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RETIREMENT SAVINGS ACCOUNTS AMENDMENT REGULATIONS 2007 (NO. 1) (SLI NO 104 OF 2007)
EXPLANATORY STATEMENT
Select Legislative Instrument 2007 No. 104
Issued by the authority of the Minister for Revenue and Assistant Treasurer
Retirement Savings Accounts Act 1997
Retirement Savings Accounts Amendment Regulations 2007 (No. 1)
The purpose of these regulations is to support the implementation of the Government’s Simplified Superannuation reforms announced in the 5 September 2006 statement A Plan to Simplify and Streamline Superannuation – Outcomes of Consultation. These regulations complement other regulations supporting the reforms which were registered on 2 April 2007 and 13 April 2007.
The Tax Laws Amendment (Simplified Superannuation) Act 2007 and related Acts give effect to the Simplified Superannuation reforms, making superannuation easier to understand, improving incentives to work and save, and providing greater flexibility over how superannuation savings can be drawn down in retirement.
Subsection 200(1) of the Retirement Savings Accounts Act 1997 (RSA Act) provides in part that the Governor-General may make regulations prescribing matters required or permitted by the RSA Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the RSA Act.
The Retirement Savings Accounts Regulations 1997 set out the contribution and payment rules for RSA providers, standards relating to the rollover and transfer of benefits, and pension standards.
The Regulations allow RSA providers to cash a member’s benefits to give effect to an excess contributions tax release authority, prohibit an RSA provider from accepting RSA holder contributions where a tax file number is not quoted or the amount of a contribution exceeds the non‑concessional contributions cap, amend the work test for a transitional period to allow certain people to make personal contributions, allow RSA providers to accept non‑mandated employer contributions for persons 70 to 74, and update the provisions relating to spouse contributions splitting to provide for the new contributions caps.
The Regulations also refer to a standard portability form to be used when a member seeks to transfer benefits between superannuation entities, as well as reduce the time an RSA provider has to action an RSA holder’s request to transfer benefits.
The Regulations also ensure a consistent legislative basis for portability for superannuation providers and RSA providers. In particular, the Regulations insert the portability requirements for RSA providers into the RSA Regulations. These requirements were previously set out in the RSA Act.
The Regulations also set out new minimum pension standards.
Details of the Regulations are set out in the Attachment.
The RSA Act specifies no conditions that need to be met before the power to make the Regulations may be exercised.
The Regulations commence on the day after registration, 30 April 2007 and 1 July 2007.
The Regulations outlined above are legislative instruments for the purposes of the Legislative Instruments Act 2003.
ATTACHMENT
Details of the Retirement Savings Accounts Amendment Regulations 2007 (No. 1)
Regulation 1 specifies the name of the regulations as the Retirement Savings Accounts Amendment Regulations 2007 (No. 1).
Regulation 2 provides that regulations 1, 2 and 3 and Schedule 1 commence on the day after registration. Regulation 4 and Schedule 2 commence on 30 April 2007. Regulation 5 and Schedule 3 commence on 1 July 2007.
Regulation 3 provides that Schedule 1 amends the Retirement Savings Accounts Regulations 1997 (RSA Regulations).
Regulation 4 provides that Schedule 2 amends the RSA Regulations.
Regulation 5 provides that Schedule 3 amends the RSA Regulations.
Commutation of income streams
Items 1 to 5
Where an individual is given a release authority under section 292-405 of the Income Tax Assessment Act 1997 (1997 Tax Act), the person must withdraw an amount equal to their excess non‑concessional contributions tax liability from the superannuation system by providing the release authority given to them by the Commissioner of Taxation to their RSA institution. Where such a person fails to withdraw the required amount, the Commissioner of Taxation is able to present a release authority directly to the RSA institution of that person.
An individual may also be provided with a transitional release authority under section 292-80A of the Income Tax (Transitional Provisions) Act 1997 (Transitional Act) which they are also able to present to an RSA institution.
The changes to regulations 1.07, 1.08 and 4.01 of the RSA Regulations made by items 1 to 5 set out the standards which must be met by a pension, including when a pension may be commuted to also allow commutation in accordance with a release authority and ensure that where an income stream is commuted to meet a release authority, the pension still satisfies the pension standards in the RSA Regulations.
