Superannuation Industry (Supervision) Regulations (Amendment) 1997 No. 309
EXPLANATORY STATEMENT
STATUTORY RULES 1997 No. 309
Issued by the authority of the Assistant Treasurer
Superannuation Industry (Supervision) Act 1993
Superannuation Industry (Supervision) Regulations (Amendment)
The Superannuation Industry (Supervision) Act 1993 (the SIS Act) and the Superannuation Industry (Supervision) Regulations (the Principal Regulations) provide for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Insurance and Superannuation Commissioner.
Section 353 of the Act provides that the Governor-General may make Regulations for the purposes of the Act.
The Regulations are necessary as a consequence of the enactment of the Superannuation Contributions Tax (Assessment and Collection) Act 1997 and related Acts which implement the 1996-97 Budget initiative to introduce a superannuation contributions surcharge (the surcharge) for high income earners, payable on their superannuation contributions.
The Regulations amend the Principal Regulations to:
* provide that a superannuation provider may commute an annuity or pension in order to pay a surcharge liability (regulations 3 to 5);
* require the disclosure of particular information to superannuation fund members in relation to the superannuation surcharge (regulations 7 to 13);
* set out the order for deducting surcharge amounts from the different categories of members' superannuation benefits (regulation 16); and
* provide that the trustee of a superannuation fund may refund costs charged against the member's benefits, provided any refunds are distributed in a fair and reasonable manner to all the members of the fund against whom the costs were charged (regulation 16).
The Regulations are described in detail in the attachment.
The Regulations commence on gazettal.
ATTACHMENT
Regulation 1 - Amendment
Regulation 1 provides that the Superannuation Industry (Supervision) Regulations (the Principal Regulations) are amended as set out in these Regulations.
Regulation 2 - Regulation 1.03 (Interpretation)
Regulation 2 amends subregulation 1.03(1) of the Principal Regulations by inserting definitions of two expressions for the purposes of the Principal Regulations. In particular, definitions of 'advance instalment of surcharge' and 'superannuation contributions surcharge' are inserted. These expressions are defined by reference to the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (the SCTAC Act) and the Superannuation Contributions Tax Imposition Act 1997 respectively.
Regulation 3 - Regulation 1.05 (Meaning of 'annuity' - section 10 of Act)
Regulation 3 amends regulation 1.05 of the Principal Regulations which sets out the types of benefits that are taken to be an annuity for the purposes of the definition of 'annuity' in section 10 of the SIS Act. Benefits that are taken to be an annuity for the purposes of the SIS Act are eligible for concessional taxation treatment under the Income Tax Assessment Act 1936. The amendments to regulation 1.05 permit commutation of an annuity that has commenced to be paid to enable the payment of a surcharge liability.
In particular, paragraph 1.05(2)(b) is amended to enable the size of an annuity payment in a year to be varied to allow commutation to pay a superannuation surcharge. Paragraph 1.05(2)(1) is amended to include an exception to the restrictions on commutation of an annuity to allow commutation to pay a superannuation contributions surcharge. Paragraph 1.05(6)(e) is amended to provide that the restriction on variations in annuity payments from year to year does not apply to variations due to commutations required to pay a superannuation contributions surcharge.
Regulation 4 - Regulations 1.06 (Meaning of 'pension' - section 10 of Act)
Regulation 4 amends regulation 1.06 of the Principal Regulations which sets out the types of benefits that are taken to be a pension for the purposes of the definition of 'pension' in section 10 of the SIS Act. Benefits that are taken to be a pension for the purposes of the SIS Act are eligible for concessional taxation treatment under the Income Tax Assessment Act 1936. The amendments to regulation 1.06 permit commutation of a pension that has commenced to be paid to enable payment of a surcharge liability.
In particular, paragraph 1.06(2)(b) is amended to enable the size of payments of a benefit in a year to be varied to allow commutation to pay a superannuation surcharge. Paragraph 1.06(2)(e) is amended to include an exception to the restrictions on commutation of a pension to allow commutation to pay a superannuation contributions surcharge. Paragraph 1.06(6)(e) is amended to provide that the restriction on variations in pension payments from year to year does not apply to variations due to commutation required to pay a superannuation contributions surcharge. Paragraph 1.06(6)(g) is amended to remove the restriction on the amount of a pension that can be converted to a lump sum to pay a superannuation contributions surcharge.
