Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
FIRST HOME SAVER ACCOUNTS BILL 2008
INCOME TAX (FIRST HOME SAVER ACCOUNTS MISUSE TAX) BILL 2008
FIRST HOME SAVER ACCOUNTS (CONSEQUENTIAL AMENDMENTS)
BILL 2008
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Opening and making contributions ............................... 9
Chapter 2 Payments from a First Home Saver Account.............. 35
Chapter 3 Government contributions to First Home Saver
Accounts ..................................................................... 47
Chapter 4 Offering First Home Saver Accounts .......................... 59
Chapter 5 Prudential regulation of First Home Saver
Account providers ....................................................... 71
Chapter 6 Taxation .................................................................... 103
Chapter 7 Financial services licensing, conduct, advice
and disclosure........................................................... 125
Chapter 8 Administration and other issues................................ 133
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ABN Australian Business Number
ADIs authorised deposit-taking institutions
APRA Australian Prudential Regulation
Authority
APRA Act Australian Prudential Regulation
Authority Act 1998
ASIC Australian Securities and Investment
Commission
ASIC Act Australian Securities and Investments
Commission Act 2001
CGT capital gains tax
Commissioner Commissioner of Taxation
Corporations Act Corporations Act 2001
Corporations Regulations Corporations Regulations 2001
FHOG First Home Owner Grant
FHSA First Home Saver Accounts
FHSA (Consequential Amendments) First Home Saver Accounts
Bill 2008 (Consequential Amendments) Bill
2008
FHSA Bill 2008 First Home Savers Account Bill 2008
Income Tax (FHSA Misuse Tax) Bill Income Tax (First Home Saver
2008 Accounts Misuse Tax) Bill 2008
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
PAYG pay as you go
RSE registrable superannuation entity
SIS Act Superannuation Industry
(Supervision) Act 1993
SIS Regulations Superannuation Industry
(Supervision) Regulations 1994
TAA 1953 Taxation Administration Act 1953
1
virtual PST virtual pooled superannuation trust
General outline and financial impact
First Home Saver Accounts
The First Home Saver Accounts Bill 2008 (FHSA Bill 2008) and
supporting Bills implement the Government's election commitment to
introduce First Home Saver Accounts (FHSAs).
Overview of arrangements
The Government is introducing FHSAs to provide a simple, tax effective
way for Australians to save for the purchase of their first home in which to
live, through a combination of low taxes and Government contributions.
The legislation for FHSAs is contained in three Bills:
· the main Bill is the FHSA Bill 2008, which establishes
FHSAs, governs their operation, provides for the payment of
Government contributions for account holders, and provides
for the prudential regulation of account providers;
· the First Home Saver Accounts (Consequential
Amendments) Bill 2008 (FHSA (Consequential
Amendments) Bill 2008), which contains consequential
amendments to other Commonwealth laws, chiefly the
taxation and corporations law; and
· the Income Tax (First Home Saver Accounts Misuse Tax)
Bill 2008 (Income Tax (FHSA Misuse Tax) Bill 2008),
which imposes the misuse tax to clawback benefits obtained
by an account holder who improperly uses the accounts.
Chapter 1 outlines the key concepts and definitions which apply to
FHSAs. It also outlines who can open an account and the arrangements
for making contributions into accounts. To be eligible to open an account,
an individual must:
· be aged at least 18 and under 65;
· have not previously owned a home in Australia in which they
have lived; and
3
· provide their tax file number (TFN) to the provider and meet
standard proof-of-identity requirements.
For contributions:
· there are no restrictions on who can make a contribution into
an FHSA;
· all contributions must be made from post-tax income; and
· there is an overall account balance cap of $75,000 (indexed).
Chapter 2 outlines the circumstances and processes necessary for money
to be paid from an FHSA. As a general rule, in order to access money to
purchase a first home, personal contributions of at least $1,000 must have
been made in respect of the FHSA holder in each of at least four financial
years. Individuals are able to contribute the balance of their account to
superannuation at any time.
The rules described in Chapter 2 limit the circumstance in which FHSAs
can be accessed. The primary reason for accessing money in a FHSA is to
purchase a first home in Australia in which to live. Funds can also be
accessed:
· as a contribution to superannuation;
· as a transfer to another FHSA;
· when the individual reaches age 60; and
· in other limited specified circumstances.
Chapter 3 outlines the Government contribution arrangements. In general,
the Government contribution is applied to up to $5,000 (indexed) of
personal contributions into an account in a financial year. The rate of the
Government contribution is 17 per cent for all individuals.
Chapter 4 outlines the obligations of FHSA providers before they may
offer FHSAs. Authorised deposit-taking institutions (ADIs) and life
insurance companies are required to notify the Australian Prudential
Regulation Authority (APRA) before offering FHSAs. Trustees who hold
the appropriate class of registrable superannuation entity (RSE) licence
are eligible to seek authorisation as an FHSA provider.
Chapter 5 outlines the prudential regulation framework that applies to
FHSA providers. A new prudential framework applies to RSE licensees
that are authorised to provide FHSAs and FHSA trusts which is broadly
consistent with the prudential framework that applies to public offer
superannuation funds and their trustees. APRA will be able to make
prudential standards in relation to authorised trustees and FHSA trusts.
Additional investment management requirements apply to FHSAs offered
by authorised RSE licensees and life insurance companies that offer
FHSAs as investment-linked life policies.
Otherwise, FHSA providers that are ADIs and life insurance companies
are prudentially regulated under the Banking Act 1959 and Life Insurance
Act 1995.
Chapter 6 outlines the tax treatment of FHSAs, which is set out in the
FHSA (Consequential Amendments) Bill 2008 and the Income Tax
(FHSA Misuse Tax) Bill 2008. The following taxation arrangements
apply:
· individual contributions to FHSAs are not taxed as they will
be made from post-tax income;
· Government contributions are not taxed;
· withdrawals to purchase a first home are not taxed;
· other withdrawals are generally not taxed.
In addition, earnings on FHSAs are taxed to the account provider at the
statutory rate of 15 per cent rather than to the individual account holder.
Broadly, this applies in the following way:
· the trustee of an FHSA trust is liable to pay tax at 15 per cent
on the taxable income of the trust;
· an ADI calculates an FHSA component of taxable income on
a similar basis to a retirement savings account, which is taxed
at 15 per cent; and
· a life insurance company calculates (using the virtual pooled
superannuation trust method) a class of taxable income for
their FHSA and superannuation activities to be taxed at
15 per cent.
5
Chapter 6 also describes the FHSA misuse tax, which applies to clawback
benefits obtained by individual account holders who improperly use the
accounts. In general, an FHSA holder is subject to the misuse tax if
FHSA money is paid to the FHSA holder to purchase a first home and:
· they were not eligible to open an account;
· they became ineligible and failed to notify the FHSA
provider;
· they did not use the money to purchase or build a first home;
or
· they failed the occupancy rules.
The tax does not apply if the money is transferred to superannuation, even
if the FHSA holder fails one or more of these conditions.
Chapter 7 outlines how the relevant provisions of the Corporations
Act 2001 (Corporations Act) and the Australian Securities and
Investments Commission Act 2001 (ASIC Act) in relation to financial
services licensing, conduct, advice and disclosure apply to FHSAs. The
necessary amendments are in the FHSA (Consequential Amendments)
Bill 2008. They ensure that FHSAs are:
· accompanied by appropriate disclosure documents (including
a product disclosure statement and periodic statements);
· not subject to unnecessary regulation;
· subject to a mandatory cooling-off period; and
· treated the same under the Corporations Act, regardless of
the issuing entity and the legal nature of the accounts.
Chapter 8 outlines administration and other requirements, including the
provider's legal responsibilities in relation to TFNs; secrecy provisions
and reporting of information to the Parliament.
Date of effect: The main Bill and amendments formally commence on the
day after the date of Royal Assent. However, practical effect is in relation
to FHSAs, which can only be opened or issued on or after 1 October 2008.
Proposal announced: FHSAs were announced in the 2007 Federal
election campaign. On 4 February 2008, the Treasurer and the
Minister for Housing announced that the Government had formally
approved the establishment of FHSAs. A detailed proposal was released
for public consultation on 8 February 2008 in First Home Saver Accounts
Outline of proposed arrangements. The Government's final decisions
were announced as part of the 2008-09 Budget on 13 May 2008 in
Press Release No. 040 issued by the Treasurer.
Financial impact: The amendments in the FHSA Bill 2008 and
supporting Bills will have a fiscal cost of around $1.2 billion over
five years (including administration costs).
Impact on fiscal balance
2007-08 2008-09 2009-10 2010-11 2011-12
$2.7m $156m $241m $341m $438m
Compliance cost impact: There are likely to be medium implementation
costs for providers who choose to offer FHSA. However, the design of
the initiative as reflected in the law has sought to minimise compliance
costs for account providers.
7
1 Chapter 1
Opening and making contributions
Outline of chapter
.1 Parts 1 and 2 of the main Bill provide for the general operation of the
First Home Saver Accounts Bill 2008 (FHSA Bill 2008) and key concepts
and definitions. Division 1 of Part 3 outlines the eligibility rules for
opening and issuing First Home Saver Accounts (FHSAs) and Division 2
of Part 3 outlines the rules for making contributions into accounts.
.2 This chapter outlines the key concepts and definitions that apply
throughout the FHSA Bill 2008 including: the definition of an FHSA;
what it means to provide an FHSA; and what a qualifying interest in a
dwelling is. Other definitions are dealt with in the discussion of the
provisions to which they relate.
.3 This chapter also outlines the eligibility and contribution rules for
FHSAs including:
2 the rules for opening, issuing or holding an FHSA; and
3 the rules relating to contributions into an FHSA including
the account balance cap and limits on when contributions can
be paid into an FHSA.
Context
.1 FHSAs are designed to assist aspiring first home buyers achieve the
goal of owning their first home in which to live by providing a tax
effective way to save. The Government provides benefits to first home
buyers using FHSAs through a Government contribution paid directly into
the account and the taxation of earnings on accounts at a low rate.
.2 To achieve the objective of assisting aspiring first home buyers, it is
necessary to ensure that these benefits are only provided to individuals
who are saving for a first home in which to live. This is achieved by
requiring individuals to satisfy certain eligibility criteria to open or be
issued with and hold an FHSA.
9
4 A uniform set of criteria is used to determine an individual's
eligibility to open an FHSA. These criteria are similar, but
not identical, to those used by the States and Territories to
assess eligibility for the First Home Owner Grant (FHOG).
5 Unlike the FHOG, eligibility to open an FHSA is
determined on an individual basis and is not affected by the
eligibility of an individual's partner. This means that an
FHSA can only be held by an individual, not jointly. The
FHOG arrangements will remain in place.
.1 In addition, to ensure that the assistance provided to first home buyers
is targeted appropriately, there are limitations on the amount that can be
saved in FHSAs and other restrictions on contributions that can be made
into accounts.
Summary of new law
Eligibility to open an First Home Saver Account
.2 Before being able to open an FHSA, an individual must satisfy certain
eligibility criteria. They must be aged 18 and over and under 65 years and
open the account for themselves (where the individual is incapacitated,
their legal personal representative may open an account for them).
.3 As the accounts are to be used to assist individuals to save for their
first home, the applicant must never have previously owned a dwelling
that has been their main residence. This test is based on the individual
and does not take into account whether a current or former partner has
previously owned a home.
.4 To help individuals and the Commissioner of Taxation
(Commissioner) track FHSAs, the individual must provide their tax file
number (TFN) to their FHSA provider. This helps to ensure that
individuals only open one account and assists the Commissioner in
paying Government contributions (outlined in Chapter 3).
.5 To ensure the integrity of the eligibility requirements, the
Commissioner will undertake compliance work to ensure that individuals
who open an FHSA are eligible and that only one account is opened by
each individual. Penalties may apply to individuals and/or FHSA
providers for breaching the eligibility requirements, including criminal
penalties in certain circumstances.
Contributions to a First Home Saver Account
.6 There are no restrictions on who can make a contribution into an
FHSA, however, all contributions must be made from post-tax amounts.
.7 To ensure that the taxation incentives are appropriately targeted, there
is an overall account balance cap of $75,000. This cap is indexed
annually in $5,000 increments.
.8 A Government contribution is also paid to an FHSA where personal
contributions are made to an FHSA during the financial year. The details
of the Government contribution are discussed in Chapter 3.
Detailed explanation of new law
Key concepts and definitions
First Home Saver Accounts
.9 FHSAs can only be opened or issued after 1 October 2008. [Subsection
8(b)]
.10 An FHSA can only be offered by certain prudentially regulated
financial institutions: authorised deposit taking institutions (ADIs); life
insurance companies (including friendly societies); and registrable
superannuation entity (RSE) licensees which can provide public offer
superannuation funds and are authorised to offer FHSAs.
6 Trustees of other superannuation funds, including
self managed superannuation funds, non public offer funds
and exempt public sector superannuation funds, are not able
to offer FHSAs as they are not subject to the same level of
prudential regulation as trustees of public offer
superannuation funds.
7 In addition, managed investment schemes and other
investment vehicles that are not prudentially regulated are not
able to offer FHSAs. Chapter 4 outlines in further detail the
requirements for offering FHSAs and Chapter 5 outlines the
prudential requirements applying to FHSA providers.
.1 As FHSAs can be offered by three different types of institutions, the
legal nature of an FHSA will differ depending on the type of institution
offering it. An FHSA offered by an ADI will be a deposit account, those
offered by a life insurance company will be a policy, and those offered by
11
RSE licensees will be beneficial interests in a trust. This affects the
definitions of an FHSA and the meaning of `hold' and `FHSA holder' and
the definition of `provide' and `FHSA provider'.
Authorised deposit-taking institutions
.2 An ADI is a body corporate that is an ADI under the Banking Act
1959. This includes banks, building societies and credit unions. [Section
18]
.3 An account is an FHSA if contributions are received by an ADI to an
account described as an FHSA. [Subparagraph 8(c)(i)]
.4 If provided by an ADI, an individual holds an FHSA if the account is
opened in their name. The individual is therefore the FHSA holder.
[Paragraph 9(1)(a) and subsection 9(2)]
.5 If an ADI accepts or has accepted contributions to an FHSA it
provides the FHSA. The ADI is therefore the FHSA provider.
[Paragraph 10(1)(a) and subsection 10(2)]
Life insurance companies
.6 A life insurance company is a company registered under the Life
Insurance Act 1995. This includes friendly societies. [Section 18]
.7 A life policy is an FHSA if the FHSA policy is issued by a life
insurance company and it is described as an FHSA [subparagraph 8(c)(ii)].
8 The terms `policy' and `life policy' are defined in the Life
Insurance Act 1995 [section 18].
.1 If issued by a life insurance company, an individual holds an FHSA if
the individual owns the FHSA policy. The individual is the FHSA holder
[paragraph 9(1)(b) and subsection 9(2)].
9 The term `owner' is described in the Life Insurance Act
1995 [section 18].
.1 If a life insurance company provides an FHSA policy it provides an
FHSA. The life insurance company is therefore the FHSA provider.
[Paragraph 10(1)(b) and subsection 10(2)]
Authorised trustees
.2 A beneficial interest in a trust is an FHSA if it is provided by a trustee
authorised as an FHSA provider and the interest is described as an FHSA
[subparagraph 8(c)(iii)].
10 A trustee may apply to receive authorisation as an FHSA
provider under section 92 [section 18].
.1 If provided by a trustee, an individual holds an FHSA if the individual
holds the beneficial interest in the FHSA trust. The individual is therefore
the FHSA holder. [Paragraph 9(1)(c) and subsection 9(2)]
.2 If a trustee provides a beneficial interest in an FHSA trust it provides
an FHSA. The trustee is therefore the FHSA provider. [Paragraph 10(1)(c)
and subsection 10(2)]
.3 The trust which is provided by a trustee authorised as an FHSA
provider is defined as an FHSA trust. [Section 18]
First Home Saver Account contributions
.4 A contribution is defined as a contribution of money. It includes a
deposit into an account held at an ADI and a payment of a premium to a
life insurance company. [Section 18]
.5 There are no restrictions on who can make a contribution into an
FHSA; however, all contributions must be made from post-tax amounts.
11 As with other payroll deductions, an employer is still able to
remit post-tax contributions on behalf of an employee to an
FHSA.
.1 To assist the Commissioner administer the accounts, FHSA
contributions are grouped into two categories:
12 Government contributions; and
13 personal FHSA contributions.
Government contributions
.1 The Commissioner pays a Government contribution to an FHSA
where personal FHSA contributions are made to an individual's FHSA
during the financial year and the individual is an Australian resident for
taxation purposes for at least part of that year. This Government
13
contribution is applied to the first $5,000 (indexed) of personal FHSA
contributions made in the year.
.2 Accordingly, a Government contribution (Government contribution)
for an individual is a contribution or amount paid by the Commissioner
for that individual under the FHSA Bill 2008 [subsection 11(1)].
14 Chapter 3 outlines when a Government contribution is
payable.
Personal First Home Saver Account contributions
.1 The FHSA Bill 2008 also defines what contributions are taken into
account when the Commissioner calculates an individual's Government
contribution.
.2 To ensure that the Government contribution is only paid on
contributions to the FHSA system, a personal FHSA contribution does
not include:
15 a Government contribution [subsection 11(2)];
16 a contribution of an FHSA balance as a transfer from a
previous FHSA for the individual under section 35
[paragraph 11(3)(a)];
17 a contribution under a family law obligation
[paragraph 11(3)(b)]:
.1 family law obligation means a court order under the
Family Law Act 1975 or a financial agreement made
under Part VIIIA of the Family Law Act 1975 that is
binding because of section 90G of that Act [section 18 ];
18 a re-contribution of an amount previously paid from an
FHSA to satisfy the FHSA payment conditions under
subsection 17(3) [paragraph 11(3)(c)]; and
19 a contribution refunded to the individual under the
Corporations Act on the grounds of [paragraph 11(3)(d)]:
.1 an unsolicited offer, under subsection 992A(4)
[paragraph 11(3)(d)];
.2 a defective product disclosure document, under
section 1016F [paragraph 11(3)(d)]; or
.3 exercise of the cooling-off period, under section 1019B
[paragraph 11(3)(d)].
.4 A personal FHSA contribution includes a contribution which is made
for the benefit of the individual. For example, a contribution made by an
individual's partner or employer into their FHSA.
Qualifying interest in a dwelling
.5 The concept of qualifying interest in a dwelling is directed at ensuring
that FHSAs are used to assist aspiring first home buyers to purchase a first
home in which to live. To achieve this, the term is used for two purposes
in the Bill.
20 It forms part of the eligibility requirements to open an
FHSA, as an individual must not hold and have never held a
qualifying interest in a dwelling that is or was the
individual's main residence [paragraph 15(1)(c)].
21 It forms part of the payment conditions enabling the use of
money from an FHSA to acquire a qualifying interest in a
dwelling that will become the individual's main residence
[paragraph 32(1)(b) and subsection 17(1)]. This is outlined in
further detail in Chapter 2.
.1 If an individual is the legal owner of the dwelling, they hold a
qualifying interest in the dwelling. An individual will hold a qualifying
interest in the dwelling if they hold the interest alone or with others, for
example, under a joint tenancy. [Subsection 12(1)]
Legal Owner
.2 An individual holds an interest if they are the legal owner; that is, if
their name is recorded on the title register as the owner of the property.
This is commonly referred to as freehold ownership.
.3 Persons can also hold such an interest if they:
22 have an estate in fee simple;
23 have a perpetual lease of the land granted by the
Commonwealth or the State;
24 have a lease or licence granted by the Commonwealth, a
State or Territory that may be converted into an estate in fee
simple under the terms of the lease or licence;
15
25 have title to a dwelling under a long-term Crown lease, such
as in the Australian Capital Territory;
26 are the registered proprietor of a flat or home unit that is part
of a strata plan; or
27 have a legal life estate in the land (rather than a mere
equitable life estate in the land);
.1 A person is considered to be the owner even if a financial institution
or someone else holds a mortgage over the property.
.2 A qualifying interest in a dwelling includes, but is not limited to
where the individual has a Crown lease, or a licence granted by the
Commonwealth, a State or Territory, over the land which the dwelling is
on and that lease or licence gives the individual reasonable security of
tenure [subsection 12(2)].
28 The term Crown lease is defined in section 124-580 of the
Income Tax Assessment Act 1997 (ITAA 1997) as a lease of
land granted by the Crown under an Australian law (other
than the common law) or a similar lease granted under a
foreign law.
.1 A qualifying interest in a dwelling also includes, but is not limited to
where a person:
29 holds an equity of redemption in respect of the dwelling;
30 is the legal owner of a share in a company that owns land on
which a flat or home unit is erected and that share gives them
a right to occupy the flat or home unit; or
31 holds a right to occupy a dwelling in an aged care facility or
retirement village.
[Subsection 12(3)]
.1 The regulations may also specify circumstances where an individual
holds a qualifying interest in a dwelling. [Subsection 12(4)]
.2 An individual first holds a qualifying interest in a dwelling when they
acquire the dwelling. This is relevant to deciding whether the FHSA
eligibility requirements in paragraph 15(1)(c) are satisfied.
[Subsection 12(6)]
Fixed to land
.3 If the dwelling is not fixed to land (or in circumstances specified in
the proposed regulations) an individual is not considered to hold a
qualifying interest in a dwelling. [Subsection 12(5)]
.4 A boat, caravan or mobile home, is not a qualifying interest in a
dwelling unless it is fixed to land which the individual owns.
32 The phase `fixed to land' adopts the property law concept of
fixtures.
33 If a dwelling is or was a moveable dwelling but has become
so attached to the land that it forms a part of the land, it will
be a fixture, and therefore legal ownership of the land may
constitute the holding of a qualifying interest in a dwelling.
If, however, the moveable dwelling is not so attached,
ownership of it will not be treated as a qualifying interest in a
dwelling.
.1
Bailey is constructing a dwelling. He will acquire a qualifying interest
in the dwelling when he starts to hold the qualifying interest in the
dwelling; that is, when construction of the dwelling has been
completed.
Dwelling
.2 Dwelling has its ordinary meaning. This includes a unit of
accommodation that is fixed to the land such as:
34 a house, flat, unit, apartment or townhouse; or
35 a demountable dwelling or re-locatable home where it is
fixed to land.
Main Residence
.1 Under the eligibility criteria in section 15 and the FHSA payment
conditions in section 17, the dwelling being acquired must become the
main residence of the FHSA holder. A payment can only satisfy these
conditions if an amount equal to the payment is used to acquire a dwelling
that becomes the account holder's main residence for the requisite
minimum period of time.
17
.2 An individual's main residence has its ordinary meaning. Factors
which may be relevant include:
36 whether the individual and/or their family is living in the
dwelling;
37 whether they keep personal belongings at the dwelling;
38 whether mail is delivered to the dwelling; and
39 whether the dwelling address is on the electoral roll against
the name of the individual.
[Subsection 13(1)]
.1 The regulations may also specify whether a dwelling is or is not an
individual's main residence for the purposes of the FHSA Bill 2008.
[Subsections 13(2) and (3)]
.1
Rod lives in a rented house and also rents an apartment where he stays
for short holidays. The house is where Rod spends most of his time. It
is also his mailing address and his address on the electoral roll. The
apartment is not Rod's main residence -- even for the short periods he
stays there.
Rod wishes to purchase the apartment but still live mainly in his rental
home. Rod cannot use his FHSA balance to make a payment to
purchase a holiday home as it will not be his main residence.
Eligibility rules
First Home Saver Account eligibility requirements
.2 To ensure FHSAs are used to save towards the purchase of a first
home, to be eligible to open, be issued with, or hold an FHSA, an
individual must satisfy certain FHSA eligibility requirements.
Personal requirements
.3 As FHSAs are intended for adults saving for a first home, the
individual must be aged at least 18 years [paragraphs 15(1)(a) and (b)].
40 The individual must apply to open or be issued with an
FHSA personally. For example, an employer is not able to
open an FHSA on behalf of an employee or a trustee is not
able to open an FHSA for a beneficiary unless the beneficiary
is incapacitated.
41 Where an individual is incapacitated, their `legal personal
representative' as defined in the ITAA 1997 may open an
account for them.
.1 The individual must not open or be issued with an FHSA prior to
reaching 18 years of age. If an FHSA provider inadvertently opens or
issues them with an FHSA, they will not become eligible to open, be
issued with, or hold an FHSA when they reach 18 years of age.
[Paragraphs 15(1)(a) and (b)]
.2 FHSA funds not used to purchase a first home must be transferred to
superannuation. As an individual who is 65 years of age must satisfy a
work test to make a contribution to superannuation, an individual must be
under 65 years of age to open an account. [Paragraph 15(1)(b)]
.3 Payments can only be made from an FHSA to purchase a first home if
personal contributions of at least $1,000 have been made in respect of the
FHSA holder in each of at least four financial years [subparagraph
32(1)(c)(i)].
42 This will have implications for individuals who open or are
issued with an FHSA close to 65 years of age as they will
need to satisfy this requirement in order to receive a payment
to acquire a qualifying interest in a home. If they cannot
satisfy this requirement, they will be required to contribute
their savings to superannuation [paragraphs 15(1)(b) and (c)].
.1 An individual must not hold and have never held a qualifying interest
in a dwelling that is or was the individual's main residence. [Paragraph
15(1)(c)]
First Home Saver Account requirements
.2 To ensure that individuals can generally only access the benefits
offered by FHSAs once and cannot access multiple Government
contributions or avoid the account balance cap, the individual must have
only held one FHSA at a time or temporarily held two FHSAs at the same
time to allow them to transfer an FHSA balance to a new FHSA
[paragraphs 15(1)(a) and (e)].
43 This transfer is provided for under section 35 of the
FHSA Bill 2008.
