EXPLANATORY STATEMENT

Select Legislative Instrument 2005 No. 331

 

Issued by authority of the Minister for Revenue
and Assistant Treasurer

Retirement Savings Accounts Act 1997

Retirement Savings Accounts Amendment Regulations 2005 (No. 5)

Subsection 200(1) of the Retirement Savings Accounts Act 1997 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The purpose of the proposed Regulations is to add a special purpose travel visa issued for the Melbourne 2006 Commonwealth Games to the list of ‘eligible temporary resident visas’ to allow departing temporary residents to access any accrued superannuation and to facilitate the splitting of superannuation contributions between an retirement savings account (RSA) holder and their spouse.

Extensive public consultation was undertaken in respect of the introduction of the superannuation contribution splitting regime.  Draft versions of these regulations were exposed on a number of occasions to elicit public feedback on the operation of this aspect of the regime.

No public consultation was undertaken in relation to the inclusion of the Commonwealth Games special purpose visa on the list of ‘eligible temporary resident visas’ as the amendment is of a minor nature and will benefit people from overseas who come to Australia to work in connection with the Games.

The Act does not specify any conditions that must be met before the power to make the proposed Regulations may be exercised.

The proposed Regulations would be a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Regulations relating to the Commonwealth Games special purpose visa will commence on the day after they are registered.  The Regulations relating to the superannuation contributions splitting regime will commence on 1 January 2006. 

ATTACHMENT

 

Details of the proposed Retirement Savings Accounts Amendment Regulations 2005 (No. 5)

Regulation 1 — specifies the name of the Regulations as the Retirement Savings Accounts Amendment Regulations 2005 (No. 5).

Regulation 2 — provides that Regulations 1 to 3 and Schedule 1 commence on the day after they are registered and Schedule 2 commences on 1 January 2006.

Regulation 3 — provides that Schedule 1 and 2 amend the Retirement Savings Accounts Regulations 1997 (the principal Regulations).

Schedule 1 — Amendment

Item 1 amends the definition of an ‘eligible temporary resident visa’ in subregulation 4.01(2) of the principal Regulations to include a special purpose travel visa for the Melbourne 2006 Commonwealth Games.

The Minister for Immigration and Multicultural and Indigenous Affairs granted a special purpose travel visa on 8 October 2005 for people coming to work in Australia in connection with the Melbourne 2006 Commonwealth Games.  The visa will be issued to competing athletes, coaches, officials, members of the Commonwealth Games Federation, National Commonwealth Games Associations, certain media with broadcasting rights and major sponsors accredited to the games by the Melbourne Games 2006 Corporation.

Item 2 amends Schedule 3 by creating a new part for the existing ‘visa subclasses’ (ie, Part 1 Visa subclasses).

Item 3 omits the existing note but reinstates it in the new Part 2 of the Schedule.

Item 4 amends Schedule 3 by inserting a new part (Part 2) into the list of ‘eligible temporary resident visas’ for ‘special purpose visas’ and lists the special purpose visa declared by the Minister for Immigration and Multicultural and Indigenous Affairs for the Melbourne 2006 Commonwealth games.

Schedule 2 — Amendments

Item 1 inserts the definition of ‘allot’, which means to credit an amount in the same RSA under Division 4.5 for the receiving spouse if such an action would otherwise not be considered a transfer or roll-over.

Item 2 inserts the definition of receiving spouse into subregulation 1.03(1).  The definition provides that the term has the meaning given by new regulation 4.43.

Listing the definition of receiving spouse in subregulation 1.03(1) allows its application throughout the principal Regulations, rather than confining it to new Division 4.5 (refer to item 7).

Item 3 and 4 inserts new paragraph 3.05(d) to ensure that an RSA provider must ensure that the benefits of an RSA holder are maintained until the benefits are transferred, rolled-over or allotted under Division 4.5.