New Minimum Pension Standards
Item 6
This item inserts a new regulation 4.20A into the payment standards in Part 4 of the RSA Regulations. The new provision requires that an RSA provider providing a pension under subregulation 1.07(3A) must not pay the pension, or allow the pension to be commuted, except in accordance with that subregulation.
Pensions provided under subregulations 1.07(3A) are referred to as ‘market‑linked pensions’. The rules for these pensions require that commutation can only occur in limited circumstances, including where the commutation amount is applied to commence another ‘complying’ income stream.
Item 7
Item 7 updates the reference to the Department of Immigration and Multicultural and Indigenous Affairs to also refer to the other names the Department is known by, which are the Department of Immigration and Multicultural Affairs and the Department of Immigration and Citizenship.
Definition of ‘gainfully employed’
Items 12 and 13
Items 12 and 13 amend the meaning of ‘gainfully employed on a part‑time basis’ in subregulation 5.03(6) of the RSA Regulations so that a person must be gainfully employed (that is, self-employed or employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment) for at least 40 hours in a period of not more than 30 consecutive days during a financial year. This is a technical amendment to give effect to the original intent for application in the RSA Regulations.
Transitional arrangements for acceptance of contributions
Items 8 to 11
Regulation 5.03 of the RSA Regulations outlines the conditions for accepting contributions. Once a person turns age 65 they must satisfy a work test before they can make contributions to an RSA. Once they turn age 75 they are generally unable to make any superannuation contributions. As a result of the timing of the Simplified Superannuation announcements about caps for non‑concessional contributions, some people may have inadvertently missed the opportunity to take advantage of the higher transitional cap of $1 million for non‑concessional contributions made before 30 June 2007.
Items 8 to 10 amend subregulations 5.03(3), 5.03(4) and 5.03(4A) to insert a reference to new subregulation 5.03(4B).
Item 11 inserts a new subregulation 5.03(4B) to provide an exception to the acceptance of contributions rules that relate to an individual who was age 64 at any time between 10 May 2006 and 5 September 2006. These people are able to contribute to an RSA during the period 10 May 2006 to 30 June 2007 without having to satisfy the work test (that is, gainfully employed on at least a part-time basis during the financial year).
New subregulation 5.03(4B) also provide an exception to the acceptance of contributions rules that relate to an individual who was age 74 at any time between 10 May and 5 September 2006. These people are able to contribute to an RSA during the period 10 May 2006 to 30 June 2007 if the person was gainfully employed on at least a part-time basis in either the 2005-06 or 2006-07 financial years.
These exceptions only apply to RSA holder contributions made by the RSA holder.
Conditions of release
Item 14
Item 14 inserts new items into Schedule 2 to the RSA Regulations. These new items provide that a new condition of release for RSAs is triggered when an RSA holder or the Commissioner of Taxation has given the RSA provider a release authority under section 292-410 of the 1997 Tax Act or a transitional release authority under section 292-80A of the Income Tax (Transitional Provisions) Act 1997 (Transitional Act).
The amendments also provide that the restriction on cashing, once such a condition of release is satisfied, is that the payment is subject to the restrictions contained in subsection 292-415(1) of the 1997 Tax Act and subsection 292‑80C(1) of the Transitional Act. These restrictions relate to timeframes and amounts that can be released.
Spouse Contributions Splitting
Under the Simplified Superannuation reforms, from 10 May 2006 there is a cap on the amount of non-concessional contributions that can be made for a person. Contributions in excess of the cap are subject to tax at the rate of 46.5 per cent, which is levied on the individual who must withdraw an amount equal to their tax liability from their RSA.
This ensures the excess contributions are removed from the superannuation system and do not continue to benefit from the concessional tax treatment afforded to investment earnings generated by an RSA.
Division 4.5 of the RSA Regulations provides that certain contributions may be split between spouses’ accounts in RSAs. Allowing people to continue to split non‑concessional contributions with their spouse would require the implementation of a complex mechanism to allow for the retrieval of contributions from the non‑member spouse’s account to prevent a potential circumvention of the cap.
