taken into account so that it does not continue to count as a benefit previously received. It will be assessed against the reasonable benefit limit when it is received from the rollover fund.