Item 5 replaces existing regulation 4.17 by moving the provision to subregulation 4.17(1) and inserting new subregulation 4.17(2), which provides that benefits allotted under new Division 4.5 to an interest in an RSA held by, or created for, a receiving spouse are taken to be preserved benefits until and unless the RSA provider can satisfy themselves that they are not preserved benefits.

Item 6 replaces subparagraph 4.20(1)(a)(ii) with new subparagraphs 4.20(1)(a)(ii) and (iii).  Current subregulation 4.20(1) restricts the situations in which benefits may be paid to an RSA holder.  The substituted subparagraphs retain the standard previously set out in subparagraph 4.20(1)(a)(ii) and extend it to ensure that benefits transferred, rolled over or allotted under new Division 4.5 are within the circumstances under which an RSA provider is allowed to make a payment of benefits.

Item 7 inserts new Division 4.5 spouse contributions-splitting amounts.

The new Division 4.5 provides the mechanism for RSA holders to request a split of their contributions (which is in effect a request to roll‑over, transfer or allot an amount of their benefit to their spouse with the amount determined by reference to the previous year’s contributions) and outlines the circumstances in which an RSA provider may accept such an application.

Regulation 4.37 — Interpretation

This regulation provides the following definitions, which apply in respect of new Division 4.5:

applicant is defined as an RSA holder who makes an application under subregulation 4.41(1).

eligible non-resident non-complying superannuation fund is defined by reference to the meaning given to the term by section 27A of the Income Tax Assessment Act 1936 (ITAA 1936).

maximum splittable amount means, for taxed splittable contributions, 85 per cent of the amount of taxed splittable contributions made in the relevant financial year.  The 85 per cent limit is a simple means of ensuring that it is the total amount of taxed splittable contributions, net of 15 per cent contributions tax, that can be split.  For untaxed splittable contributions (which are not subject to contributions tax) the maximum splittable amount is 100 per cent of such contributions made in the relevant financial year.

post-June 83 component has the meaning given by section 27A of the ITAA 1936.

preservation age has the meaning given by regulation 4.01.

relevant financial year is defined, in respect of paragraph 4.41(1)(a) as the financial year immediately preceding the financial year in which a splitting application has been made, or, in respect of paragraph 4.41(1)(b), as the financial year in which the application is made.

splittable contribution has the meaning given by regulation 4.39.

taxed splittable contribution is defined in new regulation 4.38.

undeducted contributions in relation to an ETP, has the meaning given by section 27A of the ITAA 1936.

untaxed splittable contribution has the meaning given by regulation 4.38.

Regulation 4.38 — taxed splittable contributions and untaxed splittable contributions

Subregulations 4.38(1) and (2) provide that a taxed splittable contribution made on or after 1 January 2006 means a contribution that is a taxable contribution under section 274 of the ITAA 1936.  Amounts rolled over to a fund or lump sum payments from eligible non‑resident non‑complying funds are not taxed splittable contributions.

Subregulations 4.38(3) and (4) provide that an untaxed splittable contribution is a contribution that is not a taxable contribution under section 274 of the ITAA 1936.  Amounts paid by employers, amounts rolled over to a fund and lump sum payments from eligible non-resident non-complying funds are not untaxed splittable contributions.

Regulation 4.39 — Splittable contributions

A splittable contribution is defined as a contribution (which is a term defined in subregulation 1.03(1) of the principal Regulations) made on or after 1 January 2006.

Clarification of those amounts which are not splittable contributions is also provided.  Amounts that are rolled over or transferred, amounts that are allotted under Division 4.5, lump-sum payments from an eligible non-resident non-complying superannuation fund and employer ETPs described in paragraphs (a) and (jaa) of the definition of eligible termination payment in subsection 27A(1) of the ITAA 1936 are not splittable contributions and may not be split with a person’s spouse.

Regulation 4.40 — Application

This regulation provides that Division 4.5 cannot be used to transfer benefits out of an RSA that are subject to a payment split or on which a payment flag (within the meaning of Part VIIIB of the Family Law Act 1975) is operating.