Therefore, item 1 amends the definition of an ‘untaxed splittable contribution’ in subregulation 4.38(3) of the RSA Regulations, to prevent the splitting of non‑concessional contributions contributed after 30 April 2007 and update the definition to include concepts introduced by the Tax Laws Amendment (Simplified Superannuation) Act 2007.
However, RSA holders are still able to split contributions made prior to that date.
Item 1
Item 1 inserts a definition of 1997 Tax Act (being the Income Tax Assessment Act 1997) into subregulation 1.03(1).
Item 1 also inserts a definition of an account based pension as a pension that meets the terms and conditions as set out in subregulation 1.07(3D).
New Minimum Pension Standards
Item 7
Currently, an RSA holder can be classified as being lost where the RSA provider has not received a contribution or rollover in respect of the person within the last two years. Item 6 increases this period to five years.
Item 8
Item 8 inserts into the RSA Regulations a new provision describing the meaning of a pension for the purposes of the RSA Act at 1.07(1). A pension is a benefit which meets the standards of new subregulation 1.07(3D) and which does not permit the capital supporting the income stream to be added to by way of contribution or rollover once it has commenced. The income stream also needs to meet rules requiring a minimum payment to be made prior to a commutation.
The existing provisions containing the meaning of a pension remain in the RSA Regulations as new subregulation 1.07(1A). These provisions relate to pensions which commence before 20 September 2007. Pensions which commence in the period between 1 July 2007 and 20 September 2007 are able to meet either the new standards or the existing standards.
Item 8 also inserts new subregulation 1.07(1B) into the RSA Regulations. The new provision clarifies that the meaning of a pension includes a market-linked pension that commences on or after 20 September 2007 from the commutation of another complying income stream, provided that the new pension also meets the standards of subregulation 1.07(3D).
This involves a new market-linked pension meeting the standards of both existing subregulation 1.07(3A) and new subregulation 1.07(3D). In practice, this means that the allowable term of the new market-linked pension have to be chosen such that the total value of payments in each year is at least equal to the minimum payment amounts in Schedule 5 of the RSA Regulations.
Item 10
This item sets out the new minimum standards for pensions.
Under the new standards, the total amount of payments in any year must meet the minimum payment rules set down in new Schedule 5 to the RSA Regulations.
The new minimum standards are not restricted to income streams which commence on or after 20 September 2007. This means that existing allocated pensions are able to operate under the new minimum payment rules from 1 July 2007 without the need to commute and restart a new pension.
Item 10 also adds new subregulation 1.07(3E) which limits the ability to transfer a pension to another person where the recipient dies on or after 1 July 2007. The effect of the provisions is to prevent a pension from being transferred to a person who is ineligible to be paid a benefit in that form under new subregulation 4.24(3A) (see item 33).
Item 11
Regulation 1.08 contains rules which require a minimum pro-rata payment to be made from a market linked pension prior to commutation. An exception to this rule applies where the income stream account balance, immediately after the commutation, is equal to or greater than the required minimum payment for the year as reduced by the amount of income payments already made in the year (existing paragraph 1.08 (2)(ba)). Item 11 amends this provision to substitute the words “payments to the RSA holder already made” for “income payments”. The effect of the change is that any payments already made from the income stream (either as income or by way of commutation) to the recipient in the relevant year count for purposes of determining whether the exception to the pro-rata minimum payment rule applies.
Item 12
This item inserts a new regulation 1.08A into the RSA Regulations which sets out a minimum payment condition that must be satisfied prior to the commutation of an account-based pension. The condition requires that the pension must pay an amount, in the financial year in which the commutation is to take place, of at least the pro‑rata of the minimum annual payment amount that is required under new Schedule 5. This rule is closely based on the existing integrity rule for market-linked pensions.
The minimum payment condition in regulation 1.08A does not apply to a commutation resulting from the death of the recipient of the income stream. It also does not apply to a commutation for the sole purpose of paying a superannuation contributions surcharge, giving effect to an entitlement of a non-member spouse under a payment split or meeting the rights of a client to return a financial product under the cooling-off period provisions in the Corporations Act 2001.
The formula for calculating the pro-rata minimum payment amount are as follows.