19
.1 The individual must have never held an FHSA that was closed unless
it was closed as:
44 an FHSA home acquisition payment was made from the
FHSA and that payment met the FHSA payment conditions
under subsection 17(3), as it is being re-contributed to an
FHSA:
.1 FHSA home acquisition payments are made under
section 32 of the FHSA Bill 2008;
45 an initial FHSA contribution to an FHSA was refunded to
the individual under the Corporations Act on the grounds of:
.1 an unsolicited offer, under subsection 992A(4);
.2 a defective product disclosure document, under
section 1016F; or
.3 the exercise of the cooling-off period, under
section 1019B.
[Paragraph 15(1)(f) and subsection 15(2)]
.4 Individuals do not have any specific obligations under the FHSA Bill
2008 to enable them to open an FHSA.
46 However if they do not provide an FHSA provider with all
of the information it requires, they are not able to open, be
issued with, or hold an FHSA.
47 If individuals make false statements about their eligibility to
open, be issued with, or hold an FHSA, or deliberately open
more than one FHSA, penalties apply. These penalties are
necessary to ensure the integrity of the FHSA system and to
ensure that the taxation incentives provided through FHSAs
are targeted appropriately.
.1 When an individual makes a statement to an FHSA provider, they are
taken to have made a statement to a taxation officer under subsection
8J(9) of the Taxation Administration Act 1953 (TAA 1953).
.2 If an individual makes a false or misleading statement in the FHSA
application, they commit an offence under section 8K of the TAA 1953
(for making a false or misleading statement) or section 8N of the
TAA 1953 (for recklessly making a false or misleading statement).
Obligations of the First Home Saver Account provider in opening or
issuing a First Home Saver Account
.3 FHSA providers have an obligation to ensure that an individual
applying to open, be issued with, or hold an FHSA provides the required
information to satisfy the eligibility criteria. These requirements are in
addition to any requirements stipulated under other laws, such as the
Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
.4 To open or issue an FHSA, an FHSA provider must ensure that an
individual has completed an application in the approved form which states
that they satisfy all of the FHSA eligibility requirements [paragraph 19(1)(a)
and subparagraph 19(1)(b)(i)].
48 Approved forms are discussed in further detail in Chapter 8.
49 This includes, but is not limited to, an approved form issued
by the Commissioner under section 388-50 in Schedule 1 to
the TAA 1953 [section 55].
50 The FHSA provider is only able to open or issue an FHSA
where the FHSA is for a single individual. That is, joint
FHSAs are not permitted as two people cannot hold, own or
have a beneficial interest in the same FHSA.
.1 To ensure that only one account is opened per individual:
51 if the individual already has an FHSA, the application must
state that the individual will transfer the old FHSA balance to
the new FHSA for the individual. This is under section 35 of
the FHSA Bill 2008; or
52 if the individual previously held an FHSA which was closed,
the application must state that the individual is opening the
new FHSA to receive a re-contribution of an amount
previously paid from an FHSA to satisfy the FHSA payment
conditions under subsection 17(3).
.1 The individual must still meet the FHSA eligibility
requirements to re-contribute the payment. That is, not
have acquired a qualifying interest in a dwelling which is
their main residence.
21
.2 Their previous FHSA contributions were refunded to the
individual under the Corporations Act on the grounds of:
an unsolicited offer under subsection 992A(4); a defective
product disclosure document under section 1016F; or the
exercise of a cooling-off period under section 1019B.
[Subparagraphs 19(1)(b)(ii) and (iii)]
.1
Annika received a payment from her FHSA in June 2015 which she
used to place a deposit on a home. Her FHSA was closed.
In July 2015, Annika was notified by the home owners that they no
longer wished to sell the property and the deposit was refunded to her.
Annika wishes to continue to save for a home and would like to
re-contribute the refunded deposit to an FHSA. As her original FHSA
is closed, Annika will be able to open a new FHSA within six months
to continue saving.
.3 In addition, to ensure that only one account is opened for each
individual, an FHSA provider must also check the individual has quoted
their TFN in connection with the operation of the FHSA Bill 2008 and the
Superannuation Acts [paragraph 19(1)(c)].
53 The TFN quotation arrangements are outlined in Part 5 of
the FHSA Bill 2008 and regulate the quotation use and
storage of an individual's TFN. This is outlined in Chapter
8.
.1 An FHSA provider commits an offence if they open or issue an FHSA
where the individual has not completed an application in the approved
form (which states they are eligible) and quoted their TFN. The penalty is
up to 100 penalty units. [Subsection 19(2)]
.2 If an FHSA provider fails to comply with these obligations, the FHSA
created is still valid. [Subsection 19(3)]
Ceasing to be eligible to hold an First Home Saver Account
.3 It is important to ensure that, once opened or issued, an FHSA is only
held by an individual who is saving to purchase a first home. An
individual ceases to be eligible to have an FHSA if they acquire a
qualifying interest in a dwelling that is their main residence or once they
turn 65 years of age.
.4 If an FHSA holder fails to meet the FHSA eligibility requirements,
they must notify the FHSA provider in the approved form within 30 days.
[Subsections 20(1) and (2)]
Implications of becoming ineligible for an account
.5 Once an individual becomes ineligible to hold an FHSA, the account
must be closed and generally the balance must be transferred to
superannuation. However, where the individual is 60 years or over, the
individual may elect to receive a payment from the FHSA directly. This
is a permitted purpose for a payment out of an FHSA and is discussed in
further detail in Chapter 2.
.6 As a result, when notifying the FHSA provider, an FHSA holder must
either:
54 state they are 60 years or over and would like to receive a
payment from the FHSA directly; or
55 authorise the FHSA provider to contribute the savings in the
FHSA to their interest in a complying superannuation plan:
.1 a `complying superannuation plan' is defined in the
ITAA 1997 [section 18].
[Subsection 20(4)]
.2 If an FHSA holder fails to comply with these requirements, there may
be consequences under the TAA 1953.
56 The FHSA holder is liable for an administrative penalty
under section 286-75 of Schedule 1 to the TAA 1953.
57 The FHSA holder may also commit an offence for failure to
comply with requirements set out under a taxation law under
section 8C of the TAA 1953.
[Subsection 20(1), Note]
Exceptions to the requirements
.1 An individual is not required to notify the FHSA provider if they
close their FHSA within 30 days of becoming ineligible or if the funds in
the account are paid out under section 32 within 30 days to acquire a
qualifying interest in a home. [Subsection 20(3)]
23
.1
Judy acquires a qualifying interest in a dwelling on 15 August 2010 by
using a deposit bond and loan from MT Bank Ltd. She moves into the
dwelling on 17 August 2010 and it becomes her main residence. From
that date she becomes ineligible to hold the account.
On 25 August 2010, Judy applies to her FHSA provider, the WT Life
Insurance Company (WT Life), for a payment for the purpose of
repaying the deposit bond. As this is within 30 days of becoming
ineligible, she is not required to notify WT Life.
Revoking a notice
.2 If an FHSA holder subsequently realises that they do satisfy the
account criteria they may revoke the notice.
.3 However, the notice cannot be revoked if:
58 it has been more than 30 days since the original notice was
provided; or
59 the FHSA has been closed by the FHSA provider under
paragraph 22(2)(b).
.1 If the FHSA provider has already made a direct payment
to the FHSA holder or contributed the FHSA to
superannuation but the FHSA is still open, the notice can
also not be revoked as it would be administratively
difficult to unwind the transaction.
[Subsection 20(5]
.1
On 15 February 2011, Aidan inherits a home from his great
grandmother's estate. On 20 February 2011, he notifies his FHSA
provider, RDR Bank Limited that he no longer satisfies the eligibility
criteria. On 27 March 2011, RDR Bank Limited contributes the
savings in his FHSA to his superannuation fund (the
JR Superannuation Fund) and closes his account.
On 30 March 2011, Aidan realises that, as he has not and never intends
to live in the home, he still satisfies the account criteria and notifies
RDR Bank Limited that he revokes the notice. Although Aidan has
revoked the notice, as the savings have already been contributed to the
JR Superannuation Fund, the revocation has no effect.
The Commissioner believes that the eligibility criteria have not been met
.2 As part of compliance activities, the Commissioner conducts checks
to ensure that individuals are eligible to hold an FHSA.
.3 If the Commissioner believes that an FHSA holder did not satisfy the
eligibility criteria when the FHSA was opened or issued or that the FHSA
holder no longer satisfies the eligibility criteria, the Commissioner is
required to notify the FHSA provider. [Subsection 21(1)]
.4 The notice must explain that the FHSA provider must:
60 contribute the savings in the FHSA to superannuation and
close the FHSA under section 22;
61 not pay contributions to the FHSA under section 26; and
62 not pay amounts from the FHSA under sections 31, 32 and
35.
[Subsection 21(3)]
.1 The Commissioner must also give the FHSA holder a copy of this
notice. This allows the FHSA holder an opportunity to respond to the
notice if they believe they meet the eligibility criteria. [Subsection 21(2)]
.2 The conditions for opening an FHSA require an individual to quote
their TFN. If an FHSA holder has quoted an invalid TFN, the
Commissioner may give a notice under section 67 that the Commissioner
is not satisfied the individual has a TFN. This notice must also explain
the effects of sections 22, 26, 32 and 35. [Paragraph 113-B(1)(a), Note]
.3 If the Commissioner subsequently believes that an FHSA holder did
satisfy the conditions for opening an FHSA when the FHSA was opened
or issued and continues to satisfy the eligibility criteria, the Commissioner
must revoke the notice unless:
63 it has been more than 30 days since the original notice was
provided; or
64 the FHSA has been closed by the FHSA provider under
paragraph 22(2)(b).
[Subsection 21(4)]
25
.1 If the Commissioner revokes the notice, the Commissioner must also
notify the FHSA holder so that they are aware that the Commissioner no
longer believes they do not satisfy the eligibility criteria. [Subsection 21(5)]
Inactive First Home Saver Accounts
.2 To ensure that FHSAs are held only by individuals who are eligible to
hold an FHSA, an FHSA may become inactive if certain events occur.
.3 An FHSA becomes inactive if an FHSA provider has received a
notice (which has not been revoked):
65 from the FHSA holder, under subsection 20(1), that they do
not meet the eligibility criteria;
66 from the Commissioner, under subsection 21(1), that the
FHSA holder did not satisfy the eligibility criteria when the
FHSA was opened or issued or holds (or previously held) a
qualifying interest in a dwelling which is their main
residence; or
67 from the Commissioner, under subsection 67(2), that the
TFN quoted by the FHSA holder is invalid and the
Commissioner is not satisfied they have a TFN.
[Subsection 23(1)]
.1 An FHSA also becomes inactive if:
68 the FHSA holder makes a home acquisition payment under
section 32, or a payment directly to the FHSA holder under
section 33, and the FHSA balance is nil;
69 the FHSA holder turns 65 years of age; or
70 the FHSA was opened or issued under
subparagraph 19(1)(b)(ii) as the FHSA holder was
transferring FHSA savings from another FHSA, and the
transferred savings were not received within 44 days of
opening or issuing the new FHSA.
[Subsections 23(2) to (4)]
Closing an inactive First Home Saver Account
Closing a First Home Saver Account
.1 Where an FHSA has become inactive, the FHSA provider must either:
71 make a payment to the FHSA holder directly (if the FHSA
holder is 60 years or over and has authorised the payment); or
72 otherwise contribute the FHSA balance to superannuation;
and
73 close the FHSA.
[Subsection 22(2)]
.1 If the FHSA provider contributes the FHSA to superannuation, the
FHSA provider must make the contribution:
74 to the FHSA holder's nominated own interest in a
complying superannuation plan; or
75 if no nominated fund exists, to the FHSA provider's default
superannuation plan.
[Subsection 22(3)]
.1 The timeframe within which the FHSA must be closed differs
depending on the reason for the account being inactive.
.2 If an FHSA is inactive because the FHSA provider has received a
notice that the FHSA has become inactive under subsection 23(1) the
FHSA provider must allow 30 days for the notice to be revoked. If the
notice is not revoked, the provider must close an individual's FHSA
14 days after the end of the 30-day waiting period. [Paragraph 22(1)(a)]
.1
An FHSA provider receives a notice on 1 November 2010 that the
FHSA holder does not meet the account criteria under
subsection 21(1). The FHSA provider must not pay contributions or
make payments until 30 November 2010 to give the Commissioner an
opportunity to revoke the notice.
The FHSA provider then has until 15 December 2010 (14 days after
the end of the waiting period) to make a payment (if the FHSA holder
is over 60 and authorises the payment) or contribute the FHSA to
superannuation and close the account. This allows the FHSA provider
a total of 44 days from 1 November 2010 to satisfy its obligations.
27
.3 In all other circumstances an FHSA provider must close an inactive
FHSA 14 days after:
76 a payment being made under subsection 23(2);
77 the FHSA holder reaching 65 years of age under
subsection 23(3); or
78 a transfer not being received 44 days after the FHSA was
opened or issued under subsection 23(4).
[Paragraph 22(1)(b)]
.1 An FHSA provider commits an offence if the FHSA provider fails to
close the FHSA in accordance with its obligations. The penalty is up to
100 penalty units. [Subsection 22(4)]
.2 If an FHSA provider fails to close the FHSA in accordance with its
obligations, any contribution paid or payment made is still valid.
[Subsection 22(5)]
Default superannuation plan
.3 As an FHSA provider may be required to contribute the balance of an
FHSA to superannuation to enable it to close an FHSA, it must specify a
default superannuation plan in which to make the payment if the FHSA
holder has not nominated a plan.
.4 All FHSA providers are required to nominate in writing a default
superannuation plan. This is a complying superannuation plan to which it
will make payments under paragraph 22(3)(b) [subsection 24(1)].
79 It is intended that the FHSA provider will be required to
disclose this default superannuation plan to the FHSA holder
when an FHSA is opened or issued.
.1 If the FHSA needs to change its default superannuation plan as the
plan ceases to be a complying superannuation plan, the FHSA provider
must nominate another default superannuation plan in writing [subsection
24(1)].
80 It is intended that the FHSA provider will be required to
disclose this new default superannuation plan to the FHSA
holder when this occurs.
81 The FHSA provider may also change its default
superannuation plan at other times by making a written
nomination stating the new default superannuation plan. It is
also intended that the FHSA provider notify the FHSA holder
when this occurs.
.1 An FHSA provider commits an offence if it fails to comply with its
obligations to nominate a default superannuation plan. The penalty is up
to 100 penalty units. [Subsection 24(2)]
Contributions
.2 To ensure that the assistance provided to first home buyers is targeted
appropriately, there are limitations on the amount that can be saved in an
FHSA and other restrictions on contributions that can be made to an
FHSA.
.3 Generally, an FHSA provider must not allow an amount to be
contributed to an FHSA where the account holder is aged 65 or over, the
FHSA is inactive or the account balance cap has been or will be breached.
An account holder aged 65 or over
.4 An FHSA holder is not eligible to hold an FHSA once they turn
65 years of age, and under section 22 an FHSA provider is required to
close an FHSA within 14 days of the FHSA holder turning age 65.
.5 If an FHSA holder is aged 65 years or over and the FHSA is still
open, the FHSA provider must not allow any contributions, personal or
Government, to be paid to the FHSA [subsection 25(1)].
82 If an FHSA holder is eligible to receive a Government
contribution it may be paid by the Commissioner directly to
the FHSA holder [section 41].
Inactive First Home Saver Account
.1 An FHSA provider must not pay any contributions to an inactive
FHSA. [Subsection 26(1)]
Breach of the account balance cap
.2 In order to ensure that the FHSA taxation incentives are targeted
appropriately, there is an overall account balance cap on all FHSAs.
29
Account balance cap
.3 In the 2008-09 financial year the account balance cap is $75,000.
This cap will be indexed in $5,000 increments under section 30 [section 29].
83 The financial year means the financial year as defined in the
ITAA 1997 [section 18].
Breach of account balance cap -- limit on contributions
.1 An FHSA provider can only allow a limited range of contributions to
be made to an FHSA if the FHSA balance is over the account balance cap
or the contribution would cause the FHSA balance to exceed the account
balance cap. Other amounts contributed to an FHSA are not allowed in
these circumstances. [Subsection 27(1)]
.2 In these circumstances, an FHSA provider may only allow the
following contributions to be paid to the FHSA:
84 a Government contribution defined under subsection 11(1);
85 a contribution of an FHSA balance transferred to a new
FHSA for the individual FHSAs under paragraph 11(3)(a); or
86 a re-contribution of an amount under paragraph 11(3)(c) as
it was an amount previously paid from an FHSA to satisfy
the FHSA payment conditions subsection 17(3).
[Paragraph 27(1)(b)]
.1
Megan's account balance is $70,000. On 1 May 2010, Megan makes a
contribution of $5,000 to her FHSA. If the account balance cap is
$75,000, the contribution does not exceeded the account balance cap.
Megan is entitled to a Government contribution of $780 on her $5,000
contribution. Her FHSA provider will be able to pay the Government
contribution to her FHSA as, although it will cause her FHSA balance
to exceed $75,000, the payment of a Government contribution does not
cause her to exceed the account balance cap.
Breach of the account balance cap -- return of contributions
.2 If an FHSA provider receives a contribution which would cause the
FHSA balance to exceed the account balance cap, it is not necessary for
the whole amount of the contribution to be rejected or returned. The
amount in excess of the account balance cap may be rejected or returned.
[Paragraph 27(1)(b), Note]
.1
Michael has an account balance of $73,000. On 1 November 2010 he
makes a $3,000 personal FHSA contribution to his FHSA. If the
account balance cap is $75,000 and the entire contribution is paid to
his FHSA, it will exceed the account balance cap.
The account balance cap is only exceeded if the FHSA balance
exceeds $75,000. The FHSA provider is not able to pay the entire
contribution to his account; however, to ensure Michael's FHSA does
not exceed the account balance cap it may either:
87 return the entire $3,000 to him so that his account balance remains
at $73,000; or
88 return $1,000 to him (the amount which exceeds the account
balance cap) so that his account balance does not exceed the
account balance cap of $75,000.
Breach of the account balance cap -- timing
.1 If the account balance of an FHSA exceeds the account balance cap,
an FHSA holder is in breach of the account balance cap from that time
onwards [subsection 28(1)].
89 If the account balance of an FHSA subsequently falls below
the account balance cap, an FHSA holder will have still
breached the cap from the time it was originally breached.
.1
On 28 April 2009, Steven makes a contribution to his FHSA and his
balance reaches $75,000. On 15 August 2009, Steven's FHSA
provider pays earnings of $1,000 to his FHSA and his account balance
is $76,000. If the account balance cap is $75,000, Steven's FHSA will
have breached the account balance cap on 15 August 2009.
On 1 November 2009, Steven's FHSA suffers an investment loss of
$1,500 and his account balance falls to $74,500. As Steven breached
the cap on 15 August 2009, Steven's FHSA provider is still only able
to pay a limited range of contributions to his FHSA, despite the fact his
actual account balance is below the current account balance cap.
31
Breach of the account balance cap -- re-contribution
.2 If an individual is making a re-contribution of an amount previously
paid from an FHSA to satisfy the FHSA payment conditions under
subsection 17(3), they will not have breached the account balance cap
even if the re-contributed amount is above the current account balance
cap.
90 If the re-contributed amount is above the current account
balance cap, an FHSA provider is only able to pay limited
contributions to the FHSA as the FHSA exceeds the current
account balance cap.
91 If the re-contributed amount is not above the current account
balance cap, an FHSA will have not breached the account
balance cap from the time the new FHSA is opened, until the
time when the new FHSA balance exceeds the new account
balance cap.
92 If the account balance cap has increased since the FHSA
holder received a payment from the original FHSA, they will
not have breached the cap in the new FHSA until the account
balance in the new account breaches the cap.
[Subsections 28(2) and (3)]
.1
In June 2009, the balance of Elise's FHSA is $75,000. In July 2009,
her account is credited with $500 of earnings. If the account balance
cap is $75,000, the FHSA provider will only be able to pay a limited
range of contributions to her FHSA.
In December 2009, Elise withdraws the balance of her FHSA, now
$75,500, to purchase a home. The sale of the home falls through in
July 2010.
In July 2010, Elise applies to her FHSA provider to open a new FHSA
as she failed to purchase a home and would like to continue saving.
Assuming the account balance cap has increased to $80,000, Elise is
able to contribute the full $75,500. She will not have breached the
account balance cap until her account balance exceeds $80,000.
Breach of account balance cap -- family law obligations
.2 If a payment is made from an FHSA under a family law obligation
under paragraph 31(1)(c) and, after this payment is made the FHSA
balance is less than the account balance cap in that year, the FHSA holder
will have not breached the account balance cap from the time the payment
is made, until such time as the FHSA balance exceeds the account balance
cap. [Subsections 28(4) and (5)]
Indexation of account balance cap
.3 To ensure that the account balance cap is aligned with an individual's
ability to save, the account balance cap is indexed annually to full-time
average weekly ordinary time earnings.
.4 The account balance cap is indexed annually, by multiplying the
account balance cap for the 2008-09 financial year by its indexation
factor. The result is rounded down to the nearest $5,000, to ensure that
the cap remains in round figures [subsection 30(1)].
93 The indexation factor is the proportional change in full-time
adult average weekly ordinary time earnings from the middle
month of the December quarter 2007 to the middle month of
the December quarter just before the relevant financial year.
The indexation factor is calculated to four decimal places and
rounded to three decimal places [subsections 30(3) and (4)].
.1 The amount cannot be reduced by indexation; that is, it is not indexed
if the indexation factor is less than one. [Subsection 30(2)]
.1
If the indexation calculation increases the threshold to $80,500, the
indexed amount is rounded down to $80,000.
Penalties
.2 An FHSA provider must only pay limited contributions to an FHSA
where:
94 the holder is 65 years or over;
95 the FHSA is inactive; or
96 the account balance cap has been breached.
[Sections 25 to 27]
.1 If the FHSA provider allows another type of contribution to an FHSA,
but returns the contribution within 30 days of receipt, the provider will not
contravene these requirements. [Subsections 25(2), 26(2) and 27(2)]
33
.2 An FHSA provider commits an offence if it allows an amount to be
contributed to an FHSA in these circumstances. The penalty is up to 100
penalty units. [Subsections 25(3), 26(3) and 27(3)]
.3 If an FHSA provider fails to comply with its obligations to not allow a
contribution in these circumstances, the contribution is still valid.
[Subsections 25(4), 26(4) and 27(4)]
· Chapter 2
Payments from a First Home Saver
Account
Outline of chapter
Division 3 of Part 3 of the main Bill provides for the circumstances in
which money may be paid from a First Home Saver Account (FHSA).
This chapter outlines those circumstances and the processes that must
be followed by FHSA providers and holders in relation to payments.
In this chapter, payment refers to any money leaving the FHSA,
withdrawal refers to money being paid from an FHSA to the individual,
transfer refers to movement between two FHSAs (similar to portability in
superannuation) and contributions to superannuation refers to money
being contributed from an FHSA to superannuation.
Summary of new law
As FHSAs are intended to encourage saving for a first home, the
circumstances in which FHSAs can be accessed will be limited to ensure
the tax concessions and Government contributions provided to these
accounts are used for the intended purpose.
The main ways money can be paid from an FHSA are:
· for the purchase of a first home in Australia (see
paragraphs 2.23 to 2.40);
· by being contributed to superannuation (see paragraphs 2.44
to 2.50);
· by being transferred to another FHSA (see paragraphs 2.51 to
2.56); and
· when the individual reaches age 60 (see paragraphs 2.41 to
2.43).
35
There are a number of other situations in which money can be paid
from an FHSA. These include:
· where the account holder dies;
· under a family law obligation;
· for a payment of fees to the account provider;
· for a payment in respect of overpayments of Government
contributions;
· for the return of contributions which should not have been
accepted by the provider; and
· under certain consumer protection provisions in the
Corporations Act 2001 (Corporations Act).
The payment rules in the main Bill do not override the Bankruptcy
Act 1966. This means account providers are not prevented from paying
the trustee in bankruptcy an amount from an individual's FHSA.
Purchase of a first home
In order to withdraw money from their FHSA, an individual under age
60 must request a payment and declare the payment will meet the payment
conditions outlined in subsection 17(1). That is, the money will be used
in acquiring a qualifying interest in a dwelling, and that that dwelling will
become the individual's main residence.
In addition, personal contributions of at least $1,000 must have been
made in respect of the FHSA holder in each of at least four financial
years. However, if an account cannot receive further contributions under
section 27 because it has breached the account balance cap, the
requirement is that the account holder has had an account open in at least
four financial years.
If the individual is acquiring a qualifying interest together with another
individual, or group of individuals, the four-year rule only needs to be met
by one of the people acquiring an interest.
Transfer to another First Home Saver Account
Individuals are permitted to move between account providers.
To transfer from their existing FHSA provider to another, an individual
will need to make an application to either their current provider, or their
new provider.
Account providers will be required to act on this transfer request
within 30 days.
Contributing to superannuation
Individuals can contribute the balance of their FHSA to superannuation
at any time. This recognises that an individual's circumstances may
change, and that they may no longer wish to save for a first home.
To contribute their FHSA to superannuation, an individual will need to
make an application to their FHSA provider. Account providers will be
required to act on a request to contribute to superannuation within 30
days.
In addition, where an individual is no longer eligible to have an
account, the account must be closed and the balance contributed to
superannuation.
Detailed explanation of new law
General rules on making payments from First Home Saver Accounts
FHSA providers can make payments from an FHSA only:
· for the account holder acquiring a qualifying interest in a first
home in Australia (under section 32);
· after the account holder has reached age 60 (under
section 33);
· upon the death of the account holder;
· as a contribution to superannuation (under subsection 22(2)
and section 34);
· as a transfer to another FHSA (under section 35);
· to return contributions which should not have been accepted
(subsections 25(2), 26(2) and 27(2));
37
· to fulfil an obligation under certain consumer protection
provisions in the Corporations Act;
· under a family law obligation;
· to collect fees; and
· to pay an amount owing to the Commonwealth in respect of
overpayments of the Government contribution.
[Section 31]
However, as the payment rules in the main Bill do not override the
Bankruptcy Act 1966, account providers are not prevented from paying
the trustee in bankruptcy an amount from an individual's FHSA.
