EXPLANATORY STATEMENT
Veterans’ Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2010
Summary
The Veterans’ Entitlements (Class of Debts – Self Managed Superannuation and Small APRA Funds) Specification 2010 (the Specification) is made under subparagraph 206(1)(b)(ii) of the Veterans’ Entitlements Act 1986 (the Act).
The purpose of the Specification is to specify two classes of debt that may be waived.
Background
Section 206 of the Act provides, among other things, that the Repatriation Commission (Commission) may decide to waive the Commonwealth’s right to recover debts arising under the Act that are included in a class of debts specified by the Minister (in this case, the Minister for Veterans Affairs).
Income streams sourced from a self managed superannuation fund or from a small APRA (Australian Prudential Regulation Authority) fund (small APRA fund), before 20 September 2004, (or were commuted and rolled over between 20 September 2004 and 20 September 2007 from those income streams and retained their 100% exemption) and which comply with the requirements of sections 5JA and 5JB of the Act, are asset-test exempt. If these income streams are commuted, the asset-test exemption may be retained provided the new income stream complies with the requirements of the Veterans’ Entitlements (Guidelines for Determining whether Income Stream is Asset‑test Exempt) Determination 2007 (No. 1).
These income streams are required, among other things, to meet a ‘high probability’ actuarial test that they can continue to meet their obligations so as to comply with the requirements of sections 5JA and 5JB of the Act. However, some self managed superannuation funds and small APRA funds may no longer be able to meet this requirement due to the impact of the global financial crisis on financial markets.
Under the Superannuation Industry Supervision Regulations 1994 (the SIS Regulations) any income streams that do not meet the high probability test must be restructured by purchasing a retail asset-test exempt product (which will comply with the requirements of the Act) or an account based market-linked income stream within the self managed superannuation fund or small APRA fund. However, where the income stream is commuted to a market-linked income stream, the new income stream could no longer meet the requirements necessary to retain its asset-test exemption under sections 5JA, 5JB or 5JBA of the Act.
As a consequence of restructuring the self managed superannuation fund income stream or small APRA fund income stream to market-linked income streams, the commutation will mean that the difference between the amount that has been paid by way of income support where the income stream was asset-test exempt and the amount that would have been payable had the income stream been asset-tested, is a debt due to the Commonwealth under section 52ZMA of the Act.
This instrument will allow for these classes of debts to be waived until 30 June 2010. This will enable the Commission to waive the Commonwealth’s right to recover debts arising under the Act, incurred by persons whose income streams, sourced from a self managed superannuation fund, or small APRA fund, before 20 September 2004 (or were commuted and rolled over between 20 September 2004 and 20 September 2007 from those income streams and retained their 100% exemption) and which comply with the requirements of sections 5JA and 5JB of the Act are commuted to account based market-linked income streams as a result of not meeting the high probability actuarial test.
Explanation of the provisions
Section [1] states the name of the Specification is the Veterans’ Entitlements (Class of Debts – Self Managed Superannuation and small APRA Funds) Specification 2010.
Section [2] provides that, apart from the two schedules, the Specification commences on the day after it is registered on the Federal Register of Legislative Instruments. Schedule 1 commences, or is taken to have commenced, when the Social Security (Waiver of Debts – Self Managed Superannuation Funds) (FaHCSIA) Specification 2009 commences or commenced. Schedule 2 commences, or is taken to have commenced, when the Social Security (Waiver of Debts — Small APRA Funds) (FaHCSIA) Specification 2009 commences.
Section [3] provides that the Specification ends at the end of 30 June 2010.
Section [4] contains definitions relevant to the Specification.