Minimum annual amount x days in payment period ÷ days in financial year
The minimum annual amount for the pro-rata calculation is worked out in accordance with the formula for calculating the minimum annual payment amount in Schedule 5.
For income streams that commence in the year in which they are commuted, the pro‑rata minimum payment amount is calculated using the number of days in the payment period from the commencement day of the income stream to the day on which the commutation takes place. For commutations in subsequent years, the pro‑rata minimum payment amount is calculated using the number of days in the payment period from 1 July in the financial year in which the commutation takes place to the day on which the commutation takes place.
Example: Jaylee commences an account-based pension on 1 July 2007 at age 60. She decides to commute the pension on 31 July 2008. The account balance of the pension on 1 July 2008 is $100,000.
The minimum required payment from the pension in 2008-09 is
$4,000 (4 per cent of $100,000). The pro-rata minimum payment amount for the
pension will be
$4,000 × 31 ÷ 365 = $339.73. As no payments have been made from the pension in
2008‑09, the pension would need to pay Jaylee a minimum payment of
$339.73 prior to the commutation.
Item 14
This item inserts a new definition of ‘cashing restriction’ into the RSA Regulations. In relation to a condition of release, this term means a cashing restriction specified in column 3 of the relevant item in Schedule 2.
Item 18
This item inserts a new definition of ‘transition to retirement pension’ into subregulation 4.01(2). A transition to retirement pension is defined as a pension that meets the standards of subregulation 1.07(3D) and which limits the total amount of payments in any year to no greater than 10 per cent of the account balance at the start of each year.
The definition also requires that the income stream meets certain restrictions on commutation which currently apply to non-commutable allocated pensions. These restrictions ensure that if the pension is commuted, the proceeds of the commutation cannot be cashed as a lump sum unless the pensioner has satisfied a condition of release with a ‘nil’ cashing restriction, or the commutation is for certain specified purposes. The specified purposes are: to cash an unrestricted non‑preserved benefit; to pay a superannuation contributions surcharge; or to give effect to a payment split under family law.
Item 20
This item inserts a new paragraph 4.01(4)(b) into the RSA Regulations to extend the meaning of ‘retirement’ for a person who has reached age 60.
Currently, a person who has reached age 60 is taken to have retired if an arrangement under which the person was gainfully employed has come to an end on or after they attained that age. Under the amendment, a person in this age group will also be taken to have retired where they have left an employment arrangement and the RSA provider is reasonably satisfied that the person has no intention of ever working again.
Item 20 avoids an anomalous outcome which would otherwise arise when the superannuation preservation age increases to 60. In the absence of this change, persons who leave an employment arrangement before age 60, but choose not to access their benefits until after that age, would not be covered by the existing definition of retirement.
Items 25, 26 and 27
These items amend the provisions relating to the voluntary cashing of benefits in a retirement savings account to make it clear that these provisions do not have application to cashing of benefits in the event of the death of the RSA holder. Cashing in consequence of death will be exclusively covered by regulation 4.24.
Items 29 and 30
Currently, the RSA Regulations require that an RSA holder’s benefits in a retirement savings account must be cashed if the RSA holder has reached age 65 and does not meet a work test. Items 29 and 30 remove the provisions in the RSA Regulations which impose this requirement. As a result of the changes, compulsory cashing of an RSA holder’s benefits are only required where the RSA holder has died.
Items 31 and 32
These items place limits on the ability to cash death benefits in the form of an annuity or a pension where an RSA holder dies on or after 1 July 2007. New subregulation 4.24(3A) (inserted by item 32) requires that a deceased RSA holder’s benefits can only be cashed in annuity or pension form in favour of the classes of recipients described. Under new subregulation 4.24(3B) (also inserted by item 32), death benefits being paid in the form of an annuity or pension to a child of a deceased RSA holder under subregulation 4.24(3A) have to be cashed as a lump sum no later than the time at which the child attains the age of 25, unless the child has a permanent disability.
Item 33
Subregulation 4.24(2) is omitted from the regulations by item 30. Item 32 removes a reference to this subregulation in subregulation 4.24(4).
Item 34
This item removes subregulations 4.24(5) and (6) which are made redundant by the removal of the work test for compulsory cashing.