[Section 128]
An FHSA provider who makes payments from an FHSA in other
circumstances commits an offence (see paragraph 2.64 for more detail)
and a penalty of up to 100 penalty units applies. However, a
contravention does not affect the validity of a payment. [Subsections 31(2)
and (3)]
Payment of entire balance
In most cases when money is paid from an FHSA, the entire balance
must be paid. This requirement is discussed in more detail under the
relevant payment provisions.
The exceptions to the requirement recognise legitimate circumstances
where a partial payment from an FHSA should be allowed. These are:
· under a family law obligation;
· a payment of fees from the FHSA; and
· a repayment of overpaid Government contributions.
As the payment rules in the main Bill do not override the Bankruptcy
Act 1966, account providers will not be prevented from paying the trustee
in bankruptcy an amount less than an individual's entire balance.
[Section 128]
Purchase of a first home
To withdraw money from their FHSA to purchase a first home, an
individual must make an application in the approved form to their FHSA
provider requesting that an amount be paid. This is known as a home
acquisition payment. [Section 14 and paragraph 32(1)(a)]
The approved form rules permit the Commissioner of Taxation
(Commissioner) to identify the information necessary for account holders
to give to their provider. To assist the Commissioner with compliance
activity, it is intended this will include information identifying the home
proposed to be acquired.
Providers are unable make a home acquisition payment where the
account is inactive. An inactive account indicates there may be problems
with the eligibility of the account holder to have the account, and
therefore it is not appropriate to allow money to leave the account. See
Chapter 1 for a description of inactive accounts. [Paragraph 32(1)(e)]
The FHSA holder must have declared in the application that the
payment will meet the payment conditions set down in subsection 17(1).
That is, the money will be used to acquire a qualifying interest in a
dwelling, and that that dwelling will become the individual's main
residence. [Paragraph 32(1)(b)]
In acquiring a home
The payment conditions specify an amount equal to the payment must
be used in acquiring a qualifying interest in a dwelling within six months
of the payment being made from the FHSA. The dwelling must be in
Australia (this includes the Territories of Christmas Island and Cocos
(Keeling) Island) or Norfolk Island. [Paragraph 17(1)(a)]
As money is fungible, the words `an amount equal to the payment' in
the payment conditions ensure money withdrawn from an FHSA does not
need to be tracked to ensure it is used in acquiring a qualifying interest in
a home. It is sufficient for an amount equal to the amount withdrawn to
be used.
The words `in acquiring' are designed to cover a range of situations
where individuals acquire an interest in a dwelling. The following
examples demonstrate where a payment will and will not be used in
acquiring a qualifying interest in a dwelling.
1
Andrew wishes to purchase his first home. After finding the perfect
home, he wishes to use the money in his FHSA for the deposit.
Andrew can withdraw his money, because using the money to pay the
deposit is using it `in acquiring a qualifying interest in a dwelling'.
39
2
Daniel, a builder, wants to withdraw money from his FHSA to
purchase a block of land on which he will build his home.
Daniel can withdraw his money because using the money to purchase
the block of land is using it `in acquiring a qualifying interest in a
dwelling'. In this case, purchasing land is part of the process of
acquiring an interest in a dwelling.
See paragraph 2.31 and Example 2.6 for other conditions relating to
the purchase of land.
3
Anna, Daniel's next door neighbour, already owns a vacant block of
land on which she wishes to have Daniel build her first home.
Anna can withdraw her money, as using the money to pay Daniel to
build the home will be using it `in acquiring a qualifying interest in a
dwelling'.
4
Rahul is currently renting an apartment in which he lives, and he also
owns an investment property. He would like to move into his
investment property, but wants to renovate it first.
He will be unable to withdraw the money from his FHSA to pay for
the renovations, because as he already owns the property, he is not
using the money `in acquiring a qualifying interest in a dwelling'.
The funds from an FHSA may be withdrawn to purchase or construct a
home even if, under the same contract or arrangement, other dwellings are
being purchased or constructed that will not be the person's main
residence.
1
Lian engages a developer and enters into a contract for them to build
three townhouses on a block of land she owns. Lian will use the
money in her FHSA to help fund the cost of one of the units, which she
will occupy as her main residence. As she satisfies the other eligibility
conditions for the withdrawal of the money in her FHSA, Lian can
withdraw the money to pay the developer.
When money is being withdrawn for the purchase of land, or a
dwelling which is not complete, the construction must be completed
within a reasonable period after the withdrawal. This ensures that the
individual cannot defeat the occupancy rules by delaying the completion
of their home. [Paragraph 17(1)(c)]
1
Following Example 2.2, Daniel withdraws his money to commence
building his home. However, due to severe weather conditions,
construction takes longer than usual.
As the delay was caused by the weather, it is reasonable for the
construction to have taken longer than usual, and therefore Daniel will
meet the payment conditions.
Occupancy rules
In order to meet the payment conditions, the dwelling must be the
individual's main residence for six continuous months, starting within a
designated period. [Paragraph 17(1)(b)]
For a dwelling that is complete when the payment is made, the
designated period starts when the person acquires the dwelling. For a
dwelling that is not complete when the payment is made, the period starts
when the construction is complete. Whether a dwelling is complete is a
matter of evidence and a building completion certificate (eg, a certificate
of occupancy) would be relevant (and normally sufficient) evidence. The
period ends 12 months after the period starts or at a later time that the
Commissioner considers reasonable in the circumstances. [Subsection 17(2)]
1
Joshua wishes to use his FHSA to purchase a house by the beach. He
intends to use it as a holiday house for one week a year, and rent it out
for the remainder.
Joshua will not be able to use his FHSA, as the house would not be his
main residence for six continuous months.
See Chapter 1 for more detail on the definition of `main residence'.
Recontribution
If an individual would otherwise fail the payment conditions, they will
be treated as having satisfied them, if, within six months of the payment,
the individual contributes to an FHSA an amount equal to the payment or,
a lesser amount that is reasonable in the circumstances. [Subsection 17(3)]
1
41
Andrew withdraws $20,000 from his FHSA to purchase the home in
Example 2.1. However, the vendor withdraws the home from sale
after Andrew has incurred $4,000 in legal costs as part of his expenses
to acquire the home. To satisfy the payment conditions, Andrew must
either acquire another home within six months or return $16,000 to an
FHSA. Contributing $16,000 to a new FHSA (as opposed to the
$20,000 he withdrew) will be reasonable in the circumstances because
of the $4,000 he spent on legal fees.
Four-year rule
A payment cannot be made from an FHSA to purchase a first home
unless personal contributions of at least $1,000 have been made in respect
of the FHSA holder in each of at least four financial years. However, if an
account cannot receive further contributions under section 27 because it
has breached the account balance cap, the requirement is that the account
holder has had an account open in at least four financial years. Account
providers will need to verify that this condition has been met.
[Subparagraphs 32(1)(c)(i) and (ii)]
Alternatively, if the individual is acquiring a qualifying interest
together with another individual, or group of individuals, the four-year
rule only needs to be met by one of the people acquiring an interest. The
individual will need to declare this is the case. [Subparagraph 32(1)(c)(iii)]
1
Adrian and Vinita are purchasing their first home together. Adrian has
been in the workforce longer than Vinita, and has made contributions
of $8,000 in seven separate financial years. Vinita however, has only
had her account open for one year.
To withdraw her money, Vinita must declare that she is purchasing her
home with Adrian, and that Adrian has made contributions of at least
$1,000 in four or more financial years.
For Adrian to withdraw his money, his provider must verify the
four-year rule has been met.
The main Bill allows for regulations to be made specifying other
requirements that need to be met. [Paragraph 32(1)(d)]
A home acquisition payment will generally be the entire balance of the
FHSA. Where this is not the case, the account will become inactive, and
the balance must either be contributed to superannuation, or if the account
holder is over age 60, paid directly to them. See Chapter 1 for a
description of inactive accounts. [Section 23]
A payment under this section will be tax free. [Schedule 1, item 31, First
Home Saver Accounts (Consequential Amendments) Bill 2008 (FHSA (Consequential
Amendments) Bill 2008), subsection 345-50(2) of the Income Tax Assessment Act 1997
(ITAA 1997)]
Age 60
Account holders who have reached age 60 may request, at any time,
that their FHSA be paid to them. The request must be in the approved
form. [Paragraphs 33(1)(a) and (b)]
Consistent with the treatment of superannuation for individuals aged
60 and over, a payment under this section will be tax free. [Schedule 1, item
31, FHSA (Consequential Amendments) Bill 2008, subsection 345-50(2) of the ITAA
1997]
Payments at age 60 will generally be the entire balance of the FHSA.
Where this is not the case, the account will become inactive, and the
balance must be contributed to superannuation. See Chapter 1 for a
description of inactive accounts. [Section 23]
Contributions to superannuation from a First Home Saver Account
At any time, an account holder may request, in the approved form, that
the entire balance of their FHSA be contributed to a complying
superannuation plan. Requiring the entire balance to be contributed
prevents individuals from periodically contributing money to
superannuation to avoid reaching the account balance cap.
[Paragraphs 34(1)(a) and (b)]
Complying superannuation plan has the same meaning as in the
ITAA 1997 and means a complying superannuation fund, a complying
approved deposit fund, a retirement savings account or a public sector
superannuation scheme. [Section 18]
The contribution must be to a superannuation interest held by the
account holder, unless there is a family law obligation which requires the
FHSA to be contributed to another individual's superannuation interest
(see paragraphs 2.57 and 2.58 for an explanation of family law
obligations). [Paragraph 34(1)(a) and subparagraph 31(1)(c)(i)]
Contributions to superannuation from an FHSA will be treated as non-
concessional contributions in the hands of the receiving superannuation
fund as they will not be included in the fund's assessable income (see
Chapter 7 for more detail). [Schedule 1, item 24, FHSA (Consequential
Amendments) Bill 2008, section 295-171 of the ITAA 1997]
43
However, amounts contributed from an FHSA will not be eligible for
the superannuation co-contribution as the money within the account may
already have attracted a Government contribution and/or been
concessionally taxed. [Schedule 3, item 37, FHSA (Consequential Amendments)
Bill 2008, paragraph 7(1)(v) of the Superannuation (Government Co-contribution) for
Low Income Earners Act 2003]
As they are required to contribute the amount to a complying
superannuation plan, providers will need to confirm that the
superannuation plan nominated by the account holder is a complying plan.
Providers making contributions to superannuation will be required to
provide the superannuation provider with a statement in relation to the
payment. This statement will be required to be in the approved form. See
Chapter 8 for more detail. [Schedule 1, item 65, FHSA (Consequential
Amendments) Bill 2008, section 391-10 of the Taxation Administration Act 1953 (TAA
1953)]
Transfer to another First Home Saver Account
An account holder may request, at any time, that the entire balance of
their FHSA be transferred to another FHSA provider. The request must
be in the approved form. Requiring the whole balance to be transferred
ensures individuals do not have two FHSAs open at the same time.
[Paragraphs 35(1)(a) and (b)]
Providers are unable to make a transfer where the account is inactive.
[Paragraph 35(1)(c)]
The transfer must be to another FHSA held by the account holder,
unless there is a family law obligation which requires the FHSA to be
transferred to another individual's FHSA (see paragraphs 2.57 and 2.58
for an explanation of family law obligations). [Paragraph 35(1)(a) and
subparagraph 31(1)(c)(ii)]
These provisions allow an account holder to give the transfer request to
their prospective FHSA provider and have the prospective provider
arrange the transfer (on the account holder's behalf) directly with the old
provider. That is, the words `an FHSA holder requests the FHSA
provider' cover the holder making the request of their existing provider
via their prospective provider.
An amount transferred from one FHSA to another FHSA will not be a
personal contribution and will not be subject to the prohibition on
accepting contributions once the account balance has reached the account
balance cap. This recognises that FHSA balances can grow above the
account balance cap due to interest/earnings and Government
contributions and that this should not prevent account holders changing
providers. [Paragraph 11(3)(a) and subparagraph 27(1)(b)(ii)]
Providers making transfers to another FHSA will need to ensure that it
is a valid FHSA and will be required to provide the other provider with a
statement in relation to the payment. This statement will be required to be
in the approved form. See Chapter 8 for more detail. [Schedule 1, item 65,
FHSA (Consequential Amendments) Bill 2008, section 391-10 of the TAA 1953]
Other payments
Family law
As FHSAs are intended to be used to purchase a first home, generally
funds cannot be paid directly to an account holder's spouse or ex-spouse
under a family law obligation. However, the balance of the FHSA can be
split under a family law obligation and transferred to an FHSA, or
contributed to a superannuation interest, of the account holder's spouse or
ex-spouse. The amount transferred or contributed may be the whole or
part of the balance of the FHSA. Where the account holder's spouse or
ex-spouse is over age 60, the amount may be paid directly to them.
[Paragraph 31(1)(c)]
A family law obligation is either a court order under the Family Law
Act 1975, or a financial agreement under Part VIIIA of that Act, which is
binding because of section 90G of that Act. [Section 18]
Return of the product under the Corporations Act 2001
The Corporations Act allows individuals to return a financial product
and have their money repaid in certain circumstances. Because this Bill
would otherwise override these circumstances by limiting when an
account provider can make a payment, provision has been made to allow
account holders to have their money paid from their FHSAs in accordance
with specified provisions in the Corporations Act.
The situations where an account holder will be able to access their
money are:
· where there has been unsolicited offer of an FHSA
(subsection 992A(4) of the Corporations Act);
· where the product disclosure statement was defective (section
1016F of the Corporations Act); and
· within 14 days of opening the account (section 1019B of the
Corporations Act). Section 19A of the Corporations Act is to
45
be amended to include FHSAs within the cooling-off
requirements [Schedule 2, item 14 of the FHSA (Consequential
Amendments) Bill 2008].
[Subparagraph 31(1)(d)(ii)]
Death
Account providers will be able to release money on the death of an
account holder. The FHSA will form part of the deceased's estate in the
same way as other assets and will not be taxable in the hands of the
beneficiary. [Paragraph 31(1)(e)]
Bankruptcy
The Bankruptcy Act 1966 makes provision for the division of property
on bankruptcy. As contributions to FHSAs are all voluntary, the payment
rules in this Bill will not override anything in that Act. This means that
the trustee in bankruptcy will be able to access the funds in an FHSA.
This differs from the treatment of superannuation for bankruptcy
purposes. [Section 128]
Timing of payments and offences
Upon receiving an application for the release of funds for the purchase
of a first home, at age 60, to contribute to superannuation or transfer to
another FHSA, the provider must make the payment as soon as is
practicable, and in any event within 30 days of the application having
been made. A provider who fails to comply with this payment rule
commits an offence and a penalty of up to 100 penalty units applies.
However, a contravention does not affect the validity of a payment.
[Subsections 32(2) to (4), subsections 33(2) to (4), subsections 34(2) to (4) and
subsections 35(2) to (4)]
The offence provisions in Division 3 of Part 3 of this Bill do not
specify which fault elements apply. Under section 5.6 of the Criminal
Code Act 1995, where an offence provision does not specify a fault
element, the fault element will be:
· for a physical element that consists of conduct -- intention;
and
· for a physical element that consists of circumstances or a
result -- recklessness.
126 Chapter 3
Government contributions to First Home
Saver Accounts
Outline of chapter
.1 Part 4 of the main Bill provides for the Government to pay annual
First Home Saver Account (FHSA) contributions to supplement the
personal contributions of individuals. This chapter covers:
127 the eligibility of individuals to receive a Government
contribution and the amount of the contribution to which they
are entitled;
128 the method of payment of the Government contribution and
the mechanisms for correcting late payments and
underpayments, and recovering overpayments; and
129 the administration of contribution arrangements by the
Commissioner of Taxation (Commissioner), including the
review of the Commissioner's decisions.
Context
.1 The Government is providing assistance to first home buyers through
FHSAs in two ways: Government contributions based on personal
contributions to FHSAs and low tax on earnings. Chapter 6 outlines the
arrangements for the taxation of earnings.
.2 The Government contribution is 17 per cent of up to $5,000 (indexed)
of personal contributions made to an FHSA during the year and is usually
paid directly into individual FHSAs by the Commissioner.
Summary of new law
.3 A Government contribution is payable for an individual for a financial
year on personal contributions of up to $5,000 (indexed) made during the
year, and is paid at a rate of 17 per cent.
47
.4 The Commissioner determines that Government contributions are
payable and pays them into FHSAs. The Commissioner must pay a
Government contribution no later than 60 days of receiving both the
income tax return of the individual for the financial year in which the
personal contributions were made (or notice in the approved form that
they are not required to lodge a tax return for the financial year) and the
FHSA contributions statement from the individual's FHSA provider.
.5 The Commissioner usually only pays Government contributions into
the FHSA held by the individual. However, the Commissioner also has
the power to pay Government contributions directly to the individual (or
their legal personal representative), or their superannuation provider (eg, if
the individual has elected or been compelled to contribute their FHSA
balance to superannuation).
.6 The Commissioner compensates individuals for the late payment or
underpayment of their Government contributions through paying
additional amounts as Government contributions. Similarly, the
Commissioner has various powers to recover overpayments of
Government contributions from an individual (or their legal personal
representative), or their FHSA or superannuation provider.
Detailed explanation of new law
Government contributions
.7 A Government contribution (Government contribution) for an
individual is a contribution or amount paid by the Commissioner for that
individual under the main Bill. [Subsection 11(1)]
Eligibility for a Government contribution
.8 A Government contribution is payable for an individual for a financial
year where the following criteria are satisfied.
130 During the financial year, personal contributions are made
to the FHSA. Individual contributions that are not eligible
for a Government contribution are discussed in paragraph
3.12.
131 The individual lodges an income tax return in relation to
the financial year, or notifies the Commissioner in the
approved form that they are not required to lodge a tax return
in relation to the financial year.
132 The tax return or notice states that the individual has met
the residency requirements outlined in the Income Tax
Assessment Act 1936 (ITAA 1936) for at least part of the
income year corresponding to the financial year.
133 The individual actually satisfies the residency requirements
for at least part of the income year corresponding to the
financial year.
.1 The Commissioner is able to rely on the individual's return or notice
that states they meet the residency requirements in determining that a
Government contribution is payable. However, if the statement is
incorrect, there is an overpayment and the Commissioner may take action
to recover the Government contribution paid (see paragraphs 3.37 to
3.50). [Sections 36 and 37]
.2 For the individual's income tax return (or notice) and the provider's
FHSA contributions statement to be in the approved form, they must be
complete.
Individual contributions ineligible for a Government contribution
.3 A Government contribution is not paid to an FHSA for a financial
year for individual contributions made in the following circumstances.
134 Where under a family law obligation, an amount is
transferred to the FHSA of a spouse or ex-spouse.
135 If an individual transfers their FHSA balance from one
FHSA provider to another under the FHSA portability
provisions.
136 Where an individual re-contributes an amount previously
paid from their FHSA to purchase a home where the home is
not purchased or the occupancy requirements are not met.
Such a re-contribution is permitted within six months of the
payment being made.
137 Where a contribution is refunded to an individual under the
Corporations Act on the grounds of:
.1 an unsolicited offer, under subsection 992A(4);
.2 a defective product disclosure document, under
section 1016F; or
49
.3 in exercising the cooling-off period, under section
1019B.
[Subsection 11(3)]
Amount of the Government contribution
.4 The first step in working out the Government contribution payable is
to total the personal contributions made during the financial year to an
FHSA held by an individual. Only the first $5,000 (indexed) is
considered; any excess is disregarded. The law refers to the personal
contributions considered as the covered contributions. [Subsections 38(1)
and (2)]
.5 The amount of the Government contribution is the covered
contributions multiplied by 17 per cent. [Subsection 38(3)]
Rounding rules
.6 If an individual is entitled to a Government contribution for a
financial year but the amount would otherwise be less than $20, the
contribution is rounded up to $20. Other Government contribution
amounts that are not whole dollar amounts are rounded up to the nearest
dollar. [Subsections 38(4) and (5)]
Government contribution threshold
.7 For the 2008-09 financial year, Government contributions are paid on
the first $5,000 contributed to an individual's FHSA each year. The
amount of the threshold is indexed annually, by multiplying the threshold
for the 2008-09 financial year by its indexation factor. The result is
rounded down to the nearest $500, to ensure that the contribution
threshold remains in round figures [section 39 and subsection 40(1)].
138 The indexation factor is the proportional change in full-time
adult average weekly ordinary time earnings from the middle
month of the December quarter 2007 to the middle month of
the December quarter just before the relevant financial year.
The indexation factor is calculated to four decimal places and
rounded to three decimal places [subsections 40(3) to (5)].
.1 The amount cannot be reduced by indexation; that is, it is not indexed
if the indexation factor is less than one. [Subsection 40(2)]
.1
If the indexation calculation increases the threshold to $5,900, the
indexed amount is rounded down to $5,500.
Payment of a Government contribution
.2 The Commissioner must determine that a Government contribution is
payable for an individual for a financial year if the Commissioner is
satisfied that the Government contribution is payable for that financial
year. [Subsection 41(1)]
.3 The Government superannuation co-contribution also relies on the
Commissioner making determinations. The proposed machinery rules for
Government contributions are generally similar to those for the
superannuation co-contribution. This assists the Australian Taxation
Office in implementing administrative arrangements for Government
contributions and assists industry in complying with the machinery rules.
Determination of eligibility for a Government contribution
.4 In deciding whether to make a determination under section 41, the
Commissioner may have regard to:
139 the income tax return lodged for the individual for the
relevant financial year, or a notice in the approved form
advising the Commissioner that the individual is not required
to lodge an income tax return in respect of the financial year
in which the personal contributions were made. This
information is used to determine whether an individual meets
the residency requirements;
140 the information about the personal contributions made in
respect of the individual, contained in FHSA contributions
statements given to the Commissioner by FHSA providers;
and
141 other information which may assist in determining the
individual's eligibility to receive a Government contribution
for the financial year. For example, if the Commissioner
received information that indicates that the individual was
not an Australian resident at any time during the income year,
the Commissioner may determine that a Government
contribution is not payable.
[Subsection 41(2)]
.1 If the Commissioner makes a determination that a Government
contribution is payable to the individual for the financial year, the
51
Commissioner must also determine where the Government contribution is
to be directed.
.2 The Commissioner usually only pays Government contributions into
the individual's FHSA. However, the Commissioner also has the power
to pay Government contributions directly to the individual (eg, if the
individual has closed their account to buy or build their first home in
which to live), their legal personal representative (eg, if the individual has
passed away), or the individual's superannuation provider (eg, if the
individual has elected or been compelled to contribute their FHSA balance
to superannuation). [Subsection 41(3)]
Notification of payment
.3 If the Commissioner pays a Government contribution to the FHSA or
superannuation account of an individual, the Commissioner must notify
the individual and either the FHSA or superannuation provider (as
appropriate) when the payment is made. If the Commissioner pays a
Government contribution directly to the individual or their legal personal
representative, the Commissioner must notify the individual or their
representative when the payment is made. [Section 45]
Payment date for Government contributions
.4 The Commissioner must pay the Government contribution on or
before the payment date for that contribution. The payment date is the
60th day after the Commissioner has received both the income tax return
of the individual (or notice in the approved form advising that they are not
required to complete an income tax return for the financial year), and the
FHSA contributions statement from the FHSA provider. [Section 42]
Returning Government contributions
.5 If the Commissioner has paid a Government contribution for an
individual to their FHSA or superannuation provider, and the provider is
unable to credit the contribution to the individual's account within 28 days
of receipt, the provider must repay the contribution to the Commonwealth.
The provider must also advise the Commissioner of the repayment in the
approved form when the amount is repaid. A common case is where the
provider is unable to credit the amount because the individual has closed
their FHSA and moved to a different provider.
.6 General collection and recovery provisions in Part 4-15 of Schedule 1
to the Taxation Administration Act 1953 apply to the liability to repay the
Government contribution. The provider may incur a general interest
charge if they fail to repay the Government contribution within 28 days
and an administrative penalty if they fail to notify of the repayment.
142 The general interest charge is calculated seven days after the
provider becomes liable to repay the amount. The charge is
applied daily until both the unpaid amount and any
outstanding general interest charges applied to the unpaid
amount are repaid.
[Section 43, subsections 52(1), (3) and (4)]
.1 Paragraphs 3.25 and 3.26 also apply in respect of returning underpaid
amounts to the Commonwealth. [Section 47, subsections 52(1), (3) and (4)]
Late payment of Government contributions
.2 To compensate the individual for receiving their Government
contribution late, the amount of a Government contribution is increased
by an interest amount if it is paid late in certain circumstances. That is, if
the Commissioner does not pay the amount of a Government contribution
that the individual is entitled to receive on or before the payment date for
that contribution (as outlined in paragraph 3.24), interest is calculated and
paid on the Government contribution.
.3 The purpose of this provision is to make any interest payable part of
the actual Government contribution. Therefore, interest payable on a
Government contribution is treated for all purposes in the same manner as
the Government contribution itself (eg, for taxation purposes).
.4 The increase in the Government contribution by any interest payable
is calculated:
143 on the amount of the Government contribution that remains
unpaid on the payment date (which in most of these cases is
the whole amount);
144 for the period from the payment date for the Government
contribution until the day on which it is paid (in full); and
145 on a daily basis using the average yield 90-day Bank
Accepted Bill rate.
[Section 44]
Underpayments of Government contributions
.1 An underpayment occurs when the Commissioner pays an amount of
a Government contribution and is satisfied that the amount paid is less
than the correct amount. This may be the result of the FHSA provider
under-reporting the level of personal contributions made to an individual's
53
FHSA during the financial year. The underpaid amount is the amount by
which the correct amount exceeds the amount paid.
.2 If an underpaid amount exists, the Commissioner must determine that
this underpaid amount is to be paid in respect of the individual for the
financial year; that is, the Commissioner must make a determination in
respect of the underpayment.
.3 The Commissioner is required to correct the underpayment by the
payment date as specified in paragraph 3.24, and credit the underpaid
amount to either:
146 the individual's FHSA or superannuation provider;
147 the individual; or
148 the individual's legal personal representative, as outlined in
paragraph 3.22.