Regulation 5 - Regulation 1.08 (Restriction on factors for converting pensions)
Regulation 5 amends regulation 1.08 of the Principal Regulations by omitting subregulation 1.08(2) and substituting a new subregulation 1.08(2). Regulation 1.08 provides that a regulated superannuation fund must not, without the approval of the Commissioner, use a factor for converting a pension to a lump-sum if that factor is greater than the pension valuation factor that would apply to the pension under Schedule I B. Schedule I B sets out the pension valuation factors which are to be used for converting a pension to a lump sum. However, this requirement does not apply if the pension complies with the standards of subregulation 1.06(2).
New paragraph 1.08(2)(b) provides that where the use of a factor is for conversion in relation to a commutation to pay a superannuation contributions surcharge, as provided for in new paragraph 1.06(6)(g) inserted by regulation 4 above, the general rule in regulation 1.08 does not apply.
Regulation 6 - Regulation 2.01 (Interpretation)
Regulation 6 amends subregulation 2.01(1) of the Principal Regulations by inserting a definition of 'unfunded defined benefits fund'. An unfunded defined benefits fund is a fund where some or all of the amounts that will be required for the payment of a benefit are not paid into the fund until the member concerned becomes entitled to receive the benefit. This definition is based on the definition of an unfunded defined benefits fund contained in the Superannuation Contributions Tax (Assessment and Collection) Act 1997. It is necessary to insert this definition into Part 2 of the SIS Regulations as there are different information disclosure requirements that the trustee of a fund must comply with depending upon whether the fund is an unfunded defined benefits fund or not (see regulation 7 below).
Regulation 7 - Regulations 2.24 (Specific requirements in particular cases)
Regulation 7 inserts a new subregulation 2.24(1 A) into regulation 2.24 of the Principal Regulations. Regulation 2.24 prescribes certain information that a trustee must give to each member of the fund in respect of a reporting period, however, these items only need to be disclosed where applicable and do not need to be disclosed if a. nil amount would have to be disclosed.
New subregulation 2.24(1 A) prescribes additional information the trustee of a fund must give to each member of the fund in relation to the superannuation contributions surcharge as far as it is applicable. The requirements in new subregulation 2.24(1A) are intended to ensure that members are aware of the effect on their superannuation benefits of the imposition of a surcharge liability on their superannuation provider.
In relation to a member of an unfunded defined benefits fund (see regulation 6 above for the definition of unfunded defined benefits fund), the trustee must give to members details of the surcharge debt account required to be kept by the trustee under subsection 16(2) of the SCTAC Act. This includes the balance at the start and end of the reporting period and amounts debited to the account during that period. A surcharge debt account is required to be kept for members of unfunded defined benefits funds because the surcharge is not payable in relation to these funds until the benefits become payable. At that point the balance in the surcharge debt account is deducted from the member's benefit.
Where the trustee of the fund reduces the members' benefits in a fund other than a unfunded defined benefits fund, in connection with payment of a superannuation contributions surcharge or an advance instalment of surcharge, the trustee must disclose to the member the amount/s deducted for each reporting period.
In addition, if there is a difference between the amount deducted by the trustee from a member's account and the amount of surcharge liability assessed by the Australian Taxation Office under the SCTAC Act in respect of a member's superannuation contributions, the trustee is required to explain why there is a difference. For example, part of the surcharge liability in respect of a member's superannuation contributions could be paid from another source including from the fund's reserves or by the member's employer.
Regulation 8 - Regulation 2.25 (Exception - pensioners)
Regulation 8 inserts a new subregulation 2.25(2) into regulation 2.25 of the Principal Regulations. Regulation 2.25 provides that information required to be given under subdivision 2.4.2 of the SIS Act need not be given to a member who is pensioner of the fund. New subregulation (2) provides that the exception in relation to pensioners does not apply in relation to information required to be given under new subsection 2.24(1A) (see regulation 7 above). That is, information in relation to the superannuation contributions surcharge must be given to pensioners.
Regulation 9 - Regulations 2.26A (Exception - members subject to compulsory protection of small amounts)
Regulation 9 inserts new paragraph 2.26A(1)(c) into regulation 2.26A of the Principal Regulations. Regulation 2.26A provides that the trustee of a fund need only give limited information, as specified in subregulation 2.26A(1), to members who are ,protected members' (generally members whose benefits in the fund are less than $1,000 and to whom the member-protection standards in Division 5.5 of the SIS Regulations apply). New paragraph 2.26A(1)(c) provides that the trustee must provide information, where applicable, specified in new subregulation 2.24(1A), inserted by regulation 7 above, to protected members.