Item 53
This item amends the cashing restriction for the ‘attaining preservation age’ condition of release in Schedule 2 to include transition to retirement benefits provided under the new minimum standards for pensions.
Item 54
This item creates a new condition of release which allows the benefits of a lost RSA holder to be paid out to the RSA holder where their benefit in the RSA at the time of release is less than $200.
Item 55
This item inserts into the RSA Regulations a new Schedule 5 containing the payment rules for pensions that apply under subregulation 1.07(3D).
The minimum annual payment amount for an account-based pension will be determined under the formula contained in clause 1 of Schedule 5. Under this formula the minimum payment amount is calculated by multiplying the account balance of the income stream on 1 July of the relevant year (or the commencement day in the case of the first year of the income stream where that is a day other than 1 July) by the percentage factor in column 3 of the table that corresponds to the beneficiary’s age on 1 July in the financial year (or on the commencement day in the case of the first year of the income stream).
In cases where an income stream commences on a day other than 1 July, clause 2 would require the minimum payment amount for the first year of the income stream to be applied proportionately to the number of days remaining in the financial year that include and follow the commencement day.
Clause 3 states that, where the commencement day of the pension is on or after 1 June in a financial year, no payment is required to be made for that financial year.
Clause 4 provides that minimum payment amounts determined under Schedule 5 are to be rounded to the nearest 10 whole dollars.
Cashing in favour of the Commissioner of Taxation
Items 35 and 36
Items 35 and 36 amend regulation 4.26 of the RSA Regulations which limit the cashing of benefits, to allow an RSA institution who has received a release authority in respect of an RSA holder under section 292‑410 of the 1997 Tax Act to cash the RSA holder’s benefits in favour of the Commissioner of Taxation in accordance with the authority in satisfaction of the RSA holder’s tax liability.
Compulsory rollover and transfer of benefits in RSAs
Item 24 replaces the reference to section 50 of the RSA Act with a reference to new Division 4.4A, which provides for the compulsory rollover and transfer of benefits in RSAs, in subparagraph 4.20(1)(a)(ii) of the RSA Regulations.
Item 37
Item 37 – New Division 4.4A
The legislative basis for the portability requirements of superannuation funds and RSA providers is inconsistent. In particular, the portability requirements for superannuation funds are specified in the SIS Regulations where as the requirements for RSA providers are specified in the RSA Act. Item 37 inserts Division 4.4A into the RSA Regulations and therefore inserts the requirements for portability of benefits into the RSA Regulations to ensure consistency between superannuation providers and RSA providers in relation to the arrangements for portability of benefits.
Division 4.4A provides for the compulsory rollover and transfer of benefits in RSAs (portability of superannuation benefits). It includes the changes to portability arrangements announced by the Government as part of its Simpler Superannuation reforms. In particular, referring to a standard portability form to be used when a member seeks to transfer benefits between superannuation entities, as well as reducing the time an RSA provider has to action an RSA holder’s request to transfer benefits from 90 days to 30 days.
Item 37 inserts new regulations 4.35 to 4.35E which set out the requirements for portability of benefits into the RSA Regulations.
Regulation 4.35 provides that new Division 4.4A applies to all RSAs.
Regulation 4.35A provides that portability of benefits is a standard applicable to the operation of RSAs.
Regulation 4.35B refers to the prescribed standard portability form set out in Schedule 2A of the SIS Regulations. The standard portability form includes standard proof of identity requirements and can be used for requests to transfer the whole amount of a member’s superannuation benefits in a fund. This form may be used for transfers from RSAs with any relevant modifications. For example, reference to superannuation fund may need to be changed to RSA provider.
Subregulation 4.35C(1) allows an RSA holder to request, in writing, a transfer of an amount that is whole or part of the RSA holder’s benefit.
Subregulations 4.35C(2), (3) and (4) require the RSA provider to seek further information from the RSA holder, as provided for in these regulations to action the RSA holder’s portability request, within 10 working days of receiving the request. If the RSA provider has not received the information within 10 working days, the RSA provider is required to make further inquiries with the RSA holder.