[Subsections 46(1) to (4)]
.1
In the 2008-09 financial year, Dorothy makes personal contributions of
$5,000. TGG Bank provides the Commissioner with Dorothy's
contribution information for the year, but incorrectly reports her
personal contributions as $1,000 instead of $5,000.
Based on Dorothy's contribution information provided by TGG Bank,
the Commissioner pays a Government contribution of $170 into
Dorothy's account. As Dorothy is actually entitled to receive a
Government contribution of $850, her contribution has been underpaid
by $680.
Late payment of underpaid amounts
.2 The amount of a Government contribution is increased by an interest
amount if the underpaid amount is not paid on or before the payment date
for that amount, as outlined in paragraph 3.30. [Subsections 46(5) and (6) and
48(1)]
.3 The increase in the Government contribution by any interest payable
on underpaid amounts is to be calculated:
149 on the underpaid amount that remains unpaid on the
payment date;
150 for the period from the payment date for the underpaid
amount until the day on which that amount is paid (in full);
and
151 on a daily basis using the average yield 90-day Bank
Accepted Bill rate.
[Subsection 48(2)]
Small underpayments
.1 Where the Commissioner makes a determination in relation to an
underpaid amount of less than $5 and that amount is to be paid by cheque
to the individual or their legal personal representative, the amount is
increased to $5. This avoids very small cheque amounts being sent to
recipients. [Section 49]
Overpayments of Government contributions
.2 An overpayment of a Government contribution occurs if the
Commissioner pays an amount of a Government contribution for an
individual for an income year, and either no Government contribution was
payable, or the amount paid was greater than the amount that should have
been paid. This may be the result of the FHSA provider overstating the
level of personal contributions made to the individual's account during the
financial year. [Subsection 50(1)]
152 Where an FHSA misuse payment is made, Government
contributions are recovered through the FHSA misuse tax,
rather than the overpayment provisions discussed in
paragraphs 3.37 to 3.50 (see separate discussion in
Chapter 6 -- Taxation).
.1 The amount overpaid is the whole of the amount already paid if no
Government contribution was payable, or the amount by which the
amount paid exceeds the correct amount of Government contribution
payable. [Subsection 50(2)]
.2 The Commissioner may take action to recover an overpayment and
has several methods of recovery subject to certain conditions being
satisfied. [Subsection 50(3)]
.3 These alternatives are necessary because contributions may have been
paid to entities other than the individual (or their legal personal
representative); for example, to their FHSA or superannuation provider.
55
Recovery from a future Government contribution payable to an
individual
.4 The Commissioner may deduct the whole or part of the amount
overpaid from any future Government contribution payable for an
individual. To do this, there must be a future Government contribution
payable (including Government contributions payable but not yet paid)
from which the Commissioner is able to deduct the amount overpaid, with
the difference then being paid. Where available, this would be the most
straightforward method of recovery for the Commissioner. Under this
method, the Commissioner must notify the individual within 28 days of
the deduction being made. [Subsections 50(3), (5) and (6)]
Recovery from an individual (or their legal personal representative)
.5 Where the Commissioner has paid a Government contribution directly
to the individual (or their legal personal representative), the Commissioner
may recover the whole or part of the amount overpaid directly from the
individual (or their representative). Under this method, the Commissioner
must give the individual (or their representative) written notice of the
proposed recovery and at least 28 days in which to pay the amount.
[Subsections 50(3) and (5)]
.6 Where the individual (or their representative) fails to pay the amount
within 28 days, a general interest charge may be applied. The general
interest charge is calculated 28 days after the individual becomes liable to
repay the amount. The charge is applied daily until both the unpaid
amount and any outstanding general interest charges applied to the unpaid
amount are repaid. [Subsections 52(2) and (3), paragraph 52(4)(b)]
.7 The Commissioner may decide to withdraw the notice in certain
circumstances, where the Commissioner considers it is appropriate to do
so. This may include consideration of the circumstances that led to the
overpayment and the circumstances in which the individual finds
themselves at the time the Commissioner is seeking recovery.
[Subsection 50(4)]
Recovery from a First Home Saver Account or superannuation provider
.8 The Commissioner may recover the whole or part of the amount
overpaid from an FHSA provider to whom either the Commissioner has
paid the Government contribution for the individual, or another FHSA
provider if the FHSA balance has been transferred. The amount is a debt
due by the FHSA provider to the Commonwealth. [Subsections 50(3) and (5)]
.9 The Commissioner may not seek recovery of an overpayment from an
FHSA provider for an individual for whom (when the notice is given by
the Commissioner to the FHSA provider) the provider no longer holds an
FHSA on behalf of the individual.
.10 As outlined in paragraph 3.43, where the FHSA provider fails to pay
the amount within 28 days, a general interest charge may be applied. The
general interest charge is calculated 28 days after the provider becomes
liable to repay the amount. The charge is applied daily until both the
unpaid amount and any outstanding general interest charges applied to the
unpaid amount are repaid. [Subsections 52(2) and (3), paragraph 52(4)(b)]
.11 As outlined in paragraph 3.44, the Commissioner may decide to
withdraw the notice in certain circumstances, where the Commissioner
considers it is appropriate to do so. [Subsection 50(4)]
.12 The recovery arrangements described in paragraphs 3.45 to 3.48 also
apply in respect of a superannuation provider into which FHSA savings
are transferred.
Small overpayments
.13 If the Commissioner makes a determination in relation to an overpaid
amount and that amount is less than $100 (or a different amount specified
in the regulations), then the Government contribution is increased by the
overpaid amount. [Section 51]
Administration
Review of decisions
.14 Any individual affected by a decision may ask the Commissioner for
a review of that decision. The Commissioner will then arrange for an
independent review to be undertaken and either affirms, varies or sets
aside and substitutes a new decision. In that process, the Commissioner
may arrange for an authorised review officer to undertake the review.
.15 The Commissioner must authorise taxation officers to be authorised
review officers. [Sections 71 and 72]
.16 A review applicant may at any time withdraw the application and if
this occurs the application is taken to have never been made. This
withdrawal may be done in writing or another manner as approved by the
Commissioner. [Section 73]
.17 These review rules are essentially the same as those that apply under
the Superannuation (Government Co-contribution for Low Income
Earners) Act 2003.
57
.18 Where the Commissioner raises an assessment of FHSA misuse tax,
the objection and review rules for income tax assessments apply (see
discussion in Chapter 6 -- Taxation).
153 Chapter 4
Offering First Home Saver Accounts
Outline of chapter
.1 Division 1 of Part 7 of the main Bill outlines the requirements for
providers offering First Home Saver Accounts (FHSAs).
.2 This chapter explains what FHSA providers must do before they offer,
or invite to offer, FHSAs. Providers that are authorised deposit-taking
institutions (ADIs) and life insurance companies are required to notify the
Australian Prudential Regulation Authority (APRA), while trustees must
be authorised by APRA before they are permitted to offer FHSAs.
.3 Consequential amendments ensure that the APRA will have functions
and powers in relation to FHSA providers, and can cancel a trustee's
registrable superannuation entity (RSE) licence where the trustee's
authorisation as an FHSA provider has been cancelled on grounds of
breach or non-compliance.
Context
.4 As noted in Chapter 1, FHSAs can only be offered by certain
prudentially regulated financial institutions: ADIs; life insurance
companies (including friendly societies); and RSE licensees (trustees)
which operate public offer entities and are authorised to offer FHSAs.
154 Trustees of other superannuation entities, including self
managed superannuation funds, non public offer funds and
exempt public sector superannuation funds, will not be able
to offer FHSAs as they are not subject to the same level of
prudential regulation as trustees of public offer entities.
155 In addition, managed investment schemes and other
investment vehicles that are not prudentially regulated will
not be able to offer FHSAs.
.1 The legal nature of an FHSA will differ depending on the institution
that offers it. FHSAs offered by an ADI will be an account to which the
ADI accepts deposits, those offered by a life insurance company will be a
59
life policy and those offered by trustees will be a beneficial interest in a
trust. This affects the requirements that providers must meet before
offering FHSAs.
.2 APRA will have administrative responsibility for these requirements
as well as the prudential requirements in Division 2 of Part 7 (outlined in
Chapter 5), subject to any provisions that will be administered by the
Australian Securities and Investments Commission (ASIC).
Summary of new law
.3 Before ADIs and life insurance companies offer FHSAs, they must
give notice to APRA.
.4 Trustees must be authorised by APRA before offering FHSAs,
because FHSAs are a new non-superannuation product. Trustees with
public offer, extended public offer and acting trustee RSE licences will be
able to apply for authorisation.
.5 Trustees will be required to satisfy APRA that they can continue to
comply with the relevant prudential requirements in relation to their RSE
licence as well as under the FHSA Bill 2008. This means they will be
required to satisfy specific requirements relating to their risk management
strategy and ensure that their capital requirements also apply in respect of
their FHSA activities, but will not be required to create a new risk
management strategy or obtain extra capital.
.6 Once authorised, trustees will be required to offer FHSAs out of a
separate trust from their superannuation fund, as the sole purpose test that
applies to superannuation funds prevents trustees from offering FHSAs
from within their superannuation funds.
.7 Merits review will apply to APRA decisions in relation to
authorisation. These will be consistent with the reviewability of APRA's
decisions in relation to RSE licensing.
.8 APRA can cancel the trustee's RSE licence on the grounds that APRA
has cancelled the trustee's FHSA authorisation because of a breach or
failure to comply with conditions imposed on the authorisation.
.9 Consequential amendments are made to the Australian Prudential
Regulation Authority Act 1998 (APRA Act) to give APRA functions and
powers in relation to FHSA providers. These amendments also allow
APRA to receive protected information and protected documents in
relation to the FHSA Bill 2008, and to share information with the
Commissioner of Taxation (Commissioner) and ASIC in relation to the
administration of the FHSA Bill 2008.
Detailed explanation of new law
Authorised deposit-taking institutions and life insurers to give notice
.10 ADIs and life insurers are required to give notice to APRA before
they offer FHSAs. [Section 123]
.11 The prudential supervision of FHSAs offered by ADIs and life
insurance companies is outlined in Chapter 5.
Registrable superannuation entity licensees to be authorised
.12 As FHSAs are a new, non-superannuation product, trustees will be
required to obtain authorisation from APRA before offering FHSAs.
Authorisation aims to control entry into the FHSA industry and ensure
that trustees meet minimum fitness and propriety requirements and have
the necessary risk management systems and resources to offer this
product.
.13 The significance of the authorisation process is that the trustee of an
FHSA trust must not issue or offer FHSAs unless the trustee is authorised
by APRA under the FHSA Bill 2008. Trustees who offer FHSAs without
authorisation are liable to a penalty. [Section 110]
Who can apply for authorisation
.14 A trustee who has a class of licence that would enable the trustee to
be, or act as, the trustee of a public offer superannuation fund will be able
to apply for authorisation. These include:
156 a public offer entity licence as established by
subsection 29B(2) of the Superannuation Industry
(Supervision) Act 1993 (SIS Act);
157 an extended public offer entity licence prescribed by
regulation 3A.03 of the Superannuation Industry
(Supervision) Regulations 1994 (SIS Regulations); or
158 an acting trustee licence prescribed in regulation 3A.03A of
the SIS Regulations.
[Subsection 89(1)]
61
.1 The threshold requirements ensure that only trustees who have gained
approval to operate public offer superannuation entities, by demonstrating
that they have the requisite experience and resources, will be able to be
authorised to offer FHSAs.
Process for applying for authorisation
.2 Sections 89 to 91 establish the processes for applying for
authorisation as an FHSA provider. Section 89 establishes the
requirements for applications and the requirements for notifying certain
changes to pending applications. This process is broadly based on the
process for applying for a RSE licence under the SIS Act.
.3 An application must be in the approved form, contain the information
required by the approved form and be accompanied by the required
application fee, if any is prescribed. [Subsection 89(2)]
.4 In considering an application, APRA:
159 can request additional information from a body corporate or
a group of individual trustees that has applied for an RSE
licence;
160 must specify a reasonable time for complying with the
request;
161 can deem an application as having been withdrawn if the
applicant does not provide the requested information within
the specified time and does not have a reasonable excuse for
not doing so; and
162 must take all reasonable steps to inform the applicant if it
treats an application as having been withdrawn.
[Section 90]
.1 APRA will have 30 days to decide applications, with discretion to
extend this period by a further 14 days. If APRA does not make a
decision by the end of the period, it is taken to have refused the
application. [Section 91]
Granting authorisation
.2 APRA must grant an authorisation to a trustee if it has no reason to
believe that the applicant would fail to comply with the FHSA Bill 2008,
FHSA prudential standards that apply to the trustee and FHSA
regulations, or any conditions imposed on the authorisation if
authorisation was granted. [Section 92]
.3 APRA must also be satisfied that the applicant is a constitutional
corporation that holds an appropriate class of RSE licence. That is, the
applicant must hold a public offer, extended public offer or acting trustee
RSE licence. [Paragraph 92(1)(d)]
.4 The application must comply with the requirements set out in section
89.
Risk management
.5 APRA must be satisfied that the risk management strategy for the
applicant takes into account the trustee's additional FHSA business as
required by paragraph 29H(1)(b) of the SIS Act. Paragraph 29H(1)(b) of
the SIS Act requires the risk management strategy of the trustee to set out
reasonable measures and procedures that apply to identify, monitor and
manage a range of risks that may arise in respect of the operations of the
RSE licensee as well as all its other activities, or proposed activities, to
the extent that they are relevant to its activities, or proposed activities, as
an RSE licensee. As operating an FHSA trust and offering FHSAs could
have a significant impact on the trustee's resources, this new activity is
relevant for the trustee's activities as an RSE licensee and must be
reflected in the trustee's risk management strategy.
Capital requirements
.6 Trustees are required to satisfy capital requirements, by holding
capital or having approved arrangements in respect of their
superannuation activities before being granted a public offer, extended
public offer or acting trustee RSE licence. Section 93 requires trustees to
ensure that the capital held in respect of their superannuation activities
also covers their FHSA activities, but trustees will not be required to
obtain extra capital. [Subsection 93(1)]
.7 An applicant satisfies this provision if:
163 it satisfies the requirement in subsection 29DA(2) of the
SIS Act and regulation 3A.04 of the SIS Regulations to hold
$5 million in net tangible assets. As a result, the applicant's
capital held under the SIS Act would be available in respect
of its activities as a trustee of FHSA trusts;
164 it satisfies the requirement to have an approved guarantee
of at least $5 million (subsection 29DA(3) of the SIS Act and
the prescribed amount in regulation 3A.04 of the
63
SIS Regulations), and the approved guarantee also applies in
respect of each FHSA trust of which the trustee is, or is
proposing to become, the trustee. The trustee would be
required to amend its deed of approved guarantee to ensure
that the guarantee is also given in respect of its activities as a
trustee of FHSA trusts;
165 the sum of its net tangible assets and approved guarantee is
at least $5 million (subsection 29DA(4) of the SIS Act and
the prescribed amount in regulation 3A.04 of the
SIS Regulations), and the approved guarantee also applies in
respect of each FHSA trust of which the trustee is, or is
proposing to become, the trustee. The trustee would be
required to amend its deed of approved guarantee to ensure
that the guarantee is also given in respect of its activities as a
trustee of FHSA trusts; or
166 it already complies with requirements given by APRA in
relation to capital, and agrees to comply with new
requirements given by APRA in relation to the custody of the
assets of each FHSA trust of which it is, or is proposing to
become, the trustee. In addition to the written requirements
under subsection 29DA(5) of the SIS Act in relation to the
custody of superannuation fund assets, the trustee will also be
required to comply with written requirements in relation to
the custody of FHSA trust assets.
[Subsections 93(2) to (5)]
Other
.1 The trustee is required to quote its Australian Business Number
(ABN) on a range of documents unless it receives an exemption from
APRA. The trustee is also required to quote the ABN of the FHSA trust
on a range of documents unless it receives an exemption from APRA.
[Section 94]
Conditions imposed on authorisation
.2 Conditions that are considered fundamental to ensuring the prudent
operation of all FHSA trusts are imposed on all authorisations. Other
conditions may also be specified in regulations, allowing additional
conditions to be imposed on all RSE licences in a timely manner where
necessary. [Section 97]
.3 APRA has the power to impose additional conditions on a single
authorisation as long as those conditions are not inconsistent with
conditions that are imposed under section 97 [subsections 98(1) and (2)]. This
ensures that APRA is able to impose conditions on individual
authorisations, in particular where there may be a specific prudential risk
applying to that trustee or the FHSA trust it manages. Failure to report
significant breaches of conditions on authorisation is an offence under
section 111.
.4 APRA must consult with ASIC where the RSE licensee also holds an
Australian Financial Services Licence and the imposition of a condition
may affect the RSE licensee's ability to provide financial services.
Consultation will help to ensure consistent approaches to the regulation of
RSE licensees who are also holders of an Australian Financial Services
Licence. However, failure by APRA to consult with ASIC does not
invalidate any additional condition that is imposed. [Subsections 98(3) and
(4)]
Compliance with conditions
.5 APRA can direct an RSE licensee to comply with a licence condition
within a specified time where APRA has reasonable grounds to believe
that the RSE licensee has breached the licence condition. [Section 99]
.6 This power is significant, because while breaching an authorisation
condition does not directly result in a trustee committing an offence,
failure to comply with an APRA direction given under section 99 may
result in the trustee committing an offence under section 112. Section 99
does not include a minimum timeframe for complying with a request to
give APRA some flexibility in setting timeframes that are reasonable in
the circumstances, given the nature of the information that is being
requested and the level of prudential risk involved. APRA may also
cancel an authorisation if a trustee fails to comply with an authorisation
condition. [Section 107]
Varying conditions on authorisation
.7 Trustees may apply to APRA for a variation or revocation of a
condition that has been imposed on an authorisation by APRA.
[Section 100]
.8 APRA can request additional information in respect of an application
made under section 100. This ensures that APRA is able to obtain
relevant information pertaining to the application. [Section 101]
.9 APRA has 30 days to decide an application to vary a condition on an
authorisation, but may extend this period by a further 14 days. [Section 102]
65
.10 APRA may vary or revoke a condition on authorisation on
application from the trustee in certain circumstances and, if it does so, it
must inform the applicant. APRA must also consult with ASIC in certain
circumstances. APRA is not required to vary or revoke any condition of
an authorisation in the terms requested by the trustee in an application
under section 100. [Section 103]
.11 APRA may also vary or revoke an authorisation condition on its own
initiative as long as the variation or revocation is not inconsistent with any
condition imposed under section 97 or the trustee's RSE licence. If the
trustee is also the holder of an Australian Financial Services Licence,
APRA must consult with ASIC in certain circumstances. [Section 104]
.12 APRA must notify trustees of its decisions in respect of variations or
revocations. [Section 105]
Cancellation of authorisation
.13 APRA may cancel in writing authorisations where trustees:
167 have requested that their authorisation be cancelled;
168 are `disqualified persons' under Part 15 of the SIS Act, as it
applies in Division 2, Part 7 of the FHSA Bill 2008. (For
details of how the SIS Act applies to FHSA trustees, refer to
Chapter 5);
169 have breached, or APRA has reason to believe they will
breach, a condition imposed on the authorisation; or
170 have failed to comply, or APRA has reason to believe they
will fail to comply, with a direction by APRA under
section 99.
[Section 107]
.1 APRA must notify trustees of decisions to cancel authorisations.
[Subsection 107(3)]
.2 APRA must also consult with ASIC in certain circumstances before
cancelling an authorisation and notify ASIC after it has cancelled an
authorisation. [Section 108]
.3 APRA may allow an authorisation to continue in effect in respect of
specified provisions of the FHSA Bill 2008, FHSA prudential standards
and regulations, or any other law of the Commonwealth, that it
administers after the authorisation has been cancelled. This ensures that
trustees who have had their authorisation cancelled can continue to
perform certain specified duties in respect of an FHSA trust, for example,
processes associated with winding-up an FHSA trust or transferring
members' benefits under the successor fund arrangements. [Section 109]
Offences
.4 It is an offence for a person to be, or act as, a trustee of an FHSA trust
unless the person is an ADI, life insurance company, or a trustee that
holds an authorisation as an FHSA provider. In addition, an ADI or life
insurance company cannot offer FHSAs if its authorisation under the
Banking Act 1959 or registration under the Life Insurance Act 1995 does
not allow the entity to offer such accounts or life policies. The penalty for
breach of this requirement is two years imprisonment and/or 120 penalty
units. [Section 110]
.5 It is also an offence for a trustee to fail to notify APRA of breaches of
authorisation conditions that are, or are likely to be, significant. This
offence contains a significance test, consistent with the test under the
Banking Act 1959, the Life Insurance Act 1995 and the SIS Act. [Section
111]
.6 The significance test takes into consideration a number of factors to
be used when judging if a breach is significant or not. Significant
breaches must be notified in writing and must be reported as soon as
practicable and in any event within 10 business days.
.7 Consistent with the SIS Act, this offence is a strict liability offence
punishable by 50 penalty units. These offences are ones of strict liability
because they are basic, objective requirements of APRA's prudential
supervision functions, and should be complied with by all persons.
Consistent with section 6.1 of the Criminal Code Act 1995, this offence
provision does not require proof of a mental element.
.8 In addition, it is an offence for a trustee to fail to comply with a
direction from APRA to comply with a condition on an authorisation
under section 99. This is a strict liability offence, which carries a penalty
of 60 penalty units. [Section 112]
.9 This offence is a strict liability one because it is a basic, objective
requirement of APRA's prudential supervision of FHSA providers that are
trustees, and should be complied with by all trustees. As the fundamental
prudential requirements for trustees who provide FHSAs are imposed as
conditions on authorisation, it is essential that trustees comply with
APRA's directions to comply with a condition of authorisation.
Consistent with section 6.1 of the Criminal Code Act 1995, this offence
provision does not require proof of a mental element.
67
.10 Any contravention of these offence provisions does not affect the
validity of a transaction, such as the issue of an interest in an FHSA trust.
This protects the interests of members of an FHSA trust where the trustee
of that trust is in contravention of the provisions. [Section 113]
Merits review of APRA decisions
.11 APRA's decisions in relation to authorisation are subject to merits
review, where the equivalent decision in relation to the RSE licensing
process is also subject to merits review. The process for seeking review is
set out in section 75 and 76, and these are modelled on sections 344 and
345 of the SIS Act. [Section 74]
Consequential amendments to the Superannuation Industry
(Supervision) Act 1993
.12 APRA may cancel a trustee's RSE licence where the trustee's
authorisation as an FHSA provider has been cancelled under
paragraphs 107(2)(b) to (f) of the FHSA Bill 2008. A trustee's
authorisation may be cancelled under these paragraphs where the trustee
has breached, or may breach, conditions on authorisation or has failed, or
may fail, to comply with a direction to comply with conditions on
authorisation. These are breaches of fundamental requirements of the
prudential framework. [Schedule 3, item 38, FHSA (Consequential Amendments)
Bill 2008]
.13 Where APRA cancels a trustee's authorisation as an FHSA provider
following a request from the trustee, under paragraph 107(2)(a), it would
not be a ground to cancel the trustee's RSE licence as such a cancellations
would not result from the trustee breaching fundamental prudential
requirements.
Consequential amendments to the APRA Act
.14 APRA has responsibility for the prudential supervision of FHSA
providers and has responsibility for the administration of the relevant parts
of the FHSA Bill 2008. [Schedule 3, items 5 to 9, FHSA (Consequential
Amendments) Bill 2008]
.15 A reference to the `First Home Saver Accounts Act 2008' is inserted
into the definition of `prudential regulation framework law' in subsection
3(1) of the APRA Act. The term `prudential regulation framework law' is
the list of laws under which APRA takes its functions and powers.
Inserting the `First Home Saver Accounts Act 2008' into this list gives
APRA functions and powers for administering the provisions of the
FHSA Bill 2008 relating to prudential regulation. The definition is also
required for the purposes of APRA's advisory powers and the secrecy
provisions contained within section 56 of the APRA Act. [Schedule 3,
item 5, FHSA (Consequential Amendments) Bill 2008]
.16 The term `FHSA provider' is inserted into the definition of `body
regulated by APRA' in subsection 3(2) of the APRA Act. Although ADIs
and life insurers are already in this definition, and trustees are included in
the definition in their capacity as trustees of superannuation entities, this
definition clarifies that these entities in their capacity as FHSA providers
are also prudentially regulated by APRA. [Schedule 3, item 6, FHSA
(Consequential Amendments) Bill 2008]
.17 Section 56 of the APRA Act is amended to refer to the FHSA Bill
2008. Section 56 protects information and documents given to APRA
(apart from those already made public from other sources) from being
disclosed without authorisation, while allowing for efficient and effective
information exchange between APRA and other regulators. [Schedule 3,
items 8 and 9, FHSA (Consequential Amendments) Bill 2008]
.18 These amendments enable APRA to gather protected information and
protected documents under the FHSA Bill 2008, and to share information
with regulatory agencies such as the Australian Securities and Investments
Commission, and any other regulatory agencies prescribed in the
regulations, to assist these agencies to perform their duties and functions.
It also imposes appropriate confidentiality requirements on such
information.
.19 These amendments insert new paragraphs in the definitions of
`protected document' and `protected information' in subsection 56(1) of
the APRA Act. Documents produced under, or for the purposes of
administering, a provision of the FHSA Bill 2008 which is administered
by the Commissioner is a `protected document' and `protected
information'. These amendments ensure that where the Commissioner
gives documents or information to APRA in the course of administering
the FHSA Bill 2008, such documents or information are protected by the
confidentiality requirements under section 56 of the APRA Act and
cannot be disclosed except in specified circumstances and subject to any
conditions that may be imposed under this section.
69
171 Chapter 5
Prudential regulation of First Home Saver
Account providers
Outline of chapter
.1 The main Bill provides the regulatory framework for First Home
Saver Accounts (FHSAs) offered by authorised deposit-taking institutions
(ADIs), life insurance companies and registrable superannuation entity
(RSE) licensees that are authorised to offer FHSAs (trustees).