This prevents RSA holders from using Division 4.5 to transfer benefits to an interest of a current spouse to prevent them being accessed by a former spouse under family law provisions.

Regulation 4.41 — Application to roll-over, transfer or allot an amount of contributions

Paragraph 4.41(1)(a) provides that an RSA holder  may apply to the RSA provider to roll over, transfer or allot an amount of the RSA holder’s benefit for the benefit of the RSA holder’s spouse with the amount determined by reference to the amount of contributions made by, for, or on behalf of the RSA holder in the previous financial year. 

Paragraph 4.41(1)(b) provides that an RSA holder may apply to the RSA provider, where their entire benefit is to be rolled over or transferred in that financial year, to roll over, transfer or allot an amount of the RSA holder’s benefit for the benefit of the RSA holder’s spouse with the amount determined by reference to the amount of contributions made by, for, or on behalf of the RSA holder during the financial year.

Paragraph 4.41(2)(a) provides that an application will be invalid if the RSA holder has already made an application in respect of a relevant financial year and that application has been given effect to or is still being processed.  This effectively limits RSA holders to one valid application per year for administrative simplicity.

Paragraph 4.41(2)(b) provides that an application will be invalid if the amount requested to be split exceeds the maximum splittable amount (85 per cent for taxed splittable contributions and 100 per cent for untaxed splittable contributions).

Paragraph 4.41(2)(c) provides that (subject to subregulation 4.41(3)) an application will be invalid if the RSA holder’s spouse is aged 65 years or more or between the relevant preservation age and 65 where the spouse currently satisfies a condition of release specified as item 101 in column 1 of Schedule 2 of the Principal Regulations.  However, if the application includes a statement from the receiving spouse that they are either between their relevant preservation age and 65 and not permanently retired or that they are under their preservation age, then (under subregulation 4.41(3)) the application will be valid and the RSA provider may give effect to the application.  In effect, these conditions ensure that contributions cannot be split to a spouse who is able to immediately access them.

Subregulation 4.41(4) provides that the applicant must specify the amounts of taxed splittable contributions and/or untaxed splittable contributions that the RSA holder wishes to split.

Regulation 4.42 — Decision on application

This regulation provides that an RSA provider may accept an application made by an RSA holder under subregulation 4.41(1) provided that certain conditions are met.  The ability to split contributions is entirely voluntary upon RSA providers and accordingly RSA providers may impose additional restrictions or limits on how and when they would offer splitting.

The conditions which must be satisfied before an application can be accepted are:

•                the application complies with regulation 4.41;

•                that the RSA provider has no reason to believe that the statement mentioned in subregulation 4.41(3) (which requires the receiving spouse to confirm that they are less than 65 and, if aged between their preservation age and 65, are not permanently retired) is untrue; and

•                the application relates to the roll‑over, transfer or allotting of an amount that is not more than the maximum splittable amount (85% for taxed splittable contributions and 100% for untaxed splittable contributions).

Subregulation 4.42(2) provides that an RSA provider must give effect to a splitting request they have accepted as soon as practicable and in any event within 90 days of receiving the application.

Subregulation 4.42(3) provides that if the application relates to splitting of untaxed splittable contributions then the RSA provider can only give effect to the application where the amount specified is less than or equal to the undeducted contributions component that would form part of the ETP that would be payable if the RSA holder withdrew their entire benefit at the time of the RSA provider giving effect to the split.

Subregulation 4.42(4) provides that if the application relates to splitting of taxed splittable contributions then the RSA provider can only give effect to the application where the amount specified is less than or equal to the taxed post-June 83 component that would form part of the ETP that would be payable if the RSA holder withdrew their entire benefit at the time of the RSA provider giving effect to the split.

Regulation 4.43 — Receiving spouse

This regulation defines the term ‘receiving spouse’ for the purposes of the Part.  A ‘receiving spouse’ is the spouse of the applicant (and hence the person who will receive the transferred, rolled over or allotted benefits).