For a whole balance transfer request, the RSA provider may only require further information that is mandatory information in the prescribed form in Schedule 2A (whether the form in Schedule 2A is used or not). Once the RSA provider has a correctly completed standard portability form (with all mandatory information provided) or alternatively does not have a standard form but has all the information that is mandatory on the form, the RSA provider will have 30 days to transfer the benefits. However, the RSA provider may roll over or transfer an amount even if the RSA provider does not have all the mandatory information (which includes the proof of identity requirements).
For a partial transfer request, the RSA provider may ask for further information that was specified as necessary under new paragraph 4.35D(2)(b) for the transfer.
For a transfer request to a self managed superannuation fund (SMSF), if the RSA provider decides that further documentation is required under subregulation 4.35D(3), the RSA provider may ask for that documentation.
New subregulation 4.35D(1) requires an RSA provider to rollover or transfer an amount of the RSA holder’s benefit, when a request is received under regulation 4.35C.
New paragraph 4.35D(2)(a) provides that a whole balance transfer request may be made using the prescribed form in Schedule 2A or in another manner.
Paragraph 4.35D(2)(b) provides where an RSA holder wants to request the transfer of a partial amount of their superannuation benefits, the RSA holder will need to contact their RSA provider to find out the information that is necessary to enable the transfer of the partial amount. For example, required information may include the mandatory information specified in the standard form, the amount of the RSA holder’s benefit to be transferred and the type of benefits to be transferred.
New subregulation 4.35D(3) provides in the case of a request to transfer benefits to a SMSF, in limited circumstances certified documentation showing that the RSA holder making the request is a member of the SMSF may be required. In particular, if the RSA provider is aware of another member (who is unrelated to the RSA holder making the request) who has transferred benefits to the same SMSF, the RSA provider may decide that the additional documentation will be required before transferring the benefits.
New subregulation 4.35D(4) requires RSA providers to be satisfied that the RSA holder is aware they can request further information from the RSA provider. This information includes the effect the roll over may have on the RSA provider’s benefit entitlements, and any fees and charges that may apply to the roll over or transfer. This subregulation provides consistency between RSA providers and superannuation providers.
New subregulation 4.35D(5) reduces the time in which a transfer must be made from 90 days to 30 days from receipt of all the information required in accordance with new subregulations 4.35C(2), (3) and (4).
New regulation 4.35E allows the RSA provider grounds for refusing to roll over or transfer an amount under regulation 4.35C. This subregulation provides consistency between RSA providers and superannuation providers.
Subregulation 4.35E(1) allows the RSA provider to refuse to rollover an amount under regulation 4.35C if:
• the RSA holder has made a request to transfer an amount under regulation 4.35C, and the RSA or superannuation fund to which the RSA holder has requested the rollover will not accept the amount;
• the RSA holder requests a part transfer of their interest in the RSA, if the RSA holder's remaining interest in the RSA after the rollover is less than $5,000; or
• the RSA provider has rolled over an amount of the RSA holder's interest within 12 months before the request is received.
New subregulation 4.35E(2) requires an RSA provider to notify the RSA holder in writing of a refusal to rollover an amount under subregulation 4.35E(1).
Spouse Contributions Splitting
Items 38 to 50
Items 38-49, 41-50 removes definitions of repealed terms and concepts that cease to apply and insert definitions and update references of terms introduced as part of the Simplified Superannuation reforms.
Item 40 amends the definition of ‘maximum splittable amount’ to restrict the amount of taxed splittable contributions (that is, contributions included in the assessable income of the fund) that can be split to the lesser of:
a) 85 per cent of the concessional contributions for a financial year; and
b) the concessional contributions cap for the financial year.
Example 1
Nick has taxed splittable contributions of $75,000 in the 2007-08 financial year. The maximum he can split with his spouse is $50,000, which is the lesser of 85% of his concessional contributions (being $63,750) and the cap (being $50,000) for the financial year.
Example 2
Tim has taxed splittable contributions of $35,000 in the 2007-08 financial year. The maximum he can split with his spouse is $29,750, which is the lesser of 85% of his concessional contributions (being $29,750) and the cap (being $50,000) for the financial year.
Example 3
Richard, aged 52, has taxed splittable contributions of $115,000 in the 2007‑08 financial year. The maximum he can split with his spouse is $97,750, which is the lesser of 85% of his concessional contributions (being $97,750) and the cap (being $100,000 as he qualifies for the higher transitional concessional contributions cap) for the financial year.
