EXPLANATORY STATEMENT
Select Legislative Instrument 2010 No. 23
Subject - Retirement Savings Accounts Act 1997
Retirement Savings Accounts Amendment Regulations 2010 (No. 1)
Subsection 200(1) of the Retirement Savings Accounts Act 1997 (the Act) provides, in part, that the Governor-General may make regulations prescribing matters that the Act requires or permits to be prescribed, or are necessary or convenient to prescribe for carrying out or giving effect to the Act.
The Government is committed to assisting aspiring first home buyers achieve the goal of owning their first home. One of the greatest obstacles to buying a first home is saving a deposit. In recognition of this and that home ownership is important to the wellbeing of Australians, the Government introduced new, low tax, First Home Saver Accounts (FHSAs) to assist first home buyers in meeting this challenge.
The Government introduced new, low tax FHSAs to assist first home buyers in meeting the challenge of saving a deposit to buy a first home.
The Government makes a contribution of 17 per cent for all individuals on the first $5,000 of personal contributions made each year. Investment earnings (or interest) that accrue in FHSAs will be taxed at 15 per cent. Withdrawals will be tax free where they are used to purchase a first home in which to live.
Only authorised deposit-taking institutions, life insurance companies and registrable superannuation entity licensees may offer FHSAs. FHSAs have been available to be opened since 1 October 2008.
The First Home Savers Account Act 2008 requires FHSAs to be closed within 30 days for, amongst other reasons, the account holder reaching the age of 65. On reaching the age of 65, FHSA holders may choose to withdraw their funds, or contribute the balance to superannuation or a retirement savings account. Such contributions are treated as non-concessional contributions and are therefore not taxed in the fund as they have previously been subject to taxation. However, they will form part of the per year cap on non-concessional contributions.
The current superannuation laws do not allow Retirement Savings Account (RSA) institutions to accept personal contributions for those persons aged over 65 and under 70 without the individual meeting a ‘work test’. Under the ‘work test’, an individual needs to be ‘gainfully employed’ on at least a part time basis. This generally involves being gainfully employed for at least 40 hours in a period of no more than 30 consecutive days.
Changes have already been made to the Superannuation Industry (Supervision) Regulations 1994 to allow for the balance of the closed FHSA to be contributed to superannuation, even where the work test has not been met.
These Regulations amend the Retirement Savings Account Regulations 1997 to allow RSA institutions to accept personal contributions for individuals aged over 65 and under 70 years without them meeting a ‘work test’, when they those contributions are contributed from a FHSA when an account holder reaches 65 years of age.
No consultation was undertaken as the amendments are minor and machinery in nature.
The Regulations amend table item 2 of subregulations 5.03(1) and subregulation 5.03(7) of the Retirement Savings Accounts Regulations 1997.
These Regulations commence on the day after the date of registration.
The Act specifies no conditions that need to be satisfied before the power to make the proposed Regulations may be exercised.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Details of the Retirement Savings Accounts Regulations 2010 (No. 1)
Regulation 1 – Name of Regulations
This regulation provides that the title of the Regulations is Retirement Savings Accounts Amendment Regulations 2010 (No. 1).
Regulation 2 – Commencement
This regulation provides for the Regulations to commence on the day after they are registered.
Regulation 3 – Amendment
This regulation provides that Schedule 1 amends the Retirement Savings Accounts Regulations 1997.
Schedule 1 – Amendments (regulation 3)
Item 1
Item 1 substitutes table item 2 of subregulation 5.03(1).
The FHSA Act requires FHSAs to be closed within 30 days of the account holder reaching age 65. On reaching age 65, FHSA holders may choose to withdraw their funds, or contribute the balance to a retirement savings account. FHSAs provide benefits which are similar to superannuation. Individuals over age 65 may be able to use their superannuation as a means of saving for their first home.
However, the current superannuation laws do not allow regulated superannuation funds and RSAs to accept personal contributions for those aged over 65 and under 70 without the individual meeting a ‘work test’. Under the ‘work test’, an individual needs to be ‘gainfully employed’ on at least a part time basis. This generally involves being gainfully employed for at least 40 hours in a period of no more than 30 consecutive days.
The Regulations allow contributions to retirement savings accounts from FHSAs for those over 65 and under 70 years of age, without having to meet the ‘work test’ requirement.
Table item 2 of subregulation 5.03 (1) is amended to allow RSAs to accept contributions if the member is not under 65 but is under 70, and the contributions that are made in respect of the member are payments from an FHSA of the following kinds mentioned in the FHSA Act:
• compulsory contributions of the balance of an inactive FHSA to superannuation as mentioned in subparagraph 31(1)(b)(i); or
• voluntary contributions of the balance of FHSAs to superannuation as mentioned in subparagraph 31(1)(b)(ii).
Item 2
Item 2 inserts the definition of the term ‘FHSA’.
Subregulation 5.03(7) of the RSA Regulations is amended to insert ‘FHSA’, to have the meaning given by section 8 of the FHSA Act, after the definition of ‘Employer contribution’.