.2 ADIs and life insurance companies are already subject to prudential
supervision under the Banking Act 1959 and the Life Insurance Act 1995
respectively. Consequential amendments to the Banking Act 1959, the
Life Insurance Act 1995 and the Australian Prudential Regulation
Authority Act 1998 (APRA Act) ensure that the Australian Prudential
Regulation Authority (APRA) can administer, monitor and enforce these
entities' FHSA activities.
.3 Division 2 of Part 7 creates a prudential regulatory framework for
FHSA trusts operated by trustees that are authorised under the First Home
Saver Accounts Bill 2008 (FHSA Bill 2008). It does this by applying the
relevant parts of the SIS Act regulatory framework to FHSAs, FHSA
trusts, their trustees and holders of FHSAs issued by trustees. APRA also
has the power to make prudential standards in relation to FHSA trusts and
trustees.
.4 Additional investment management requirements apply to FHSAs
offered as investment-linked products by life insurance companies and
trustees. These requirements reflect the differences in the purpose and
nature of FHSAs from the products generally offered by life insurance
companies and trustees.
Context
.5 The FSHA Bill 2008 provides a prudential regulatory framework for
FHSA trusts and trustees that are authorised to operate these trusts, rather
than regulating them directly under the Superannuation Industry
(Supervision) Act 1993 (SIS Act). This is because FHSAs are not a
71
superannuation product, and the sole purpose test that applies to
superannuation funds prevents trustees from offering FHSAs from within
their superannuation entities.
.6 The requirement for a separate trust also preserves the integrity of
Australians' retirement savings by preventing cross-contamination and
cross-subsidisation of FHSAs by superannuation -- where the funds of
superannuation members (many of whom will be ineligible to open an
FHSA) are used to fund the start-up and operating costs of FHSAs.
Similarly, FHSA trusts cannot invest through pooled superannuation trusts
and cannot pay benefits into eligible rollover funds.
.7 The (SIS Act) creates a prudential regulatory framework for RSE
licensees and superannuation funds, and deals with matters including
duties and obligations for trustees, responsible officers of trustees,
auditors, actuaries, custodians and investment managers of superannuation
funds. The SIS Act also provides APRA with powers and functions in
relation to the prudential supervision of superannuation funds and trustees.
.8 Division 2 of Part 7 applies the SIS Act prudential regulatory
framework to FHSA trusts, where it is appropriate to do so, to ensure
regulatory consistency for the trustees' FHSA activities and
superannuation activities.
.9 Unlike under the SIS Act framework, APRA will have the power
under the FHSA Bill 2008 to make prudential standards in relation to
FHSA trusts and trustees, thereby enabling prudential standards to apply
consistently to all FHSA providers where this is necessary.
.10 As FHSAs have a different purpose and nature from superannuation
products and life policies that are usually offered by trustees and life
insurance companies, and FHSA holders are likely to have a shorter
investment horizon, additional investment management requirements
apply to FHSAs offered by trustees and as investment-linked life policies.
Summary of new law
.11 The FHSA business of ADIs and life insurance companies will be
supervised under the prudential framework in the Banking Act 1959 and
the Life Insurance Act 1995 respectively.
.12 However, life insurance companies that offer FHSAs as investment-
linked contracts will be subject to additional investment management
requirements that take into account the purpose and nature of FHSAs.
These requirements are consistent with those that apply to trustees that
offer FHSAs.
.13 The FSHA Bill 2008 provides a prudential regulatory framework for
FHSA trusts and trustees that are authorised to operate these trusts, rather
than regulating them directly under the SIS Act.
.14 Relevant parts of the SIS Act are applied by reference, in accordance
with the application provisions, under Division 2 of Part 7 of the FHSA
Bill 2008. This Division also excludes any provisions of the SIS Act that
are not relevant to FHSA trusts and trustees, and modifies the application
of particular provisions of the SIS Act to ensure the regulatory framework
applies correctly.
.15 These provisions ensure that FHSA trusts, trustees, and persons who
have duties, functions and powers in relation to these entities will be
subject to a prudential regulation framework that is consistent with the
framework applying to superannuation funds and their trustees, where
appropriate, while still reflecting the differences between these two
products.
.16 Unlike under the SIS Act framework, APRA will have the power
under the FHSA Bill 2008 to make prudential standards in relation to
FHSA trusts and trustees, thereby enabling prudential standards to apply
consistently to all FHSA providers where this is necessary.
Detailed explanation of new law
First Home Saver Account providers that are ADIs
.17 FHSA providers that are ADIs are already prudentially regulated
under the Banking Act 1959. Section 8 establishes that FHSAs may be
offered as accounts by ADIs, which ensures that the prudential framework
under the Banking Act 1959 will apply to FHSAs. ADIs may offer
FHSAs if they are not prevented from doing so by any condition imposed
on their authorisation under section 9 of the Banking Act 1959.
[Section 110]
.18 FHSA providers that are ADIs can transfer their FHSA business to
other ADIs under the Banking Act 1959 and the Financial Sector
(Business Transfer and Group Restructure) Act 1999.
Amendments to the Banking Act 1959
.19 To ensure that APRA has appropriate supervisory and enforcement
powers in relation to ADIs' FHSA activities, the First Home Saver
Accounts (Consequential Amendments) Bill 2008 (FHSA (Consequential
73
Amendments) Bill 2008) makes consequential amendments to the
Banking Act 1959. These amendments give APRA the ability to take
action under the Banking Act 1959 where an FHSA provider that is an
ADI has, or may have, breached a prudential requirement under the FHSA
Bill 2008.
.20 Enabling APRA to enforce requirements that apply to FHSA
providers that are ADIs under the Banking Act 1959 rather than the FHSA
Bill 2008 ensures that ADIs are subject to a consistent monitoring and
enforcement regime and minimises compliance costs. For prudential
requirements applying to FHSA providers that are ADIs, see Division 3 of
Part 7 of the FHSA Bill 2008.
.21 APRA is able to issue a direction under section 11CA of the Banking
Act 1959, in respect of an FHSA provider that is an ADI, where specified
triggers relating to the FHSA Bill 2008 are satisfied.
172 Where an FHSA provider that is an ADI has contravened
the FHSA Bill 2008, APRA can issue one of the directions
listed in subsection 11CA(2) of the Banking Act 1959
[Schedule 3, item 10, FHSA ( Consequential Amendments) Bill 2008,
paragraph 11CA(1)(a) of the Banking Act 1959].
173 Where an FHSA provider that is an ADI is likely to
contravene the FHSA Bill 2008, and the contravention is
likely to give rise to a prudential risk, APRA can issue one of
the directions listed in subsection 11CA(2) of the Banking
Act 1959 [Schedule 3, item 11, FHSA (Consequential Amendments)
Bill 2008, paragraph 11CA(1)(c) of the Banking Act 1959].
.1 APRA can issue a direction to comply with all or part of the FHSA
Bill 2008 under paragraph 11CA(2)(aa) of the Banking Act 1959, where
one of the triggers in subsection 11CA(1) is satisfied. All other directions
in subsection 11CA(2) can also be issued to an FHSA provider that is an
ADI, where these directions are relevant to the ADI's FHSA activities, but
no amendment is required as these directions relate to the entirety of the
ADI's business and are not limited to matters arising under the Banking
Act 1959. [Schedule 3, item 12, FHSA (Consequential Amendments) Bill 2008,
subsection 11CA(2) of the Banking Act 1959]
.2 APRA can accept an enforceable undertaking in connection with a
matter arising under the FHSA Bill 2008, if the matter is within APRA's
responsibility. Therefore, if APRA has a concern about an FHSA
provider that is an ADI, and the concern relates to a prudential
requirement under the FHSA Bill 2008, APRA can address the concern by
accepting an enforceable undertaking from the FHSA provider.
[Schedule 3, item 13, FHSA (Consequential Amendments) Bill 2008, section 18A of the
Banking Act 1959]
.3 If APRA has the power to make a decision under the FHSA Bill 2008
in relation to an FHSA provider that is an ADI, and the decision is subject
to merits review, review of the decision is conducted in accordance with
Part 6 of the Banking Act 1959. This ensures a consistent regime of
review of APRA's decisions in relation to ADIs. Currently, APRA does
not have the power to make decisions in relation to ADIs under the FHSA
Bill 2008. [Schedule 3, item 14, FHSA (Consequential Amendments) Bill 2008,
section 51A, Banking Act 1959]
.4 ADIs are required to report significant breaches of the FHSA
(Consequential Amendments) Bill 2008 to APRA. [Schedule 3, item 15,
FHSA (Consequential Amendments) Bill 2008, section 62A of the Banking Act 1959]
First Home Saver Account providers that are life insurance companies
.5 FHSA providers that are life insurance companies authorised under
the Life Insurance Act 1995 are already prudentially regulated under that
Act. Where life insurance companies offer FHSAs, section 8 requires that
they be offered as `life policies', which ensures that FHSAs will be a life
policy as defined by section 9 of the Life Insurance Act 1995 and
therefore subject to the full prudential framework under the Life Insurance
Act 1995.
.6 Life insurance companies may offer FHSAs if they are not prevented
from doing so by any condition on their registration imposed under
section 22 of the Life Insurance Act 1995. [Section 110]
.7 In addition, under the FHSA Bill 2008, new investment management
requirements will apply to FHSAs that are offered by life insurance
companies as investment-linked contracts, within the meaning of section
14 of the Life Insurance Act 1995. Details are set out in paragraphs 1.28
and 1.29.
.8 FHSA providers that are life insurance companies can transfer their
FHSA business to other life insurance companies under the Life Insurance
Act 1995 and the Financial Sector (Business Transfer and Group
Restructure) Act 1999.
Amendments to the Life Insurance Act 1995
.9 The definitions of `investment account' and `investment-linked
account' in section 14 of the Life Insurance Act 1995 are amended to
clarify that an FHSA that is offered as an investment account or
investment-linked account can be withdrawn in accordance with the
requirements under section 31 of the FHSA Bill 2008. [Schedule 3, items 16
to 19, FHSA (Consequential Amendments) Bill 2008]
75
.10 The current definitions of an `investment account' and `investment-
linked account' require the account balance to be paid on `a specified
date' or one of a number of specified dates (see subparagraphs 14(2)(a)(ii)
and 14(4)(b)(ii) of the Life Insurance Act 1995). The amendments to
section 14 clarify that an investment account or an investment-linked
account can also be a contract that provides for the balance of the contract
to be paid in accordance with the release criteria under section 31 of the
FHSA Bill 2008.
.11 Auditors and actuaries will be able to give information relating to
FHSAs to APRA:
174 where the auditor or actuary is required to give information
under sections 88 and 89 of the Life Insurance Act 1995
relating to a contravention of the Life Insurance Act 1995 or
the FHSA Bill 2008 to APRA; and
175 where an auditor or actuary may give information to APRA
under sections 88A and 98A of the Life Insurance Act 1995,
if the auditor or actuary considers the information may assist
APRA in performing its functions under the Life Insurance
Act 1995 or the FHSA Bill 2008.
[Schedule 3, items 20 and 21, FHSA (Consequential Amendments) Bill 2008, section 74,
Life Insurance Act 1995]
.1 APRA's monitoring and investigation powers under Part 7 of the Life
Insurance Act 1995 apply to the FHSA activities of FHSA providers that
are life insurance companies. [Schedule 3, items 22 and 23, FHSA (Consequential
Amendments) Bill 2008]
.2 The effect of these amendments is to extend APRA's monitoring and
enforcement powers to prudential requirements that apply to life insurance
companies under the FHSA Bill 2008.
.3 For example, APRA will be able to accept an enforceable undertaking
under section 133A in connection with a matter arising under the FHSA
Bill 2008. The triggers for issuing a show-cause notice under section 136
are satisfied if APRA suspects an FHSA provider that is a life insurance
company has breached, or is likely to breach, a prudential provision of the
FHSA Bill 2008. APRA will also be able to conduct an investigation in
relation to a matter arising under the FHSA Bill 2008, where the FHSA
provider is a life insurance company.
.4 Prudential standards that apply to life insurance companies cannot be
inconsistent with the FHSA Bill 2008. [Schedule 3, item 24, FHSA
(Consequential Amendments) Bill 2008, section 230A, Life Insurance Act 1995]
.5 APRA can issue a direction under subsection 230B(2) of the Life
Insurance Act 1995 to comply with all or part of the Life Insurance Act, in
respect of an FHSA provider that is a life insurance company, where:
176 an FHSA provider that is a life insurance company has
contravened the FHSA Bill 2008; or
177 an FHSA provider that is a life insurer is likely to
contravene, the FHSA Bill 2008 and the contravention is
likely to give rise to a prudential risk.
[Schedule 3, item 25, FHSA (Consequential Amendments) Bill 2008,
paragraphs 230B(1)(a) and (b), Life Insurance Act 1995]
.1 APRA can issue a direction to comply with all or part of the FHSA
Bill 2008 under paragraph 230B(2)(a) of the Life Insurance Act 1995,
where one of the triggers in subsection 230B(1) is satisfied. All other
directions in subsection 230B(2) can also be issued to an FHSA provider
that is a life insurance company, where these directions are relevant to the
life insurance company's FHSA activities, but no amendment is required
as these directions relate to the entirety of the life insurance company's
business and are not limited to matters arising under the Life Insurance
Act 1995. [Schedule 3, item 25, FHSA (Consequential Amendments) Bill 2008,
subsection 230B(2), Life Insurance Act 1995]
.2 If APRA has the power to make a decision under the FHSA Bill 2008
in relation to an FHSA provider that is a life insurance company, and the
decision is subject to merits review, review of the decision would be
conducted in accordance with section 236 of the Life Insurance Act 1995.
This ensures a consistent regime of review of APRA's decisions for life
insurance companies. Currently, APRA does not have the power to make
decisions in relation to life insurance companies under the FHSA Bill
2008. [Schedule 3, items 26 and 27, FHSA (Consequential Amendments) Bill 2008]
First Home Saver Account providers that are trustees
.3 The prudential supervision of trustees who are authorised under the
FHSA Bill 2008 as FHSA providers will be given effect through the
provisions in Division 2 of Part 7 and section 121.
Basic application provision
.4 The basic application provision creates application rules in relation to
the requirements, functions and obligations that apply to trustees of FHSA
trusts, FHSA trusts, an interest in an FHSA trust and holder of such an
interest. [Section 114]
77
.5 Subject to the exclusion and modification provisions in Division 2 of
Part 7 [subsection 114(1)]:
178 the first application rule ensures that all obligations,
functions and requirements that apply to trustees of public
offer superannuation funds will apply to trustees of FHSA
trusts [paragraph 114(2)(a)];
179 the second application rule ensures that all obligations,
functions and requirements that apply in relation to a public
offer superannuation fund will apply in relation to an FHSA
trust [paragraph 114(2)(b)];
180 the third application rule ensures that all obligations that
apply in relation to members of superannuation funds will
apply in relation to holders of FHSAs issued by trustees
[paragraph 114(2)(c)]; and
181 the fourth application rule ensures that all the requirements
that apply in relation to a superannuation interest will apply
to an interest in an FHSA trust [paragraph 114(2)(d)].
Trustees of First Home Saver Account trusts
.1 Under the first application rule, all the obligations that apply to a
trustee that is a trustee of a public offer superannuation fund will apply to
a trustee of an FHSA trust (FHSA trustee), subject to the exclusion and
modification provisions. [Paragraph 114(2)(a)]
.2 Where an obligation applies to all trustees of regulated superannuation
funds or trustees of a public offer entity, this obligation will apply to an
FHSA trustee.
.1
Section 35A imposes accounting and record keeping obligations on
trustees of `all superannuation entities'. Paragraph 35A(1)(a)
provides:
`(1) Each trustee of a superannuation entity must ensure that:
(a) accounting records that correctly record and explain the
transactions and financial position of the entity are kept;'
As the term `superannuation entities' includes a `public offer
superannuation fund', this obligation will apply to trustees of an FHSA
trust. Applying this rule, paragraph 35A(1)(a) becomes:
(1) [The] FHSA trustee must ensure that:
(a) accounting records that correctly record and explain the
transactions and financial position of the [FHSA trust] are kept.
.2
Section 133 allows APRA to suspend or remove trustees if specified
triggers are satisfied. Subsection 133(1) provides:
`(1) The Regulator may suspend or remove a trustee of a
superannuation entity if:'
Again, as the term `superannuation entities' includes a `public offer
superannuation fund', this obligation will apply to trustees of an FHSA
trust. Applying this rule, subsection 133(1) becomes:
(1) The Regulator may suspend or remove an FHSA trustee if:
.3
Section 154 imposes on trustees certain limitations on the payment of
commission and brokerage. Subsection 154(1) provides:
`(1) The trustee of a public offer entity must comply with the
requirements of the regulations in relation to the payment of
commission or brokerage in respect of:'
[...]
(2) The trustee is guilty of an offence if the trustee contravenes
subsection (1).
As the term `public offer entity' includes a `public offer
superannuation fund', this requirement will apply to a trustee of an
FHSA trust. Applying this rule, section 154 becomes:
(1) The FHSA trustee must comply with the requirements of the
regulations in relation to the payment of commission or brokerage in
respect of:
[...]
(2) The FHSA trustee is guilty of an offence if the trustee contravenes
subsection (1).
.3 Where an obligation only applies to a trustee of a fund that is not a
public offer superannuation fund -- including a self managed
superannuation fund, a non public offer superannuation fund and an
exempt public sector superannuation fund -- these obligations will not
79
apply to an FHSA trustee. These provisions, subsections or paragraphs
will be automatically excluded by this application rule, and no further
rules are needed to deal with these cases.
.1
Paragraph 35A(1)(c) requires trustees of self managed superannuation
funds to keep accounting records and audit the fund in specific ways.
These requirements do not apply to a trustee of a public offer
superannuation fund, and so will be automatically excluded by the
basic application provision.
Applying this rule, subsection 35A(1) will contain these requirements:
(1) [The] FHSA trustee must ensure that:
(a) accounting records that correctly record and explain the
transactions and financial position of the [FHSA trust] are kept;
and
(b) the accounts of the [FHSA trust] are kept in a way that enables
the preparation of reporting documents referred to in section 13 of
the Financial Sector (Collection of Data) Act 2001; and
(d) the accounting records of the [FHSA trust] are kept in a way
that enables those accounts, statements and returns to be
conveniently and properly audited in accordance with this Act.
.2
Section 104A requires trustees of self managed superannuation funds
to sign a declaration.
As this requirement does not apply to the trustee of a public offer
superannuation fund, this requirement will not apply to an FHSA
trustee. Applying this rule, section 104A will be automatically
excluded.
First Home Saver Account trusts
.4 Under the second application rule, all the obligations and
requirements that apply in relation to a public offer superannuation fund
will apply in relation to FHSA trusts, and persons that have obligations,
functions or powers in relation to FHSA trusts. [Paragraph 114(2)(b)]
.5 Where an obligation applies to all superannuation entities, this
obligation will apply to FHSA trusts.
.1
Section 52 inserts certain provisions into the governing rules of all
`superannuation entities'. Subsection 52(1) provides:
`(1) If the governing rules of a superannuation entity do not contain
covenants to the effect of the covenants set out in subsection (2), those
governing rules are taken to contain covenants to that effect.'
As the term `superannuation entities' includes a `public offer
superannuation fund, this requirement will apply to an FHSA trust.
Applying this rule, subsection 52(1) becomes:
(1) If the governing rules of an FHSA trust do not contain covenants
to the effect of the covenants set out in subsection (2), those governing
rules are taken to contain covenants to that effect.
.2
Section 129 requires approved auditors and actuaries of a
superannuation entity to report certain breaches to APRA.
Subsection 129(1) provides:
`(1) This section applies to a person in relation to a superannuation
entity if:
(a) the person forms the opinion that it is likely that a
contravention of any of the following may have occurred, may be
occurring, or may occur, in relation to the entity:'
As the term `superannuation entity' includes a `public offer
superannuation fund', this obligation will apply to auditors and
actuaries of FHSA trusts. Applying this rule, subsection 129(1)
becomes:
(1) This section applies to a person in relation to an FHSA trust if:
(a) the person forms the opinion that it is likely that a
contravention of any of the following may have occurred, may be
occurring, or may occur, in relation to the FHSA trust:
.3
Section 257 enables APRA to require the trustee to appoint a person to
investigate the financial circumstances of the fund. Subsection 257(1)
provides, in part:
81
`(1) APRA may, by written notice given to a trustee of a
superannuation entity, require the trustee, or the trustees, of the
entity to appoint an individual, or a committee of individuals, to:
(a) carry out an investigation of the whole or a specified part of
the financial position of the entity as at a specified time or in
relation to a specified period;'
As the term `entity' in paragraph (a) includes a `public offer
superannuation fund', APRA's power to require an investigation
would apply in relation to the financial position of the FHSA trust.
Applying this rule, subsection 257(1) will provide, in part:
(1) APRA may, by written notice given to an FHSA trustee, require
the trustee to appoint an individual, or a committee of individuals, to:
(a) carry out an investigation of the whole or a specified part of
the financial position of the FHSA trust as at a specified time or
in relation to a specified period;
.6 Where an obligation only applies in relation to funds other than a
public offer superannuation fund -- including a self managed
superannuation fund, a non public offer superannuation fund or an exempt
public sector superannuation fund -- these obligations will not apply in
relation to an FHSA trust. These provisions, subsections or paragraphs
will be automatically excluded by this application rule.
.1
Section 129 requires the auditor or actuary of a superannuation fund to
provide information to the Regulator in specified ways, if the person
forms the opinion that a breach may have occurred, may be occurring,
or may occur. Subsection 129(3) provides, in part:
`(3) Subject to subsection (3A), the person must, immediately after
forming the opinion:
(a) tell a trustee of the entity about the matter in writing; and
(b) if the superannuation entity is not a self managed
superannuation fund [...] -- tell the Regulator about the matter in
writing; and
(c) if the superannuation entity is a self managed
superannuation fund [...] -- tell the Regulator about the matter in
the approved form.'
As the term `self managed superannuation fund' does not include a
`public offer superannuation fund', the requirement in paragraph (c) is
not relevant for FHSA trusts and will be automatically excluded.
Applying this rule, subsection 129(3) becomes:
(3) Subject to subsection (3A), the person must, immediately after
forming the opinion:
(a) tell an FHSA trustee about the matter in writing; and
(b) tell the Regulator about the matter in writing;
Holder of a First Home Saver Account
.7 Under the third application rule, all the requirements that apply in
relation to members or beneficiaries of public offer superannuation funds
will apply in relation to holders of FHSAs. [Paragraph 114(2)(c)]
.1
Section 105 requires trustees of regulated superannuation funds to
keep members and beneficiaries reports for at least 10 years. Members
and beneficiaries reports are defined as a report given:
(b)(i) in the case of a regulated superannuation fund--to all
members of the fund, or to all members included in a particular
class of members;
By applying this rule, the requirements relating to members of a
superannuation fund will be a requirement relating to holders of an
FHSA. The definition of a `member or beneficiary report' becomes a
report given:
(b)(i) in the case of an FHSA trust--to all FHSA holders, or to all
FHSA holders included in a particular class of FHSA holders;
Interest in a First Home Saver Account trust
.8 Under the fourth application rule, all the requirements that apply in
relation to an interest in a public offer superannuation fund will apply in
relation to an interest in an FHSA trust. [Paragraph 114(2)(d)]
.1
Section 152 prohibits the issuing of an interest in a public offer entity
unless the trustee and the fund satisfy certain criteria.
Subsection 152(1) applies to conduct including:
(a) issuing superannuation interests in a public offer entity;
83
By applying this rule, the requirements relating to issuing
`superannuation interests' will apply to the issue of an interest in an
FHSA trust. Subsection 152(1) will apply to conduct including:
(a) issuing interests in an FHSA trust;
Disapplication provision
.9 Section 115 disapplies particular sections of the SIS Act so that these
sections do not apply in the FHSA Bill 2008.
.10 Some provisions of the SIS Act should not be applied to FHSAs,
because the concepts, regulations or procedures in those provisions are
only relevant under the superannuation framework.
.11 For some other matters, such as trustees' obligations in relation to
FHSA holders' tax file numbers (TFNs), the FHSA Bill 2008 contains
specific rules which would overlap with SIS Act rules. In relation to other
matters, such as investments in instalment warrants, the Government has
determined that the current rules in the superannuation regulation
framework should not apply to FHSA trusts.
.12 Where these sections would otherwise be `caught' by the basic
application provision, section 115 is used to disapply these sections from
the prudential framework that is applied to FHSAs. Where these sections
are automatically excluded under the basic application rule, because they
do not apply to a public offer superannuation fund or a trustee of such
funds, there is no need to also disapply these concepts or requirements
using section 115.
.13 The provisions of the SIS Act that will not apply are as follows.
Provisions of the Explanation
Superannuation Industry
(Supervision) Act 1993
that will not apply
Sections 1 to 4 Matters that are dealt with under these sections
[paragraph 115(a)] are dealt with by Part 1 of the FHSA Bill 2008.
Section 10A This section defines interdependency for the
[paragraph 115(a)] purposes of determining release of
superannuation benefits. As there is no early
release of FHSA benefits unless the benefits are
first transferred to superannuation, this definition
is not necessary. To avoid confusion or
unintended consequences, this section will not
apply.
Provisions of the Explanation
Superannuation Industry
(Supervision) Act 1993
that will not apply
Parts 2A and 2B Parts 2A and 2B relate to licensing of trustees
[paragraph 115(b)] and registration of superannuation entities
respectively.
Trustees are separately authorised under
Division 1, Part 7 of the FHSA Bill 2008, after
already having met the requirements of Part 2A
of the SIS Act. Therefore, Part 2A is not
necessary.
Trustees are not required to register their FHSA
trusts, therefore Part 2B will not apply (trustees
are required to notify APRA when they establish
a new trust under subsection 254(1) of the
SIS Act, as it applies under the FHSA Bill
2008).