As excess concessional contributions are included in the definition of the non‑concessional contributions these amendments are necessary to support the administrative arrangements for the tax on excess non‑concessional contributions.
Acceptance of contributions and accrual of benefits
Item 52
Item 52 inserts new regulation 5.03 which amends the existing acceptance of contributions contained in the RSA Regulations to give effect to various measures outlined in the Simplified Superannuation reforms.
The maximum age limit for deductibility of an employer contribution has been increased from age 70 to 75 (new section 290‑80 of 1997 Tax Act). New regulation 5.03 will provide for an increase in the age for which such contributions can be accepted and benefits can be accrued. That is, from the current age of 70 to a day that is on or before the day that is 28 days after the end of the month in which the employee turns age 75.
Non‑personal RSA holder contributions (such as spouse contributions) continue to not be allowed to be accepted into an RSA for any person who has reached age 70.
To help prevent a person from inadvertently contributing more than the non‑concessional contributions cap, subregulation 5.03(3) provide that RSAs are required to return an amount of certain RSA holder contributions that exceed the cap.
For the purposes of this new cap, the RSA holder contributions that are subject to the Regulations are those given meaning by subregulation 1.03(1) of the RSA Regulations, but do not include a contribution that meets the requirements of section 292-95 or 292-100 of the 1997 Tax Act (contributions arising from structured settlements or orders made for personal injuries, and, relating to the sale of certain small business assets), payments from the Commissioner of Taxation in relation to superannuation guarantee shortfall components, transfers from the Superannuation Holding Account, Government co‑contributions, and contributions covered by a valid and acknowledged notice under section 290‑170 of the 1997 Tax Act. These contributions are known as RSA-capped contributions and are defined in new subregulation 5.03(7).
RSAs are not required to aggregate the total of RSA holder contributions received for a person either within the RSA or across other RSAs. The rule applies on a contribution‑by‑contribution basis, not a yearly basis or any other basis. This measure will reduce the instances of inadvertent breaches where the contribution is a one-off in a financial year.
New subregulation 5.03(2) require RSA institutions to return RSA holder contributions where the RSA holder’s tax file number has not been quoted (for superannuation purposes) to the RSA institution. This prevents a person from avoiding the non-concessional contributions cap and tax. The Australian Taxation Office would find it difficult to match a person to their contributions and apply the contribution caps, if the person’s tax file number was not quoted.
New subregulation 5.03(4) provides that RSAs are required to return the relevant holder amounts within 30 days of becoming aware that the amounts do not satisfy the regulations. The RSA provider will not be required to return this amount if the RSA holder’s tax file number was quoted to the RSA provider within 30 days of receipt of the amount. The RSA provider does not have to return the amount if the RSA provider receives a valid notice that the RSA holder is intending to claim a deduction on the RSA holder contribution during this time.
New subregulation 5.03(5) provides that if an RSA provider complies with these return arrangements the RSA provider is taken not to have breached these regulations.
Example 1
Donna, aged 31, deposits $500,000 in an RSA on 27 June 2008 as a personal RSA holder contribution. Donna has previously provided her tax file number to the RSA. Donna intends to claim a tax deduction under section 290‑170 of the 1997 Tax Act in relation to $50,000 of that contribution however did not provide a notice of intent to claim such a deduction at the time of contribution. However, on 7 July 2008 Donna gives a valid notice to the RSA that she intends to claim this deduction. The RSA-capped contribution is only $450,000 and as a result the RSA is able to accept the $500,000 RSA holder contribution in full and does not have to return any amount to Donna.
Example 2
Lucy deposits $50,000 in a RSA on 31 December 2007 as a personal RSA holder contribution. On 2 January 2008 the RSA becomes aware that Lucy has not provided her tax file number to the RSA. Even though Lucy has also provided a valid notice under section 290‑170 of the 1997 Tax Act in relation to this amount the RSA must return the amount (as outlined in the regulations) to Lucy by 1 February 2008 unless Lucy’s tax file number is quoted to the RSA provider. Luckily for Lucy, this occurs on 25 January 2008. As a result the RSA does not have to return this amount.