Regulation 10 - Regulation 2.29 (Specific requirements in particular cases)
Regulation 10 inserts new paragraph (o) into subregulation 2.29(1) of the Principal Regulations. Regulation 2.29 prescribes certain fund information that a trustee must give to each member of the fund in respect of a reporting period, however these items only need to be disclosed where applicable and do not need to be disclosed if a nil amount would have to be disclosed.
New paragraph 2.29(1)(o) provides that the trustee of the fund must disclose the ultimate source from which payments in connection with superannuation contributions surcharges or advance instalments of surcharge will be drawn. This recognises the fact that the liability for the payment of surcharge amounts and advance instalments of surcharge amounts falls on the superannuation provider. This liability must be met ultimately from some source for example, from members' benefits, reserves of the fund or the members' employers.
Regulation 11 - Regulation 2.30 (Excluded funds - special provision)
Regulation 11 amends regulation 2.30 of the Principal Regulations. Regulation 2.30 provides that an excluded fund (a fund with fewer than five members) does not have to give information to a member under subdivision 2.4.3. Regulation 11 amends this regulation to provide that a trustee must provide the information mentioned in paragraph 2.29(1)(o), inserted by regulation 11 above, to members of an excluded fund.
Regulation 12 - Regulation 2.47 (Specific requirements in particular cases)
Regulation 12 amends regulation 2.47 of the Principal Regulations. Regulation 2.47 prescribes certain information that needs to be disclosed to a person who ceases, otherwise than by death, to be a member of the fund. Regulation 12 inserts subregulation 2.47(1A) to provide that the trustee must also disclose to such a person, details in relation to the surcharge debt account, if relevant, or details of amounts deducted in connection with a payment of a superannuation contributions surcharge or an advance instalment of surcharge and if there is a difference between the amount deducted and the amount assessed by the ATO, an explanation of why there is a difference. This is to ensure that a person that exits a fund is provided with information concerning the surcharge that they would have received if they remained in the fund for a full reporting period under new subregulation 2.24(1A) inserted by regulation 7 above.
Regulation 13 - Regulation 2.48A (Exception - members subject to compulsory protection of small amounts)
Regulation 13 amends regulation 2.48A of the Principal Regulations. Regulation 2.48A provides that if a protected member of a fund (generally members whose benefits in the fund are less than $ 1,000 and to whom the member-protection standards in Division 5.5 of the Principal Regulations apply) ceases to be a member of the fund the trustee need only provide certain information as specified in the regulation to the member. Regulation 13 provides that the trustee must also disclose details in relation to the surcharge debt account, if relevant, or details of amounts deducted in connection with a payment of a superannuation contributions surcharge or an advance instalment of surcharge and if there is a difference between the amount deducted and the amount assessed by the ATO, an explanation of why there is a difference.
Regulation 14 - Regulation 5.01 (Interpretation)
Regulation 14 provides that the note following the definition of 'administration costs' in subregulation 5.01 (1) which gives an example of 'taxation costs' is replaced. The new note includes a reference to the superannuation contributions surcharge as an example of 'taxation costs'.
Regulation 15 - Regulation 5.01A (Operating standards - determination of costs and investment return)
Regulation 15 amends regulation 5.01A of the Principal Regulations. Regulation 5.01A provides that the standard set out in subregulations 5.02(1) and (3) and 5.03(2) are operating standards for the purposes of subsection 31(1) and 32(1) of the SIS Act. Section 34 of the SIS Act provides that it is an offence to contravene an operating standard. Regulation 15 provides that the standards set out in new subregulations 5.02B(2) and 5.02C(2) (see regulation 16 below) are also operating standards for the purposes of subsections 3 1(1) and 32(2) of the SIS Act.
Regulation 16 - New regulations 5.02B and 5.02C
Regulation 16 inserts new regulations 5.02B and 5.02C.
New regulation 5.02B prescribes the priority for deducting surcharge amounts from members' benefits. The surcharge should be paid first with preserved benefits, then restricted non-preserved benefits and then finally, unrestricted non-preserved benefits. This ensures that the amount subject to the least restrictive preservation conditions are the last used to meet a surcharge liability.
New regulation 5.02C provides that the trustee of a fund may refund to a member's benefits costs charged against the member's benefits. However, in determining the amount of refund to be credited to a member's benefits, the trustee must ensure that the total amount to be refunded is distributed in a fair and reasonable manner to all the members of the fund against whom the costs were charged.