Part 3 [paragraph 115(b)] Part 3 relates to operating standards. APRA will
have the power to create prudential standards
that apply to FHSA trusts and their trustees. To
avoid duplication and complexity, there will be
no operating standards under the FHSA
Bill 2008.
Part 5 [paragraph 115(c)] Part 5 relates to complying fund status. There
will be no requirement for FHSA trusts to
maintain a complying fund status.
Section 54 Section 54 relates to approved deposit funds and
[paragraph 115(d)] is not relevant for FHSA trusts.
Section 55A and Section 55A and subsection 59(1A) relate to
subsection 59(1A) cashing out benefits after a member's death. It
[paragraph 115(d)] is intended that general trust law and estate law
will govern the payment of benefits after a
member's death, rather than make specific rules
on this issue. As such section 55A and
subsection 59(1A) will not apply.
85
Provisions of the Explanation
Superannuation Industry
(Supervision) Act 1993
that will not apply
Part 7 (except for Some provisions in Part 7 will not apply. This is
sections 65 and 66, because these provisions of Part 7 relate to
subsections 67(1), (2), (3) superannuation-specific requirements, and these
and (7) and section 68) are not relevant for FHSAs.
[paragraph 115(e)]
Only sections 65 and 66, subsections 67(1), (2),
(3) and (7) and section 68 will apply.
Section 65 prohibits lending to members of the
fund.
Section 66 prohibits trustees from acquiring
certain assets from members of the fund.
Section 67 prohibits trustees from borrowing,
subject to certain exceptions. The exception
relating to instalment warrants, in subsection
67(4A), will not apply as FHSA trustees will not
be permitted to invest in instalment warrants.
Section 68 prohibits victimising trustees that are
trustees of employer-sponsored funds. If a
trustee of an FHSA trust is also trustee of an
employer-sponsored fund, it is still necessary to
protect the trustee from victimisation under the
FHSA Bill 2008.
Part 8 (except for Some provisions of Part 8, which relates to
sections 69, 70B, 70C, in-house assets, will not apply to FHSA trusts.
70D, 70E, 71D, 71E, 73, The provisions that will not apply are historical
75, 83, 84 and 85; and or transitional provisions, and have no current
section 71) application. As such, these `spent' provisions
However, have been disapplied.
paragraph 71(1)(c) will not All other relevant provisions of Part 8 will apply,
apply as these provisions establish the prohibition
[paragraph 115(f)] against acquiring in-house assets and certain
exemptions from this prohibition.
For example, section 71 defines in-house assets,
section 75 provides the formula for calculating
the level of in-house assets and section 83
establishes the maximum level of new in-house
assets that a fund can hold. These provisions are
relevant where an FHSA trust holds an asset that
would be an in-house asset.
Paragraph 71(1)(c) will not apply, as it relates to
superannuation funds investing through pooled
superannuation trusts. As an FHSA trust is not a
superannuation fund, trustees of FHSA trusts
will not be able to invest through pooled
Provisions of the Explanation
Superannuation Industry
(Supervision) Act 1993
that will not apply
superannuation trusts. To avoid doubt, this
paragraph will not apply to FHSA trusts.
Part 9 [paragraph 115(g)] Part 9, which establishes equal representation
rules for trustees of employer-sponsored fund,
will not apply. If an FHSA trustee is also a
trustee of an employer-sponsored fund, the rules
under Part 9 would already apply under the
SIS Act, and it is not necessary to replicate these
rules under the FHSA Bill 2008.
Parts 10 and 11 Part 10, containing provisions that only apply to
[paragraph 115(g)] approved deposit funds, and Part 11, containing
provisions that only apply to pooled
superannuation trusts, will not apply. Neither
Part is relevant for FHSA trusts.
Sections 104, 107, 108 of Section 104 imposes the requirement to maintain
Part 12 and sections 117 records of change of trustees. Sections 107 and
and 118 of Part 14 108 establish rules for appointing member
[paragraph 115(h)] representatives and independent directors to
trustees of employer-sponsored funds.
Section 118 requires all individuals who are
appointed as a trustee to consent to the
appointment.
As these requirements already apply to trustees
under the SIS Act, there is no need to replicate
these requirements under the FHSA Bill 2008.
Section 117 establishes when amounts may be
paid out of an employer-sponsored fund to an
employer-sponsor. As FHSA trusts will not
have employer sponsors, this section is not
relevant for FHSA trusts.
Parts 24 and 24A Part 24 establishes a facility for superannuation
[paragraph 115(i)] funds to pay benefits to eligible rollover funds.
As FHSAs are not superannuation products,
eligible rollover funds will not be able to accept
payment of benefit from an FHSA trust without
breaching the sole purpose test.
Part 24A establishes transitional arrangements
for payment into eligible rollover funds and has
no meaning in relation to FHSA trusts.
87
Provisions of the Explanation
Superannuation Industry
(Supervision) Act 1993
that will not apply
Part 24B [paragraph 115(i)] Part 24B establishes a regulatory framework for
small APRA funds, and has no meaning in
relation to FHSA trusts that are subject to the
same regulatory framework as public offer
superannuation funds.
Part 25A Part 25A, which contains provisions in relation
[paragraph 115(i)] to TFNs, will not apply because the FHSA
Bill 2008 applies common requirements relating
to TFNs to all FHSA providers.
Sections 337A, 342, 349, Section 337A requires trustees to give effect to
349A and 353 of Part 30 arbitration agreements.
[paragraph 115(j)]
Section 342 creates transitional arrangements for
pre-1998 funding credits and debits.
Section 349 provides that `this Act and
regulations' are subject to superannuation
orders, which allow the Government to recover
superannuation benefits where an individual has
been charged with a fraud offence.
These sections are not relevant for FHSAs.
Section 349A establishes that superannuation
benefits are subject to the Bankruptcy Act 1966,
and section 353 enables the Governor-General to
make regulations under `this Act'. As the FHSA
Bill 2008 already contains provisions that allows
payment out of FHSAs in accordance with the
Bankruptcy Act 1966 and allows the
Governor-General regulation-making powers,
these provisions are not necessary.
Part 32 [paragraph 115(k)] Part 32 creates transitional arrangements in
relation to TFNs, which is not relevant for
FHSAs opened on or after 2008.
Modification provision
.1 Section 116 modifies references and concepts in the SIS Act so that
they become references and concepts that are relevant for the FHSA Bill
2008.
.2 While the basic application provision applies the SIS Act
requirements to the equivalent persons or entities under the FHSA Bill
2008, references within the SIS Act to requirements, functions or duties
imposed by other sections of the SIS Act or by the Superannuation
Industry (Supervision) Regulations 1994 (SIS Regulations) are not
affected by the application provision, and so will still refer to the
requirements, functions or duties under the SIS Act or the
SIS Regulations.
.3 For provisions of the SIS Act that apply in accordance with sections
114 and 115, these modification rules will ensure these provisions apply
correctly. In the following paragraphs and examples, the term `FHSA
Act' is used to explain how the modification rules would operate if the
FHSA Bill 2008 is passed and comes into force. Likewise, the term
`FHSA Regulations' is used to explain how the modification rules would
operate in relation to the regulations that are proposed to be made under
the FHSA Bill 2008, if the FHSA Bill 2008 is passed and comes into
force.
2 The first modification rule ensures that references to the
SIS Act become references to the `FHSA Act'
[paragraph 116(a)].
3 The second modification rule ensures that references to the
SIS Regulations become references to the `FHSA
Regulations' [paragraph 116(b)].
4 The third modification rule ensures that references to a
calendar year become references to a financial year
[paragraph 116(c)].
.1 In addition, APRA will have the power to make prudential standards
in relation to the FHSA trusts [sections 121 and 122]. Some modification
rules ensure that prudential standards are reflected in the regulatory
framework, and breaches of prudential standards will be enforceable
under the regulatory framework.
5 The fourth modification rule ensures that breaches of
prudential standards will be enforced in the same way as
breaches of the `FHSA Act' [paragraph 116(d)];
6 The fifth modification rule ensures that conduct (including
functions and powers) that are required or authorised by, or
otherwise performed in connection with, the prudential
standards are treated in the same way as conduct (including
functions and powers) that are required or authorised by, or
otherwise performed in connection with the `FHSA Act'
[paragraph 116(e)].
89
References to `this Act'
.1 Without modification, references to `this Act', as they apply under the
basic application provision, will still refer to the SIS Act. As such, the
first modification rule changes these references so that they refer to the
`FHSA Act'. [Paragraph 116(a)]
.2 Under this modification rule, all references to persons or entities
performing their functions or duties under or in accordance with `this Act'
will refer to performance of functions or duties under or in accordance
with the `FHSA Act'. Likewise, all references to breaches of `this Act'
will refer to breaches of the `FHSA Act'.
.1
Section 35A requires trustees to keep accounts of the fund in specific
ways. Paragraph 35A(1)(d) requires trustees to ensure that:
(d) the accounting records of the FHSA trust are kept in a way that
enables those accounts, statements and returns to be conveniently and
properly audited in accordance with this Act.
Without modification, the reference `this Act' still refers to the
SIS Act. By applying this modification rule, `this Act' will refer to the
`FHSA Act' and paragraph 35A(1)(d) will require trustees to ensure
that:
(d) the accounting records of the FHSA trust are kept in a way that
enables those accounts, statements and returns to be conveniently and
properly audited in accordance with the `FHSA Act'.
.2
Section 131A allows the Regulator to refer matters to professional
associations of auditors or actuaries, where specific triggers are met.
Paragraph 131A(1)(d) allows the Regulator to refer matters where the
Regulator is of the opinion that the approved auditor or actuary:
(d) is otherwise not a fit and proper person to be an approved auditor
or an actuary for the purposes of this Act.
By applying this modification rule, the reference `this Act' will
become a reference to the `FHSA Act' and paragraph 131A(1)(d) will
allow the Regulator to refer matters where the Regulator is of the
opinion that the approved auditor or actuary:
(d) is otherwise not a fit and proper person to be an approved auditor
or an actuary for the purposes of the `FHSA Act'.
References to `the Regulations'
.3 Without modification, references to `the regulations', as it is applied
under the basic application provision, will still refer to the
SIS Regulations. As such, the second modification rule changes these
references so that they refer to the `FHSA Regulations'. [Paragraph 116(b)]
.1
Section 301 provides a definition of `SIS officer' as:
a person exercising powers or performing functions under or in
relation to this Act or the regulations.
By applying the first and second modification rules, `this Act' will
become a reference to the `FHSA Act' and `the regulations' will
become a reference to `FHSA Regulations'. The definition will
become:
a person exercising powers or performing functions under or in
relation to the `FHSA Act' or the `FHSA Regulations'.
Also refer to the fourth and fifth modification rules.
Reference to `year of income'
.4 Under the third modification rule, references to a `year of income' in
the SIS Act will be treated as references to a `financial year', as this
ensures trustees will comply with audit and accounting requirements, as
well as requirements relating to in-house assets, in accordance with the
financial year. [Paragraph 116(c)]
Other modification rules
.5 The fourth and fifth modification rules relate to APRA's power to
determine prudential standards that apply to trustees that are FHSA
providers. [Paragraphs 116(d) and (e)]
.6 APRA's power to make prudential standards in relation to FHSA
trusts and trustees, and the modifications that ensure the prudential
standards become part of the regulatory framework for FHSA trusts and
trustees, are explained below.
Prudential standards in relation to trustees and related modifications
.7 APRA will have the power to make prudential standards in relation to
FHSA trusts [section 121]. This enables APRA to apply consistent
91
prudential standards to FHSA providers, where necessary. Prudential
standards made under this Division would only apply to the FHSA trusts
operated by an FHSA provider and not to their superannuation entities.
.8 Prudential standards assist to improve the clarity and certainty of
prudential regulation by providing additional detail on prudential matters
set out in the enabling legislation. Currently, standards complement and
reinforce the prudential requirements set out in the Banking Act 1959,
Insurance Act 1973 and Life Insurance Act 1995 by specifying how the
regulatory framework is intended to operate in practice and APRA's
expectations in overseeing that framework. Standards enable key
minimum requirements to be articulated at a level of detail that would not
be appropriate within principles-based, enabling legislation.
.9 Standards introduce greater flexibility into the prudential framework
as they can be more readily adjusted over time to respond to developments
in both domestic and international conditions, industry best practice and
broader structural changes in the market. This enhances the effectiveness
of prudential regulation by ensuring that regulation remains relevant over
time.
.10 APRA will have the flexibility to make, vary or revoke prudential
standards that apply to a single trustee that is an FHSA provider, a class of
trustees that are FHSA providers or all trustees that are FHSA providers.
This flexibility allows APRA to make discretionary decisions under its
prudential standards, including discretions to approve, impose, adjust or
exclude specific prudential requirements in relation to one or more
specified trustees that are FHSA providers. [Subsections 121(1), (2) and (4)]
.11 A prudential standard must be consistent with the `FHSA Act', the
`FHSA Regulations' and the Financial Sector (Collection of Data)
Act 2001. [Subsection 121(3)]
.12 Generally, prudential standards that do not apply to one or more
specified trustees are legislative instruments, and are therefore subject to
the requirements of the Legislative Instruments Act 2003. This Act
requires prudential standards that are legislative instruments to be
registered on the Federal Register of Legislative Instruments.
[Subsection 121(8)]
.13 However, a standard, variation or revocation of the standard that
applies to one or more specified trustees is not a legislative instrument for
the purposes of section 5 of the Legislative Instruments Act 2003. This is
because it is an administrative decision that applies the law to an entity
and not to a class of entities, it does not create an exemption from the
requirements of the Legislative Instruments Act 2003. [Subsection 121(7)]
.14 APRAs decisions in relation to a standard, variation or revocation of
the standard that applies to one or more specified trustees that are FHSA
providers are subject to merits review. [Section 74]
.15 The modification rules in sections 116 and 117 modify the prudential
framework that applies to trustees that are FHSA providers, by specifying
how the new prudential standards will apply to these trustees and how
breaches of these prudential standards will be enforced. These are
explained below.
`conduct (including an omission) that is inconsistent with the prudential
standards'
.16 Under the fourth modification rule in section 116, a breach of
prudential standards made under section 121 will be enforced in the same
way as a breach of the FHSA Bill 2008. Other conduct contrary to
prudential standards will also be treated in the same way as conduct
contrary to the FHSA Bill 2008. [Paragraph 116(d)]
.17 This modification rule ensures that if a person fails to fulfil any
functions or duties imposed under the prudential standards, or breaches a
requirement in the prudential standards, the failure or breach can be
enforced in the same way as breaches of the FHSA Bill 2008. In effect,
all provisions that refer to breaches of the `FHSA Act' or circumstances
inconsistent with the `FHSA Act' will refer to breaches of the `FHSA Act'
and prudential standards, or circumstances inconsistent with the `FHSA
Act' and prudential standards.
.1
Paragraph 131A(1)(a) enables the Regulator to refer matters to
professional associations where the Regulator is of the opinion that the
approved auditor or actuary has failed to carry out or perform
adequately and properly:
(i) the duties of an auditor or an actuary under this Act or the
regulations;
Applying this modification rule, if a person failed to perform their
functions under the prudential standards, it would be treated in the
same way as a breach of the `FHSA Act'. In effect,
paragraph 131(1)(a) would allow the Regulator to refer matters where
the Regulator is of the opinion that an approved auditor or actuary has
failed to carry out or perform adequately and properly:
(i) the duties of an auditor or an actuary under the `FHSA Act', the
prudential standards or the `FHSA Regulations';
93
`conduct (including an omission) that is required or authorised by, or
otherwise performed in connection with, the prudential standards'
.18 Under the fifth modification rule, functions, obligations and powers
imposed by prudential standards will apply to persons and entities in the
same way as functions, obligations and powers imposed by the FHSA Bill
2008. Likewise, where a prudential standard authorises or permits
particular conduct, this will apply as though the conduct is authorised or
permitted by the FHSA Bill 2008.
.19 The concept `conduct (including an omission) that is required or
authorised by, or otherwise performed in connection with, the prudential
standards' is a broad one, which includes all provisions that refer to
persons or entities' functions, duties and powers. It includes provisions
that enable (but do not require) a person to take action, such as:
7 an auditor or actuary may report certain information to
APRA under section 130 of the SIS Act;
8 APRA may accept enforceable undertakings in connection
with a matter that is related to APRA's functions and powers
under section 262A of the SIS Act; and
9 a person or an entity that takes action in accordance with the
prudential standards, the entity would not be liable in civil
proceedings under section 341 of the SIS Act and section 127
of the FHSA Bill 2008.
Additional references to prudential standards
.1 Other provisions of the SIS Act, when applied to FHSAs, should also
refer to prudential standards. Section 117 makes the following
modifications to the SIS Act.
.2 The first modification inserts a reference to `prudential standards' in
paragraph 130A(a), so that the section will relevantly read, the auditor or
actuary of an FHSA trust may give to the Regulator information about the
FHSA trust or a trustee of the FHSA trust obtained in the course of, or in
connection with, the performance by the person of audit or actuarial
functions under the `FHSA Act' and the prudential standards. [Subsection
117(2)]
.3 The second modification inserts a new paragraph 133(1)(d), referring
to the prudential standards, so that the section will relevantly read, the
Regulator may suspend or remove a trustee of an FHSA trust, if the
trustee has breached a prudential standard or the trustee's authorisation as
an FHSA provider has been cancelled. [Subsection 117(3)]
.4 The third modification inserts a new paragraph 135(1)(ca), referring to
the prudential standards, so that the section will relevantly read, the
Regulator may determine the terms and conditions of the appointment of
the acting trustee, despite anything in the prudential standards. [Subsection
117(4)]
.5 The fourth modification inserts a reference to `prudential standards' in
paragraph 139(b), so that the section will relevantly read, while a person is
acting as a trustee under Part 17 of the SIS Act (as it applies in the `FHSA
Act'), the entity's governing rules, the `FHSA Act', the prudential
standards, the `FHSA Regulations' and any other law apply in relation to
the person as if the person were the trustee. [Subsection 117(5)]
.6 The fifth modification inserts a reference to `prudential standards' in
subsection 320(1), so that the section will relevantly read, the Regulator
may intervene in any proceeding relating to a matter arising under the
`FHSA Act' or the prudential standards. [Subsection 117(6)]
.7 The last modification inserts a reference to `prudential standards' in
section 341, so that the section will relevantly read, a person is not liable
in civil action or civil proceedings in relation to an act done in fulfilment
of an obligation imposed by the `FHSA Act', the prudential standards or
the `FHSA Regulations'. [Subsection 117(7)]
Capital requirements for custodians
.8 Section 118 modifies the capital requirement for custodians of FHSA
trusts, to ensure that the custodian's approved guarantee can also cover
their activities as custodian of FHSA trusts. This mirrors the
modifications to trustee's capital requirements in subsections 93(3) and
(4).
.9 A custodian would satisfy its capital requirements under
paragraph 123(1)(b) of the SIS Act (as it applies under subsection 114(2))
if it has an approved guarantee of $5 million [Regulation 13.19 of the
SIS Regulations] and the trustee of the FHSA trust is also entitled to the
benefit of the approved guarantee in relation to the custodian's FHSA
activities.
.10 In effect, the custodian would be required to amend its deed of
approved guarantee to ensure that the guarantee also applies to its
activities as a custodian of FHSA trusts, but is not required to obtain an
additional amount under its approved guarantee. [Subsection 114(2) and
section 118]
Transfer of First Home Saver Account trusts
95
.11 Section 119 modifies the transfer of fund (or successor fund)
mechanism under the SIS Act, as it applies under subsection 114(2).
.12 An FHSA trust cannot be transferred to an approved deposit fund,
because an FHSA is not a superannuation product. [Subsection 114(2) and
paragraph 119(b)]
.13 The receiving FHSA trust must have a trustee that is also an
authorised FHSA provider. [Subsection 114(2) and paragraph 119(c)]
Other aspects of the prudential regulation framework for trustees
.14 Some other aspects of the prudential framework for FHSA trustees
are explained below.
Civil penalty provisions and criminal offences
.15 Part 21 of the SIS Act, and criminal offences in the SIS Act, apply to
FHSA trusts and their trustees in accordance with the basic application
rules in section 114 and modification rules in section 116.
.16 If these provisions are not automatically excluded by the rules in
section 114 or disapplied by section 115, they would continue to be a civil
penalty provision or a provision carrying a criminal offence in relation to
the FHSA Bill 2008.
.17 In effect, a contravention civil penalty provisions would entail the
consequences of breaching a civil penalty provision under Part 21 of the
SIS Act, as it applies in the FHSA Bill 2008; and trustees and other
persons can commit an offence if they breach a provision of the SIS Act,
as it applies in the FHSA Bill 2008, and the provision carries an offence.
Review of decisions
.18 The definition of `reviewable decision' and review procedures in
sections 10, 344 and 355 of the SIS Act apply to FHSA trusts and their
trustees, in accordance with the basic application rules in section 114 and
the modification rules in section 116. As such, if these provisions are not
automatically excluded by section 114 or disapplied by section 115,
APRA continues to be able to make decisions in relation to the FHSA
Bill 2008 and these decisions continue to be subject to review.
.19 APRA's decisions in relation to authorisation and prudential
standards that apply to specified trustees are not listed in the definition of
`reviewable decisions' in section 10 of the SIS Act. These decisions are
subject to review under Subdivision 4, Division 2A of Part 5. The review
procedures for these decisions are consistent with the review procedures
under the SIS Act.
.20 Arrangements for the review of decisions made by the Commissioner
of Taxation are outlined in Chapter 8.
Disqualification
.21 Parts 15 and 16 of the SIS Act apply to trustees of FHSA trusts, their
responsible persons, as well as auditors, actuaries, custodians and
investment managers of FHSA trusts.
.22 Individuals and bodies corporate may be disqualified under these
Parts, in accordance with the basic application rules in section 114 and the
modification rules in section 116. These will be disqualifications under
the FHSA Bill 2008 rather than under the SIS Act.
.23 However, some disqualification criteria, in relation to personal or
corporate bankruptcy and conviction for an offence in respect of dishonest
conduct, will be common under the FHSA Bill 2008 and the SIS Act. As
such, an individual or body corporate disqualified because of bankruptcy
or conviction for such an offence will be disqualified under both the
FHSA Bill 2008 and the SIS Act.
.24 A disqualification under the FHSA Bill 2008 carries consequences for
the disqualified person. For example, an individual commits an offence if
the individual acts as a responsible person of a trustee, investment
manager or custodian while disqualified [section 126K of the SIS Act, as it
applies under subsection 114(2)]; where a trustee becomes a disqualified
person, APRA may cancel its authorisation as an FHSA provider
[paragraph 107(2)(b)]; and a person that acts as the custodian or investment
manager of an FHSA trust while disqualified also commits an offence
[section 126 of the SIS Act, as it applies under subsection 114(2)].
Exemptions and modifications
.25 Part 29 applies to FHSA trusts and their trustees, in accordance with
the basic application rules in section 114 and modification rules in section
116. As such, APRA can determine exemptions and modifications in
relation to FHSA trusts and trustees under the FHSA Bill 2008
independently of exemptions and modifications determined under the
SIS Act.
Reporting under the Financial Sector (Collection of Data) Act 2001
.26 The Financial Sector (Collection of Data) Act 2001 requires an entity
that is a `body regulated by APRA', within the meaning of the APRA Act,
97
to report data in accordance with the Financial Sector (Collection of
Data) Act 2001. ADIs and life insurance companies are already bodies
regulated by APRA within the meaning of the APRA Act, and trustees of
FHSA trusts are also defined as a `body regulated by APRA' [Schedule 3,
item 6, FHSA (Consequential Amendments) Bill 2008]. As such, all FHSA
providers will be required to report data in accordance with reporting
standards determined under section 13 of the Financial Sector (Collection
of Data) Act 2001.
Investment management for investment-linked First Home Saver
Accounts
.27 Investment-linked FHSAs differ from other investment-linked
products generally offered by trustees and life insurance companies.
FHSAs are likely to be much shorter term investment products and have
less predictable withdrawal patterns. In addition, given that the purpose
of FHSAs is to save for a first home, account holders are likely to have a
greater aversion to risk and lower tolerance for capital losses, relative to
superannuation and life insurance customers.
.28 Principles-based investment rules will apply to investment-linked
FHSAs to ensure that FHSA investments reflect the purpose and nature of
the accounts. These rules will not apply to accounts that are offered by
banks, building societies and credit unions as these must be capital-
guaranteed and do not carry the same risks as investment-linked accounts.
First Home Saver Accounts offered by trustees
.29 The investment rules established under paragraph 52(2)(f) of the SIS
Act apply by reference to FHSA trusts operated by trustees in accordance
with subsection 114(2) [subsection 120(1)]. Additional investment rules
have also been imposed to reflect the purpose and nature of FHSAs.
.30 The investment rules require that the investment strategy has regard
to the entire circumstances of the entity. The trustee must have regard to
the risk of capital loss, the likely return from the underlying investments,
the liquidity requirements, and the ability to discharge financial liabilities.
.31 As FHSAs can be withdrawn within four financial years after
opening, they are likely to be much shorter term investment products than
superannuation. Unlike most superannuation accounts, FHSAs will
generally be less able to recover financial losses caused by short-term
market fluctuations prior to the savings being withdrawn for a first home
deposit. A new covenant, subparagraph 52(2)(f)(v), is inserted into the
SIS Act covenants as they apply to trustees in the FHSA Bill 2008,
requiring investment strategies to have regard to the risk of capital loss
given the relatively shorter term investment horizon of FHSAs as reflected
in the FHSA payment rules. [Subsection 120(3)]
.32 In having regard to the risk of capital losses, these requirements
should not prevent trustees from formulating investment strategies that
may be suited to individuals with a longer investment horizon than the
minimum contemplated by the payment rules, provided that strategies take
into account the possibility that savings could be withdrawn once the
minimum requirements are met.