Schedule 1 (Self Managed Superannuation Fund)
Item 1 specifies the class of debt that may be waived. A debt is in a specified class if:
(a) it is a debt due to the Commonwealth by a person under section 52ZMA of the Act; and
(b) the debt did not arise because the person knowingly made a false or misleading statement to the Commonwealth, the Commission or to a person acting, respectively, on their behalf, or knowingly provided false information to the Commonwealth, the Commission or to a person acting, respectively, on their behalf; and
(c) immediately before the date this Specification is made, the income stream that is relevant for the purposes of section 52ZMA:
(i) was:
(a) an asset-test exempt income stream; or
(b) an asset-tested income stream (long term) that was previously an asset-test exempt income stream which failed to meet the requirements of either paragraphs 5JA(1)(b) or 5JB(1A)(b) of the Act; and
(ii) sourced from a self managed superannuation fund; and
(d) the income stream that is relevant for the purposes of section 52ZMA:
(i) on or after 1 July 2008 – ceased to meet the requirements of either paragraphs 5JA(1)(b) or 5JB(1A)(b) of the Act; and
(ii) after the date the Specification is made – is an account based market-linked income stream within the self managed superannuation fund mentioned in subparagraph (c)(ii).
The reference to the date the Specification is made in paragraph 1(c) and subparagraph 1(d)(ii) above means the date the Specification is signed.
Paragraph 1(c)(i)(b) provides for those income streams that were asset-tested income streams (long term) which were previously asset-test exempt but, due to the economic crisis, failed to meet the high probability actuarial test. As these income streams are no longer able to meet the requirements of 5JA(1)(b) or 5JB(1A)(b) of the Act, they are unable to retain their asset-test exemption. In these circumstances, these income streams would be assessed as asset-tested income streams and this change of status would normally trigger the operation of section 52ZMA of the Act.
Schedule 2 (Small APRA Funds)
Item 1 specifies the class of debt that may be waived. A debt is in a specified class if:
(a) it is a debt due to the Commonwealth by a person under section 52ZMA of the Act; and
(b) the debt did not arise because the person knowingly made a false or misleading statement to the Commonwealth, the Commission or to a person acting, respectively, on their behalf, or knowingly provided false information to the Commonwealth, the Commission or to a person acting, respectively, on their behalf; and
(c) immediately before the date this Specification is made, the income stream that is relevant for the purposes of section 52ZMA:
(i) was:
(a) an asset-test exempt income stream; or
(b) an asset-tested income stream (long term) that was previously an asset-test exempt income stream which failed to meet the requirements of either paragraphs 5JA(1)(b) or 5JB(1A)(b) of the Act; and
(ii) sourced from a small APRA fund; and
(d ) the income stream that is relevant for the purposes of section 52ZMA:
(i) on or after 1 July 2008 – ceased to meet the requirements of either paragraphs 5JA(1)(b) or 5JB(1A)(b) of the Act; and
(ii) after the date the Specification is made – is an account based market-linked income stream within the small APRA fund mentioned in subparagraph (c)(ii).
The reference to the date the Specification is made in paragraph 1(c) and subparagraph 1(d)(ii) above means the date the Specification is signed.
Paragraph 1(c)(i)(b) provides for those income streams that were asset-tested income streams (long term) which were previously asset-test exempt but, due to the economic crisis, failed to meet the high probability actuarial test. As these income streams are no longer able to meet the requirements of 5JA(1)(b) or 5JB(1A)(b) of the Act, they are unable to retain their asset-test exemption. In these circumstances, these income streams would be assessed as asset-tested income streams and this change of status would normally trigger the operation of section 52ZMA of the Act.
Consultation
Public consultation has not been undertaken as this instrument is of a beneficial nature and interested parties could be expected to agree with it. Consultation was undertaken with the Department of Families, Housing, Community Services and Indigenous Affairs which had consulted Centrelink, the Department of Education, Employment and Workplace Relations in relation to a virtually identical instrument. A similar instrument has also been made by the Minister for Employment to allow the waiver of debts for which the Minister for Employment has responsibility.
Regulatory Impact Statement
A Regulatory Impact Statement and a Business Costs Calculator are not required as the waiver of the Commonwealth’s right to recover the relevant debts will have no regulatory or competition impacts, and will not impose compliance costs on business.