Example 3
Hamish deposits $100,000 in a RSA on 2 February 2008 as a personal RSA holder contribution. Hamish has an existing account balance of $250,000 from contributions made in earlier years. On 3 February 2008, Hamish requests that the RSA roll over his total balance in the RSA, including this amount, to another RSA. Hamish has not provided his tax file number to the RSA. The RSA can rollover the balance of Hamish’s account in the RSA (that is, the $250,000) into the new RSA. However, the amount that was an attempted contribution on 2 February 2008 cannot be rolled over unless his TFN is quoted. This amount must be returned to Hamish by 4 March 2008.
In order to avoid causing RSA holder equity and pricing issues within RSAs new subregulation 5.03(4) will also provide that the amount that is required to be returned is adjusted in arrangements that are similar to those which apply to financial products in Part 7.9 of the Corporations Regulations 2001.
Consequential Amendments
Item 2
Item 2 amends the definition of ‘capital gains tax exempt component’ in subregulation 1.03(1) of the RSA Regulations to reflect the repeal of subsection 27A(1) of the Income Tax Assessment Act 1936 (1936 Tax Act) from 1 July 2007. Given that the definition applies to contributions made before July 1999, it is appropriate to refer to the existing definition in the 1936 Tax Act.
Item 3
Item 3 amends the definition of ‘eligible spouse contribution’ in subregulation 1.03(1) of the RSA Regulations as the existing definition refers to provisions in the 1936 Tax Act that have been repealed and rewritten into the 1997 Tax Act.
Item 4
Item 4 omits the definition of ‘eligible termination payment’ from the RSA Regulations. The definition is no longer required as the concept is removed from the 1936 Tax Act by the Simplified Superannuation reforms.
Item 5
Item 5 inserts a definition of ‘superannuation lump sum’ in the RSA Regulations. This concept replaces the concept of an ‘eligible termination payment’ under the Simplified Superannuation reforms.
Item 6
Item 6 updates the reference to ‘Australian Society of Certified Practising Accountants’ in paragraph 1.05(b) to reflect the new registered business name of the organisation – ‘CPA Australia Limited’.
Items 9, 14, 15 and 16
The Tax Laws Amendment (Simplified Superannuation) Act 2007 replaces the concept of an ‘eligible termination payment’ in the 1936 Tax Act with the concepts of an ‘employment termination payment’ and ‘superannuation lump sum’ in the 1997 Tax Act. These items update references to ‘eligible termination payments’ in the RSA Regulations to refer to both new concepts or where it is clearly intended to only apply to certain types of ‘eligible termination payments’, only the relevant term is substituted.
Item 17
Item 17 inserts a new definition of ‘permanent incapacity’ in subregulation 4.01(2) to extend the operation of the condition of release to people who have never worked or who were not working at the time they were incapacitated.
Item 19
Item 19 amends the definition of ‘undeducted contributions’ in subregulation 4.01(3) as the existing definition refers to provisions in the 1936 Tax Act that have been repealed and replaced by revised concepts in the 1997 Tax Act.
Items 21 and 23
Items 21 and 23 amends paragraphs 4.10(2)(a) and 4.13(3)(a) of the RSA Regulations to reflect that section 82AAT of the 1936 Tax Act is repealed.
Item 22
Item 22 amends paragraphs 4.13(2)(a) to reflect the repeal of section 27D of the 1936 Tax Act from 1 July 2007.
Item 28
The Tax Laws Amendment (Simplified Superannuation) Act 2007 inserts a definition of ‘departing Australia superannuation payment’ into the 1997 Tax Act. Item 28 amends the note after subregulation 4.23A(5) to replace the reference to the 1936 Tax Act, with a reference to the 1997 Tax Act.
Item 51
The Tax Laws Amendment (Simplified Superannuation) Act 2007 replaces the concept of a ‘death benefit eligible termination payment’ in the 1936 Tax Act with the concept of a ‘superannuation death benefit’ in the 1997 Tax Act.
Item 51 amends subregulation 4A.25(2) to update the reference to ‘death benefit eligible termination payment’ to refer to a ‘superannuation death benefit’ in the 1997 Tax Act.