Investment choice
.33 Providers may develop more than one investment option and allow
FHSA holders to choose between options. Providers offering FHSA
holders a choice between different investment options must formulate an
investment strategy for each option, in place of a single strategy for the
entity [subsection 120(2)], that separately complies with subparagraphs
52(2)(f)(i) to (v) of the SIS Act as it applies under subsection 114(2)
[subsection 120(4)]. As a consequence of these amendments, subsection
52(4) of the SIS Act becomes redundant and is omitted [subsection 120(5)].
.34 FHSA holders may choose between investment options formulated by
the FHSA provider in accordance with the investment rules. Where an
FHSA holder directs the trustee to adopt a particular investment option for
the FHSA holder's investments, the trustee is exempted from the
requirement not to be subject to direction. [Subsection 120(7)]
.35 In accordance with section 55 of the SIS Act, the trustee has a
defence to an action for loss or damage suffered by a person as a result of
an investment made by the trustee, if the investment is made in
accordance with paragraph 52(2)(f) of the SIS Act. For FHSAs this
defence is extended to loss or damage suffered by a person as a result of
an investment made by the trustee, if the investment is made in
accordance with paragraph 52(2)(fa) of the SIS Act as it applies under
subsection 114(2). [Subsection 120(6)]
Accounts offered by life insurance companies
.36 Further investment rules will apply to FHSAs that are offered as
investment-linked life policies in addition to those already in place for
statutory funds under the Life Insurance Act 1995. [Section 124]
.37 These additional investment rules apply only to life policies that are
offered as investment-linked contracts, within the meaning of section 14
of the Life Insurance Act 1995 [subsection 124(1)]. Balances of FHSAs
offered as investment account policies, by definition, cannot reduce in
value otherwise than by amounts withdrawn by the account holder or by
99
charges payable under the contract. Accordingly, they are not subject to
additional investment rules due to their low risk nature.
.38 Providers of investment-linked life policies must have regard to the
diversification of the class or group of assets underlying the policies
[paragraph 124(2)(a)]. Consideration of diversification both within and
among asset classes is important to manage the investment risk associated
with investment-linked accounts.
.39 Investment-linked life policies are required to have particular regard
to the risk of capital loss given the relatively shorter term investment
horizon of FHSAs. [Subparagraph 124(2)(b)(i)]
.40 The liquidity of the class or group of assets underlying
investment-linked life policies is required to have regard to the
unpredictability in cash flow of FHSAs. [Subparagraph 124(2)(b)(ii)]
.41 If an investment-linked life policy allows an account holder to choose
between different investment options, each option must conform with the
additional investment rules specified in section 124. [Subsection 124(3)]
Protection of small balances
.42 FHSA providers are required to ensure that fees do not exceed
investment earnings in any given year for accounts that have small
balances.
.43 The provisions are modelled on the `member protection' rules that
protect small superannuation balances from being eroded by fees and
charges outlined in the SIS Regulations.
.44 If an FHSA balance is less than $1,000 an FHSA provider must not
make a payment of fees if that payment would exceed the total earnings
for that FHSA for the period. [Subsection 125(1)]
.45 An FHSA provider is not required to limit fees if the:
10 FHSA holder consents in writing;
11 the fees are calculated based on the FHSA holder's units in
an FHSA trust; or
12 the FHSA is an FHSA policy issued by a life insurance
company.
[Subsection 125(2)]
.1 An FHSA provider is also not required to limit fees for the period if
the fees are apportioned based on the FHSA provider's total:
13 earnings for all FHSAs it provides; or
14 balances for all FHSAs it provides.
[Subsection 125(3)]
.1 FHSA providers are not able to avoid the small balance rules by
delaying fees until a subsequent period. For example, by charging fees in
a later period where the FHSA balance will have increased to above
$1,000.
.2 An FHSA provider commits an offence if it fails to comply with these
requirements. The penalty is up to 100 penalty units. [Subsection 125(1)]
.3 If an FHSA provider fails to comply with these rules, the fees paid are
still valid. [Subsection 125(4)]
101
· Chapter 6
Taxation
Outline of chapter
Schedule 1 to the First Home Saver Accounts (Consequential
Amendments) Bill 2008 (FHSA (Consequential Amendments) Bill 2008)
amends the Income Tax Assessment Act 1936 (ITAA 1936), the Income
Tax Assessment Act 1997 (ITAA 1997), the Taxation Administration
Act 1953 (TAA 1953) and the Income Tax Rates Act 1986 to establish the
tax treatment of First Home Saver Accounts (FHSAs), which has the
following main features:
· individual contributions to FHSAs are not taxed because they
can only be made out of post-tax income;
· Government contributions into accounts are not taxed;
· earnings on FHSAs are taxed to the account provider at the
statutory rate of 15 per cent rather than to the individual
account holders at their marginal income tax rates; and
· withdrawals to purchase a first home are not taxed and other
withdrawals are generally not taxed.
There is also a tax, called the FHSA misuse tax, which applies to
clawback benefits obtained by individual account holders who improperly
use the accounts. The tax is imposed by the Income Tax (First Home
Saver Accounts Misuse Tax) Bill 2008 (Income Tax (FHSA Misuse Tax)
Bill 2008).
Context
Under the existing law, where an individual invests money while
saving for a first home, the earnings on the investments are normally
assessable income of the individual investor and consequently taxed
according to the normal rate scale applying to the individual. The
amounts that an individual puts in (or contributes) to an investment such
as a bank account are, under ordinary income tax principles, normally
capital in character and not deductible. Similarly, the amounts that an
103
individual withdraws from a mere investment are also normally capital
receipts and, therefore, not assessable income.
The Government proposes that earnings on FHSAs be taxed in a
similar way to the earnings of superannuation funds. The earnings of
superannuation funds are generally taxed to the trustee of the fund at a rate
of 15 per cent. Authorised deposit-taking institutions (ADIs) and life
companies are currently taxed on a similar basis to superannuation funds
on their superannuation or retirement savings account business.
Current taxation of authorised deposit-taking institutions and life
companies
ADIs do not currently conduct superannuation business but may
provide retirement savings accounts, which are accounts that provide
benefits on retirement or death and that are treated, for various purposes,
similarly to superannuation funds. The earnings on the retirement savings
accounts that ADIs offer are taxed in a special way that has the object of
treating retirement savings account activities similarly to those of
superannuation funds. The retirement savings account earnings are
calculated separately from earnings from standard activities and taxed to
the ADI, instead of the retirement savings account holder, at 15 per cent.
The superannuation activities of life insurance companies are taxed
under special provisions that have the object of treating those activities in
a broadly comparable way to those of superannuation funds. The
complying superannuation class of taxable income is calculated separately
and taxed at 15 per cent. The special provisions segregate the assets of
the superannuation business from the other business of the life insurance
company through a feature called the virtual pooled superannuation trust
(virtual PST).
Summary of new law
Schedule 1 to the FHSA (Consequential Amendments) Bill 2008 sets
out the taxation treatment of FHSAs.
Individual contributions into accounts are only from post-tax income
and consequently are not taxed to the account provider. A Government
contribution for an individual account holder, is not assessable income
and is not exempt income.
The earnings on the account are not assessable income and are not
exempt income in the hands of the account holder. An amount withdrawn
from an FHSA to purchase a first home is also not assessable income of
Taxation
the individual account holder. Finally, an FHSA holder does not make
any capital gain or loss from a capital gains tax (CGT) event happening to
their interest in the account.
The earnings on FHSAs are taxed to FHSA providers at 15 per cent.
For each of the three types of providers -- trustees of FHSA trusts, ADIs
and life companies -- this is done by applying broadly the same rules that
currently apply to superannuation or retirement savings account activities.
Accordingly, the earnings of an FHSA trust are taxed similarly to those
of superannuation funds. The FHSA earnings of ADIs are taxed like their
earnings from retirement savings account activities. The FHSA earnings
of life companies are taxed like their superannuation earnings, on a
`virtual PST' basis.
Where an account holder does not meet conditions of eligibility,
withdrawal or occupancy of the home they purchase, a misuse tax applies
to ensure that they do not improperly benefit from their use of an FHSA.
The tax claws back Government contributions paid for their benefit. It
also includes a component that is designed to broadly neutralise the
maximum benefit they may have obtained from having the earnings of the
FHSA taxed at 15 per cent instead of at their own individual tax rates.
Detailed explanation of new law
Individual contributions into accounts
During the 2007 Federal election campaign it was proposed that
individuals would be able to contribute to FHSAs through `salary
sacrifice'; that is, by making pre-tax contributions. After the election the
Government formally approved the establishment of FHSAs. It also
decided to deliver a streamlined up-front Government contribution
directly into accounts rather than through a more complex system of
salary sacrificing. (The Treasurer's and Minister for Housing's joint
Press Release No. 004 of 4 February 2008; and the Treasurer's
Press Release No. 040 of 13 May 2008.)
All individual contributions are posttax. That is, an individual is not
able to reduce their income tax by making contributions to an FHSA
through salary sacrificing arrangements.
No amendment of the income tax law is necessary to produce this
result. The constructive receipt rule in subsection 6-5(4) of the
ITAA 1997 is designed to ensure that if an amount is applied or dealt with
in any way on an entity's behalf or at an entity's direction, the entity is
105
taken to have received the amount (ordinary principles of tax accounting
are not limited by subsection 6-5(4) and would ensure the same result).
This provision ensures that money paid to an individual's bank account (at
the individual's direction or on the individual's behalf) are treated as
received by the entity and therefore as ordinary income if the money is a
reward for employment. Similarly, if any money was paid to an FHSA
under a salary sacrifice agreement, they would be treated as received by
an entity and therefore as ordinary income.
Nor is any amendment to the fringe benefits tax law necessary. The
definition of fringe benefit in subsection 136(1) of the Fringe Benefits
Tax Assessment Act 1986 excludes (in paragraph (f)) `...a payment of
salary or wages...'. The definition of salary or wages includes a payment
from which an amount must be withheld under section 12-35 (payment to
an employee) of Schedule 1 to the TAA 1953. The pay as you go
(PAYG) withholding provisions include a constructive payment provision
(section 11-5) that corresponds to the constructive receipt rules in
Division 6 of the ITAA 1997. The result is that an amount paid by an
employer to an employee's FHSA as a reward for employment would be
subject to PAYG withholding and not be a fringe benefit -- even if it
purported to be by way of salary sacrifice.
Where the FHSA is a bank account or FHSA trust, individual
contributions are not assessable income in the hands of the account
provider. No amendment is needed to achieve this result. Under ordinary
principles the contributions are capital receipts.
For individual contributions where the FHSA is a life policy, the
existing law produces an equivalent result, so again no amendment is
needed. All premiums received by a life insurance company are included
in assessable income (paragraph 320-15(1)(a) of the ITAA 1997). In the
case of policies held in the life insurance company's virtual PST, this
amount of assessable income is allocated to the complying
superannuation/FHSA class of taxable income (paragraph 320-137(2)(a)).
However, for investment-type policies, a deduction is allowed for the
capital component of the premium. In the case of a policy that is held in
the life insurance company's virtual PST, the amount of the deduction is
equal to the amount of the premium that is transferred to the virtual PST,
less any risk component of that premium (section 320-55). This deduction
is allocated to the complying superannuation/FHSA class of taxable
income (paragraph 320-137(4)(a)).
Government contributions
As explained in Chapter 3 -- Government Contributions, the
Commissioner of Taxation (Commissioner) may pay a Government
Taxation
contribution to an individual's FHSA, to their interest in a complying
superannuation plan, to the individual themselves or to the individual's
legal personal representative. In all these cases the amount of the
contribution is neither assessable income nor exempt income of the
individual. [Schedule 1 to the FHSA (Consequential Amendments) Bill 2008,
item 31; subsection 345-50(3) of the ITAA 1997]
Government contributions are also not assessable income of an FHSA
provider. No specific provision is needed to produce this outcome
because the contributions are not ordinary income of the account provider.
Withdrawals
A payment from an FHSA is neither assessable income nor exempt
income of the individual account holder. The amount withdrawn is
essentially the accumulated capital of the account holder and, therefore,
not ordinary income. However, it is possible that the amount could be
assessable by virtue of a specific provision about assessable income
(eg section 26AH of the ITAA 1936, which is about bonuses and other
amounts received on certain short-term life insurance policies).
Consequently, a specific provision has been included to ensure that a
payment from an FHSA is non-assessable non-exempt income. [Schedule 1
to the FHSA (Consequential Amendments) Bill 2008, item 31; subsection 345-50(2) of
the ITAA 1997]
In some circumstances (eg, where the FHSA is in the form of an
interest in a trust), the withdrawal of money from an FHSA may involve a
CGT event. No capital gain or capital loss is brought to account in those
circumstances. To ensure that result, there is a specific rule that any
capital gain or loss which the holder of an FHSA makes from a CGT
event happening to the FHSA is disregarded. [Schedule 1 to the
FHSA (Consequential Amendments) Bill 2008, item 31; subsection 345-50(4)
of the ITAA 1997]
However, if the account holder has used an FHSA to obtain benefits to
which they were not properly entitled and an amount is paid from the
FHSA to the account holder, an FHSA misuse tax may apply (see
discussion of the FHSA misuse tax later in this chapter).
Payment from a First Home Saver Account contributed to
superannuation
A payment made from an FHSA as a contribution to a superannuation
fund is not assessable income of the recipient superannuation fund. The
amounts in an FHSA are all post-tax, so there is no justification to include
contributions from the FHSA in the superannuation fund's assessable
income. Also, any Government contributions paid directly to a
107
superannuation interest of the holder in a superannuation fund are not
assessable income of the superannuation fund. [Schedule 1 to the FHSA
(Consequential Amendments) Bill 2008, item 24; section 295-171 of the ITAA 1997]
A contribution from an FHSA to a superannuation fund is included in
an individual's non-concessional contributions (under section 292-90 of
the ITAA 1997). This follows automatically from excluding the
contributions from assessable income, so there is no need for further
amendment.
No deduction or tax offset is available to either the account holder or
the FHSA provider for a contribution from an FHSA to a superannuation
fund. The existing law may already achieve this result without
amendment, but Division 290 of the ITAA 1997 (contributions to
superannuation funds) is amended to put the matter beyond doubt.
[Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, item 22;
paragraphs 290-5(d) and (e) of the ITAA 1997]
Amounts contributed from FHSAs to superannuation funds are not
eligible for the superannuation co-contribution for low income earners.
These amounts may already have benefited from a Government
contribution, so it would not be appropriate for the individual to receive
another. The definition of eligible personal superannuation contribution
in the Superannuation (Government Co-Contribution for Low Income
Earners) Act 2003 is amended to exclude a payment made from an FHSA
as a contribution to a superannuation fund and any Government
contributions. [Schedule 3 to the FHSA (Consequential Amendments) Bill 2008,
item 37; section 7 of the Superannuation (Government Co-Contribution for Low
Income Earners) Act 2003]
Earnings
Earnings on FHSAs are taxed to the account provider at the statutory
rate of 15 per cent rather than to individual account holders at their
marginal income tax rates. Accordingly, an amount of earnings on an
FHSA is not assessable income and is not exempt income of the
individual account holder. [Schedule 1 to the FHSA (Consequential Amendments)
Bill 2008, item 31; subsection 345-50(1) of the ITAA 1997]
Each of the three types of account providers (FHSA trusts, ADIs and
life companies) has their own set of rules about taxation of earnings. The
provisions tax the earnings of an FHSA trust similarly to those of
superannuation funds. The FHSA earnings of ADIs are taxed like their
earnings from retirement savings account activities and the FHSA
earnings of life companies are taxed like their superannuation earnings, on
a virtual PST basis.
First Home Saver Accounts trusts
Taxation
The trustee of an FHSA trust is liable to pay income tax on the taxable
income of the trust. The tax payable is worked out under the core income
tax rules (section 4-10 of the ITAA 1997) making two assumptions.
[Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, item 31; subsections
345-5(1) and (2) of the ITAA 1997]
The first assumption is that the trust is an Australian resident.
Consequently, ordinary and statutory income from sources both within
and outside Australia are taken into account and any tax offsets dependent
on being an Australian resident are also taken into account.
The second assumption is that the trust is liable to pay income tax
(under the main liability provision in section 4-1 of the ITAA 1997) for
the financial year. Without this assumption it would be doubtful that the
core income tax rules could apply to work out the tax payable by a trustee
on the trust's taxable income -- a specific provision setting out how to
work out the liability would be needed. [Schedule 1 to the FHSA
(Consequential Amendments) Bill 2008, item 31; subsection 345-5(2) of the ITAA 1997]
This approach produces a similar result to the provisions for
superannuation entities but is more streamlined because, unlike
superannuation entities, there is only one component of taxable income.
[Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, item 31;
subsections 345-5(2) and (3) of the ITAA 1997]
In working out the FHSA trust's assessable income and deductions it is
necessary to take into account the special rules for FHSA trusts. The
gross tax payable on the taxable income is worked out by applying the
applicable rate, currently 15 per cent. The total tax offsets of the FHSA
trust are subtracted from the gross tax payable on the taxable income to
give the tax payable by the trustee. [Schedule 1 to the FHSA (Consequential
Amendments) Bill 2008, item 31; subsection 345-5(3) of the ITAA 1997]
There are far fewer special rules for FHSA trusts than there are for
superannuation funds. A major reason for this is that, unlike
superannuation funds, there are no assessable contributions to an FHSA.
However, there is an important special rule, which also applies in
calculating the liability of the trustee of a superannuation entity. The
capital gains and losses provisions are to be the primary code for
calculating gains and losses on CGT assets owned by the FHSA trust.
There are the same specified exceptions from the primary code as for
superannuation entities, which include foreign exchange gains or losses,
bank deposits, securities and loans. [Schedule 1 to the FHSA (Consequential
Amendments) Bill 2008, item 31; section 345-10 of the ITAA 1997]
A trustee of an FHSA trust is added to the list of entities in section 9-1
of the ITAA 1997 that work out their liability to pay income tax in a
109
special way. [Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, item
8; section 9-1 of the ITAA 1997]
Relationship with other trust provisions
The trustee of an FHSA trust is not liable to pay tax under the standard
trust rules in Division 6 of Part III of the ITAA 1936. Similarly, those
standard trust rules do not apply to include amounts in the assessable
income of an account holder that is a beneficiary of an FHSA trust. Also,
the trust loss rules in Schedule 2F to the ITAA 1936 do not apply to
FHSA trusts. [Schedule 1 to the FHSA (Consequential Amendments) Bill 2008,
items 4 and 7; sections 95AA and 272-100 of Schedule 2F to the ITAA 1936]
CGT discount
Assets held by an FHSA trust are eligible for the CGT discount of one
third. [Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, items 10 and
11; section 115-100 of the ITAA 1997]
Where an FHSA trust is a shareholder in a listed investment company
it will obtain a similar benefit to the discount capital gain (through a
deduction). [Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, items
12 to 16; section 115-280 of the ITAA 1997]
Dividend imputation
Subdivision 207-A outlines the effect of receiving a franked dividend
for most taxpayers (including complying superannuation funds). If the
Subdivision applies, the taxpayer must include the amount of the franking
credit in its assessable income and is entitled to a tax offset equal to the
amount of that franking credit (section 207-20).
Subdivision 207-B outlines the effect of receiving a franked dividend
for most trusts (other than complying superannuation funds) and
partnerships. If the Subdivision applies, franking credits essentially flow
through to the partners of the partnership or the beneficiary of the trust.
Subject to some specified exceptions, a tax offset available under
Division 207 is a refundable tax offset (section 67-25).
For an FHSA trust, amendments are necessary to ensure that
Subdivision 207-A applies and Subdivision 207-B does not. To
ensure that Subdivision 207-A applies, paragraph 207-15(2)(a) is
amended so that it covers the trustee of a trust that is an FHSA trust.
Paragraph 207-35(1)(c) and section 207-45 are amended so
Subdivision 207-B does not cover the trustee of a trust that is an FHSA
Taxation
trust. [Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, items 19 to 21;
paragraphs 207-15(2)(a) and 207-35(1)(c) and section 207-45 of the ITAA 1997]
Section 67-25 operates appropriately to make a tax offset available
under Division 207, a refundable tax offset.
Income Tax Rates Act 1986
The Income Tax Rates Act 1986 is amended so that the taxable income
of the FHSA trust is taxed at 15 per cent. [Schedule 1 to the FHSA
(Consequential Amendments) Bill 2008; item 52, section 30 of the Income Tax Rates
Act 1986]
Other amendments for First Home Saver Account trusts
To ensure that FHSA trusts receive treatment similar to superannuation
funds, there are also amendments to:
· the pooled development fund provisions [Schedule 1 to the
FHSA (Consequential Amendments) Bill 2008, item 5; section 124ZM of
the ITAA 1936];
· the tracing rules for tax losses of companies [Schedule 1 to the
FHSA (Consequential Amendments) Bill 2008, items 17 and 18;
section 166-245 of the ITAA 1997]; and
· the PAYG instalment provisions [Schedule 1 to the FHSA
(Consequential Amendments) Bill 2008, items 58 to 61;
subsections 45-120(2), 45-290(2), 45-330(2) and 45-370(2) in Schedule 1
to the TAA 1953].
Authorised deposit-taking institutions
FHSA activities of ADIs are to be taxed on a similar basis to
retirement savings account activities. The earnings on the retirement
savings accounts that ADIs offer are taxed in a special way that has the
object of treating retirement savings account activities similarly to those
of superannuation funds. The retirement savings account earnings are
calculated separately from earnings from standard activities (the
retirement savings account component of taxable income) and taxed to the
ADI, instead of the retirement savings account holder, at 15 per cent.
Similarly, an ADI that is an FHSA provider needs to calculate an
FHSA component of taxable income, to be taxed at 15 per cent. The
FHSA component is a separate component from the retirement savings
account component, although both are taxed at 15 per cent.
111
For an ADI that is a retirement savings account provider the method of
working out the liability of the retirement savings account provider is
modified to include the working out of the FHSA component (as well as
the retirement savings account and standard components). [Schedule 1 to the
FHSA (Consequential Amendments) Bill 2008, item 23; subsection 295-10(2) of the
ITAA 1997]
For an ADI that is an FHSA provider but not a retirement savings
account provider, the income tax liability is worked out by reference to its
taxable income under the core provision of the income tax law (Division 4
of the ITAA 1997). The ADI's taxable income has two components, the
FHSA component and standard component of taxable income. The gross
tax payable is calculated by applying the applicable tax rates from the
Income Tax Rates Act 1986. A 15 per cent rate is applied to the FHSA
component and the standard company tax rate (currently 30 per cent)
applied to the standard component. Finally the ADI's tax offsets are
subtracted from the gross tax payable to give the tax payable by the ADI.
[Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, item 31; section 345-
15 of the ITAA 1997]
Calculating the First Home Saver Account component
The method of calculating the FHSA component is similar to that for
calculating the retirement savings account component but is simpler
because there is no need to include any contributions in assessable income
(for FHSAs, contributions are not taxed to the provider because there are
only post-tax contributions). The object of this method is to work out the
net earnings of the FHSA account holders, so that they can be taxed at the
rate of 15 per cent. The calculation of the liability of the ADI on its
normal activities -- including investing the funds obtained from FHSAs
-- is done in the normal way.
The first step in working out the FHSA component is to add up all the
earnings (normally interest) credited to the FHSAs provided by the
provider during the year. It is then necessary to calculate total fees and
then subtract them from the total earnings to give the FHSA component.
Total fees are intended to cover any fee or charge that the account holder
must pay the ADI on the FHSA, whatever its description or form, but not
to cover taxes. The standard component is the remaining part to the
provider's taxable income. [Schedule 1 to the FHSA (Consequential
Amendments) Bill 2008, item 31; section 345-20 of the ITAA 1997]
The ADI's FHSA component cannot exceed its taxable income. If the
amount worked out would otherwise exceed the provider's taxable
income, the taxable income is equal to the FHSA component. Any excess
is treated as a tax loss of the ADI. An effect of this is that the FHSA
provider cannot offset losses against its FHSA income. [Schedule 1 to the
Taxation
FHSA (Consequential Amendments) Bill 2008, item 31; subsection 345-15(2) of the
ITAA 1997]
Consistent with the retirement savings account approach, ADIs do not
get a CGT discount in relation to their FHSA activities. No amendment is
needed to achieve this result. The gains and losses that ADIs make on
investments in the ordinary course of their banking business are on
revenue account.
Income Tax Rates Act 1986
The Income Tax Rates Act 1986 is amended so that the FHSA
component is taxed at 15 per cent. [Schedule 1 to the FHSA (Consequential
Amendments) Bill 2008, items 49 to 51; section 23 of the Income Tax Rates Act 1986]
Life insurance companies
The FHSA earnings of life companies are to be taxed like their
superannuation earnings, on a virtual PST basis. There is one virtual PST
for both superannuation and FHSA business. Earnings from both FHSA
activities and superannuation activities are to be taxed at 15 per cent. The
major objective of the virtual PST is to separate assets relating to the
activities taxed at 15 per cent from those taxed at normal company rates
(currently 30 per cent).
This approach avoids having to create a separate virtual PST for FHSA
activities but requires significant amendments to Division 320 (life
insurance companies) of the ITAA 1997. A separate virtual PST for
FHSA activities would have imposed high compliance costs on life
companies providing FHSAs. The approach does require numerous
changes in terminology in Division 320, including a change in the name
of the virtual PST (see detailed explanation under Consequential
amendments).
The substantive changes needed to various Subdivisions in Division
320 are described below. In Subdivision 320-E (No-TFN contributions of
life insurance companies that are retirement savings account providers),
Subdivision 320-H (Segregation of assets) and Subdivision 320-I
(Transfers of business), no substantive changes are needed, only changes
in terminology.
Subdivision 320-D -- income tax, taxable income and tax loss of life
insurance companies
The central provisions for working out a life insurance company's
liability are in Subdivision 320-D. These still operate in the same way.
However, the complying superannuation class of taxable income becomes
113
a single composite class -- complying superannuation/FHSA class. This
name reflects the two different types of activities that are covered by the
class.
Subdivision 320-F -- virtual PST
The key concept underlying the operation of the virtual PST rules in
the current Subdivision 320-F is the definition of virtual PST life
insurance policy in subsection 995-1(1). That definition is replaced by a
new definition, complying superannuation/FHSA life insurance policy,
which includes a life insurance policy that is an FHSA. This amendment
allows a life insurance company to segregate assets in its virtual PST
(renamed as the complying superannuation/FHSA asset pool) for the
purpose of discharging FHSA liabilities. [Schedule 7 to the FHSA
(Consequential Amendments) Bill 2008, item 28; subsection 320-170(6) of the
ITAA 1997]
Another key concept in the current Subdivision 320-F is the concept of
virtual PST liabilities in section 320-190. This section specifies the
amount of liabilities that can be supported by virtual PST assets. For most
types of life insurance policies, the amount of virtual PST liabilities is the
current termination values of those policies (as worked out by an actuary).
The current termination value is defined in subsection 995-1(1) by
referring to prudential standards. In practical terms, the current
termination value at a particular time is generally the amount standing in a
policy holder's account at that time, and therefore is appropriate for
FHSAs. The replacement of the definition of a `virtual PST life insurance
policy' and the consequent expansion of the concept of virtual PST allows
section 320-190 to apply without substantive amendment.
Subdivision 320-C -- Deductions and capital losses
An FHSA policy does not have an insurance (risk) component -- that
is, in the event of the policyholder's death, the amount payable to the
estate or beneficiary is limited to the balance in the FHSA. Consequently,
an amendment is necessary to ensure that no amount relating to an FHSA
policy is deductible under section 320-80 or 320-85, which specify the
deductibility of certain amounts relating to risk policies. This is achieved
by amending paragraph 320-80(2)(b) and subsection 320-85(2) to include
a reference to an FHSA policy. [Schedule 1 to the FHSA (Consequential
Amendments) Bill 2008, items 29 and 30; sections 320-80 and 320-85 ]
Otherwise, this Subdivision is able to continue to apply in the same
way, with necessary terminology changes.
Guide to Division 320
Taxation
Two amendments are required to the Guide. First, the dot point
relating to the taxable income of the complying superannuation class is
modified to reflect the new term for the composite class and to refer to
FHSA business. Second, the dot point relating to segregating assets that
relate to complying superannuation business is modified so that it also
refers to assets that relate to FHSA business.
CGT discount
Assets held in the virtual PST to meet FHSA liabilities are eligible for
the CGT discount of one third. No amendment is needed to achieve this
result. Paragraph 115-10(d) already accords a CGT discount treatment to
`...a *life insurance company in relation to a *discount capital gain from a
*CGT event in respect of a *CGT asset that is a*virtual PST asset.'.
Income Tax Rates Act 1986
Amendments to paragraph 23A(b) of the Income Tax Rates Act 1986
are needed to accurately describe the class of taxable income to be taxed
at 15 per cent.
Dividend imputation
Life companies are eligible for refundable imputation credits in
relation to their FHSA business and no amendments are needed to the
imputation provisions to achieve this result.
First Home Saver Accounts misuse tax
If an individual account holder improperly uses an FHSA and money is
paid from the FHSA to the individual for the purchase of a first home, the
individual is liable to pay a tax called the FHSA misuse tax. [Schedule 1 to
the FHSA (Consequential Amendments) Bill 2008, item 31; section 345-100 of the
ITAA 1997]
The Commissioner assesses the FHSA misuse tax. So, neither the
account holder nor the account provider is required to calculate it.
Purpose of the tax
The purpose of the tax is to deter people from improperly using FHSAs
by ensuring that individuals do not benefit in those circumstances.
Individuals can obtain two main benefits from improperly using an FHSA:
Government contributions and a lower rate of tax on earnings than their
normal individual marginal rate(s). The FHSA misuse tax is designed to:
115
· clawback all the Government contributions improperly
obtained; and
· neutralise the maximum benefit the individual may have
obtained from having earnings taxed at 15 per cent. This can
be greater than the actual benefit for an individual on less
than the top marginal tax rate.
Importantly, criminal or administrative penalties may also apply to the
individual subject to the FHSA misuse tax. For example, if an individual
made a false or misleading statement in applying to open an account or to
withdraw money from an account, they may commit an offence or be
liable to an administrative penalty under the TAA 1953. There is a range
of offences under the Criminal Code that could also apply.
Circumstances in which the tax applies
For the tax to apply, the account holder must withdraw money from
their FHSA on the basis that they are to use the money to purchase a first
home in Australia. The tax does not apply if the money is transferred
from the FHSA to superannuation, or paid in other specified
circumstances (eg, to another FHSA or because of family law
obligations). The rationale for the tax not applying to transfers to
superannuation is that if the individual had originally made their
contribution to superannuation by way of salary sacrifice instead of to an
FHSA they would, in most cases, have obtained similar or greater benefits
to that obtained under the FHSA. [Schedule 1 to the FHSA (Consequential
Amendments) Bill 2008, item 31; section 345-100]
Where there is a payment as described, the two types of improper use
that attract the tax are:
· failing eligibility conditions -- in this case the payment is
called an FHSA ineligibility payment; and
· failing payment conditions -- called FHSA payment
conditions, about the use of the payment or the occupancy of
the home purchased.
[Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, item 31;
section 345-100]
FHSA ineligibility payment
An individual account holder fails the eligibility conditions if they are
not eligible to open an account or if they become ineligible and do not
notify the account provider (and thus have the money transferred to
Taxation
superannuation). The eligibility conditions (discussed in Chapter 1) are
that the individual be aged at least 18 and under 65 years, not previously
have owned their home in Australia and (except in limited circumstances)
never held another FHSA. It is not intended that an individual fail the
eligibility conditions if, as part of the process of acquiring their first home,
they acquire a qualifying interest in a dwelling and move into it shortly
before receiving a payment from their FHSA. [First Home Saver Accounts Bill
2008 (FHSA Bill 2008), section 16]
FHSA payment conditions
The individual fails the FHSA payment conditions if, within
six months of the payment, the individual does not use an amount equal to
the payment in acquiring a qualifying interest in a dwelling. The
individual makes a declaration in the approved form when withdrawing
money about the purpose for which they will be used. Under the
approved form mechanism, the Commissioner has the power to ask for
evidence and further details about that usage. It is not necessary to trace
whether the actual payment is used to acquire the home. [FHSA Bill 2008,
section 17]
The individual also fails the FHSA payment conditions if they fail to
occupy the acquired dwelling as their main residence for a continuous
period of least six months starting within a designated period. For a
dwelling that is complete when the payment is made, the designated
period starts when the person acquires the dwelling (see Chapter 1 for a
discussion of when an individual acquires a qualifying interest in a
dwelling). For a dwelling that is not complete when the payment is made,
the period starts when the construction is complete. Whether a dwelling is
complete is a matter of evidence and a building completion certificate
(eg, a certificate of occupancy) would be relevant (and normally
sufficient) evidence. [FHSA Bill 2008, section 17]
The period ends 12 months after the period starts or at a later time that
the Commissioner considers reasonable in the circumstances. [FHSA Bill
2008, subsection 17(2)]
The individual also fails the FHSA payment conditions if they
withdrew the money to construct a dwelling and the construction is not
complete with a reasonable period after the payment is made. This
ensures that the individual cannot defeat the occupancy rules by delaying
the completion of their home. The FHSA payment conditions are
discussed in more detail in Chapter 2. [FHSA Bill 2008, subsection 17(1)]
Re-contributing an amount to an FHSA
117
An individual is treated as satisfying the FHSA payment conditions
even though they would otherwise fail the conditions if, within six months
of the payment, the individual contributes to an FHSA, an amount equal to
the payment or, if it is reasonable in the circumstances, a lesser reasonable
amount. In some circumstances it would be reasonable for the individual
not to re-contribute any amount. In determining whether it is reasonable
to pay a lesser amount, it is necessary to have regard to:
· whether the failure to satisfy a condition was beyond the
individual's control;
· whether the failure was reasonably foreseeable;
· any previous failure by the individual; and
· any other relevant matter.
[FHSA Bill 2008, subsections 17(3) and (4)]
1
Wendy is the holder of an FHSA and withdraws the balance and uses
the whole balance to purchases her first home. After living in the
home for two months Wendy is unexpectedly transferred in her work
to another city for a term of two years. Although Wendy fails the
occupancy condition, it is reasonable in the circumstances that she
contributes a nil amount to an FHSA. So, she still satisfies the FHSA
payment conditions.
2
Danny and Mary are a married couple who each has an FHSA. They
both withdraw the balance of their accounts to purchase a first home
jointly. After living in the home for four months, the couple separate
with Mary leaving the home permanently. Although Mary fails the
occupation condition, it is reasonable in the circumstances that she
contributes a nil amount to an FHSA. So, she still satisfies the FHSA
payment conditions.
3
Kate is the holder of an FHSA and orally agrees to purchase a dwelling
that she intends to live in. Kate withdraws the balance of her account
to pay as a deposit on the purchase. However, before paying a deposit
Kate changes her mind about purchasing the house and uses the money
to finance her living expenses while she studies full-time at university.
She contributes no amount to an FHSA within six months of the
withdrawal. Kate has failed the FHSA payment conditions and has not
contributed (within the six months) an amount equal to the payment
Taxation
(or a lesser amount reasonable in the circumstances) to an FHSA.
Consequently, she is liable to pay the FHSA misuse tax.
4
Kim withdraws $20,000 from her FHSA to purchase her first home.
The vendor withdraws the home from sale. Kim has already incurred
$4,000 in legal costs in attempting to acquire the home. Six weeks
after withdrawing the money, Kim contributes $16,000 to an FHSA.
In the circumstances, it was reasonable for Kim to contribute an
amount less than $20,000, and $16,000 was a reasonable amount for
her to contribute. So, she satisfies the FHSA payment conditions and
is not liable to the misuse tax.
The amount of the tax
The FHSA misuse tax is designed to clawback all the Government
contributions improperly obtained and broadly to neutralise the maximum
benefit the individual may have obtained from having earnings taxed at 15
per cent (ie, if they were on the top marginal tax rate).
If the payment is an FHSA ineligibility payment (but satisfies the
FHSA payment conditions), the tax payable by the individual is the sum
of two components:
· the clawback tax amount, which approximates the maximum
earnings benefit of the individual to be taxed; and
· the sum of the non-recognised Government contributions
payable for the FHSA holder for a financial year that begins
before the payment was made.
[Subsection 5(1) of the Income Tax (FHSA Misuse Tax) Bill 2008)]
A Government contribution that is payable for a financial year is a
non-recognised Government contribution if the holder of the FHSA did
not satisfy the eligibility requirements for the FHSA throughout that
financial year. Thus, if an account holder becomes ineligible part-way
through a financial year (eg, because they bought their first home in
Australia), any Government contribution that is payable for that financial
year is a non-recognised Government contribution and therefore subject to
the misuse tax. However, any Government contribution payable for an
earlier year is not affected. [Section 7 of the Income Tax (FHSA Misuse Tax)
Bill 2008]
The Income Tax (FHSA Misuse Tax) Bill 2008 was this approach
because reporting of personal FHSA contributions to the Commissioner is
to be for the whole financial year. On the basis of that reporting the
119
Commissioner would not know whether particular contributions were
made before or after the account holder became ineligible.
If the payment fails the FHSA payment conditions (whether or not it is
an FHSA ineligibility payment), the tax payable by the individual is
similarly the sum of two components:
· the clawback tax amount; and
· the sum of all the Government contributions that the account
holder has obtained.
[Subsection 5(2) of the Income Tax (FHSA Misuse Tax) Bill 2008]
The difference between the two formulas is that where FHSA payment
conditions are failed, all the Government contributions are taxed (and thus
clawed back) whereas for an FHSA ineligibility payment Government
contributions are taxed (and clawed back) for those years starting when
the individual first failed the eligibility requirements.
The clawback tax amount
The clawback tax amount is calculated by multiplying the earnings
component by the payment fraction and then multiplying by a grossing-up
factor. The final step is to multiply by a percentage. [Section 6 of the Income
Tax (FHSA Misuse Tax) Bill 2008]
The earnings component is designed to be a proxy for the individual's
earnings on the FHSA and is calculated by subtracting from the balance
of the FHSA the total of personal contributions, Government
contributions and contributions paid under a family law order. To save
compliance and administration costs, the earnings component does not
attempt to precisely calculate or trace earnings. For example, it does not
add fees charged to the balance, which favours the individual being taxed.
[Section 6 of the Income Tax (FHSA Misuse Tax) Bill 2008]
In the usual case where the whole of the balance is paid to the
individual, the payment fraction is one. Otherwise, it is the balance of the
earnings component just before the payment is made divided by the
balance of the FHSA just before that time. [Section 6 of the Income Tax
(FHSA Misuse Tax) Bill 2008]
Multiplying by the grossing-up factor reflects that the earnings
component has already been reduced by tax paid on FHSA earnings. The
grossing-up factor is 1 divided by (1-FHSA tax rate). The FHSA tax rate
is the tax payable on FHSA earnings, which is 15 per cent. [Section 6 of the
Income Tax (FHSA Misuse Tax) Bill 2008]
Taxation
The percentage is the top marginal tax rate for Australian resident
individuals plus the Medicare levy less the FHSA tax rate. The
percentage represents the maximum tax rate advantage the individual
could have obtained by having their earnings taxed at the FHSA earnings
rate instead of individual rates. This is currently equal to 31.5 per cent.
[Section 6 of the Income Tax (FHSA Misuse Tax) Bill 2008].
1
Litsa opened her account while eligible to do so. However, one year
later, she purchased a house and moved into it without notifying the
account provider and closing her account. Four years later, Litsa made
a false declaration to withdraw her entire account balance, and used it
to buy shoes and clothes.
Her final account balance was $15,000, her personal contributions
were $12,000, and total Government contributions were $2,000.
As the payment to Litsa has failed the FHSA payment conditions
(although the payment is also an ineligibility payment), the amount of
the tax is equal to the sum of the clawback tax amount plus the total of
Government contributions payable for a financial year that begins
before the payment was made.
In the formula for the clawback tax amount, the amount of the
payment is $15,000.
The `earnings component' is the balance of the FHSA reduced by
personal and Government contributions and family law payments paid
to the account. In Litsa's case, this is simply:
$15,000 - $14,000 = $1,000
As Litsa withdrew the whole of her balance the `payment fraction' is 1.
The formula is then $1,000 × 1 × [100/(100 15)] = $1,176.47.
This amount is then multiplied by the percentage, which is currently
31.5 per cent.
So $1,176.47 × 31.5 per cent = $370.59, the clawback tax amount.
The sum of Litsa's Government contributions is $2,000.
Litsa's total misuse tax is therefore $2,370.59.
Nature of the First Home Saver Account misuse tax
The FHSA misuse tax is an income tax, and is formally imposed in
respect of a payment from an FHSA to the individual account holder.
121
Consistent with the general nature of income tax, the tax is a tax on a gain,
being the gain made by the individual from the improper use of the
account. To ensure that the misuse tax is constitutionally valid, the tax is
imposed by a separate imposition Bill called the Income Tax (FHSA
Misuse Tax) Bill 2008. [Section 4 of the Income Tax (FHSA Misuse Tax)
Bill 2008]
The Commissioner assesses the FHSA misuse tax; it is not self
assessed. The Commissioner's assessing power is in existing section 169
of the ITAA 1936, which contains the power for the Commissioner to
assess income tax where the liability is calculated on a basis other than
taxable income. The definition of `assessment' in subsection 6(1) of the
ITAA 1936 is amended so that it covers ascertaining the amount of FHSA
misuse tax payable. [Schedule 1 to the FHSA (Consequential Amendments)
Bill 2008, item 2; subsection 6(1) of the ITAA 1936]
As the FHSA misuse tax liability is income tax assessed under section
169, the standard rules in Part IV of the ITAA 1936 applying to
assessments apply automatically. For example, the rules about service of
notice of assessment (section 174), objections (section 175A), validity not
affected by not following procedures (section 175), conclusive evidence
(section 177) and amendment of assessments (section 170).
The due and payable date for the misuse tax is 21 days after the
Commissioner gives the individual notice of the assessment. The general
interest charge applies in the standard way if the individual does not pay
the assessed tax on time. [Schedule 1 to the FHSA (Consequential Amendments)
Bill 2008, item 31; sections 345-110 and 345-115]
Liability to pay the misuse tax is a tax-related liability within the
definition in section 255-1 of Schedule 1 to the TAA 1953, allowing the
generic tax collection and recovery rules to apply. The non-operative list
of tax-related liabilities in the generic collection and recovery provisions
is amended to include the FHSA misuse tax. [Schedule 1 to the FHSA
(Consequential Amendments) Bill 2008, item 63; subsection 250-10(2) of Schedule 1 to
the TAA 1953]
Consequential amendments
Income Tax Act 1986
The main imposition Act for income tax, the Income Tax Act 1986, is
amended to ensure that it does not cover the FHSA misuse tax, which is
imposed by the Income Tax (FHSA Misuse Tax) Bill 2008. The trustee is
taxed at the rate of 15 per cent rather than at the top marginal rate, which
usually applies where the trustee of a trust estate is liable to pay the
Taxation
income tax. [Schedule 1 to the FHSA (Consequential Amendments) Bill 2008, item
1; subsection 5(2B) of the Income Tax Act 1986]
Life insurance companies -- terminology
As explained above, the FHSA earnings of life companies are to be
taxed like their superannuation earnings, on a virtual PST basis. There is
one virtual PST for both superannuation and FHSA business. Earnings
from both FHSA activities and complying superannuation activities are to
be taxed as a single class of taxable income at 15 per cent.
The extension of the virtual PST to cover FHSA business and the
creation of the `composite' class of taxable income for complying
superannuation/FHSA activities require changes in terminology to better
reflect the new scope of the concepts. Accordingly:
· the virtual PST is renamed the complying superannuation/
FHSA asset pool [Schedule 5 to the FHSA Bill 2008, items 1 to 26];
· the complying superannuation class of taxable income is
renamed the complying superannuation/FHSA class
[Schedule 6 to the FHSA Bill 2008, items 1 to 21];
· references that incorporate the words `virtual PST' as part of
a longer term (eg, virtual PST assets) are changed by
substituting `complying superannuation/ FHSA' for `virtual
PST' [Schedule 4 to the FHSA Bill 2008, items 1 to 64]; and
· there are various other related consequential amendments
flowing from these changes in terminology (eg, to various
definitions and formulas) [Schedule 7 to the FHSA Bill 2008,
items 1 to 56].
Inclusion of definitions
The amendments to the taxation law discussed in this chapter have
necessitated the inclusion of various new definitions in the taxation law
and the amendment of some others. The substantive effects of these
changes are discussed in the course of this chapter. The definitions
included (or amended) are in the:
· ITAA 1936 [Schedule 1 to the FHSA (Consequential Amendments)
Bill 2008, items 2 and 3; subsection 6(1) of the ITAA 1936)];
· ITAA 1997 [Schedule 1 to the FHSA (Consequential Amendments)
Bill 2008, items 32 to 44; subsection 995-1(1) of the ITAA 1997]; and
123
· Income Tax Rates Act 1986 [Schedule 1 to the FHSA
(Consequential Amendments) Bill 2008, items 45 to 48; subsection 3(1)
of the Income Tax Rates Act 1986].
Amendment of checklists
The amendments to the taxation law discussed in this chapter have
necessitated the amendment of various checklists in the taxation law.
Some of the notable changes are discussed in the course of this chapter.
Other changes are in the:
· ITAA 1997 [Schedule 1 to the FHSA (Consequential Amendments)
Bill 2008, item 9; section 11-55 of the ITAA 1997]; and
· TAA 1953 [Schedule 1 to the FHSA (Consequential Amendments)
Bill 2008, items 53, 54, 62 and 63; subsection 8AAB(5) and
subsection 250-10(2) of Schedule 1 to the TAA 1953].
44 Chapter 7
Financial services licensing, conduct,
advice and disclosure
Outline of chapter
.1 Schedule 2 to the First Home Saver Accounts (Consequential
Amendments) Bill 2008 (FHSA (Consequential Amendments) Bill 2008)
amends the Corporations Act 2001 (Corporations Act) and the Australian
Securities and Investments Commission Act 2001 (ASIC Act) to ensure
that the financial services licensing, conduct, advice and disclosure rules
apply appropriately to First Home Saver Accounts (FHSAs).
Context
.2 The Corporations Act and the ASIC Act provide for the regulation of
financial products and services. The First Home Saver Accounts Bill
2008 (FHSA Bill 2008) introduces a new kind of financial product --
FHSAs. FHSAs come within the existing general definition of `financial
product' in section 763A of the Corporations Act. Consequently, the
licensing, conduct, advice and disclosure provisions of the Corporations
Act and the Corporations Regulations 2001 will apply to FHSAs unless
expressly modified by legislation or regulations. In some cases the
Corporations Act applies differently to different kinds of financial
products.
.3 As noted in Chapter 1, FHSAs can have different legal forms
depending on the account provider offering them. They may be a deposit
account, a life policy or an interest in a trust. This can have implications
for the way the Corporations Act and the ASIC Act apply to them. The
amendments in Schedule 2 ensure that the Corporations Act and the
ASIC Act apply appropriately to FHSAs.
.4 In addition to the amendments made to the Corporations Act and the
ASIC Act in the FHSA (Consequential Amendments) Bill 2008, a number
of other changes will be made to the Corporations Regulations 2001 to
accommodate FHSAs. In particular, the Corporations Regulations 2001
are to be amended to introduce shorter and simpler product disclosure
statements for FHSAs and to deal with the financial services licensing
125
requirements for trustees of public offer superannuation funds. These
amendments to the Corporations Regulations 2001 will also ensure that
existing trustees of public offer superannuation funds will not need to seek
a licence variation to offer FHSAs.
Summary of new law
.5 These amendments to the Corporations Act and the ASIC Act ensure
that FHSAs:
45 are accompanied by appropriate disclosure documents
(including a product disclosure statement and periodic
statements);
46 are not subject to unnecessary regulation;
47 are subject to a mandatory cooling-off period; and
48 are treated the same under the Corporations Act, regardless
of the issuing entity and the legal nature of the accounts.
Detailed explanation of new law
.1 While an FHSA is a `financial product' under the general definition in
section 763A of the Corporations Act, in some cases the provisions apply
differently depending on the type of financial product and there are also
some provisions that apply only to certain specified financial products.
The amendments to the Corporations Act and the ASIC Act clarify the
way in which those Acts apply to FHSAs.
Coverage of First Home Saver Accounts under the ASIC Act and the
Corporations Act 2001
.2 As the financial services regulator, the Australian Securities and
Investments Commission (ASIC) is responsible for licensing and
monitoring financial services markets and businesses in Australia. To
enable ASIC to perform this role, under the ASIC Act, it is given
functions and powers under the corporations legislation (section 11) and
various other Acts related to financial products and services
(section 12A). This list has been amended to provide that ASIC has
functions and powers under the `First Home Saver Accounts Act 2008'.
[Schedule 2 to the FHSA (Consequential Amendments) Bill 2008, item 1;
paragraph 12A(1)(h)]
Taxation
.3 ASIC will also be provided with the functions and powers conferred
on it by section 3 of the FHSA Bill 2008. Those functions and powers
include regulating when trustees can offer an interest in the FHSA trust
(ie, offer a FHSA), and requiring trustees to comply with the prescribed
rules in relation to commission and brokerage payments, and rules on fair
dealing when issuing or redeeming an interest in an FHSA trust. [Part 1,
Division 1, section 3 of the FHSA Bill 2008]
First Home Saver Accounts are a financial product
.4 The regulatory arrangements for financial services under the
Corporations Act and the ASIC Act rely on the definition of `financial
product' in those Acts. Although FHSAs come within the general
definitions of financial product in section 763A of the Corporations Act
and subsection 12BAA(1) of the ASIC Act, to avoid any doubt, and to
enable FHSAs to be regulated consistently under the Acts, a definition of
`FHSA product' is inserted into sections 9 and 761A of the Corporations
Act [Schedule 2 to the FHSA (Consequential Amendments) Bill 2008, items 3 and 6;
sections 9 and 761A], and FHSA products are included in the specific things
that are financial products in subsection 12BAA(7) of the ASIC Act
[Schedule 2 to the FHSA (Consequential Amendments) Bill 2008, item 2;
paragraph 12BAA(7)(ga)] and section 764A of the Corporations Act
[Schedule 2 to the FHSA (Consequential Amendments) Bill 2008, item 9;
paragraph 764A(1)(ha)].
First Home Saver Accounts are not managed investment schemes
.5 As FHSAs will have a different legal nature depending on the type of
product provider, there is also the potential for FHSAs to fall within other
definitions in the Corporations Act that apply to those different types of
products.
.6 In particular, FHSAs offered by public offer licensees could come
within the definition of `managed investment scheme' in section 9 of the
Corporations Act. The regulatory regime for managed investment
schemes as set out in Chapter 5C of the Corporations Act is not intended
to cover institutions which are regulated by the Australian Prudential
Regulation Authority (APRA). As all FHSA providers will be regulated
by APRA, all FHSAs are excluded from the definition of `managed
investment scheme' in section 9 of the Corporations Act. [Schedule 2 to the
FHSA (Consequential Amendments) Bill 2008, item 4; section 9, paragraph (ha) of the
definition of `managed investment scheme']
First Home Saver Accounts are not a basic deposit product
.7 It is arguable that FHSA provided by authorised deposit-taking
institutions (ADIs) could be regarded as coming within the definition of
`basic deposit product' in section 761A of the Corporations Act.
127
.8 Issuers of basic deposit products are exempt from many of the advice
and disclosure obligations of the Corporations Act. As regards disclosure,
the issuer is not obliged to give the client a financial services guide, a
statement of advice or a product disclosure statement (provided certain
other information is given to the client). Also, ASIC regards basic deposit
products as `Tier 2' (lower level) products for the purposes of its financial
advice training standards.
.9 FHSAs have a number of features that are not normally associated
with basic deposit products such as eligibility and withdrawal
requirements, Government contributions and concessional taxation
treatment that make it inappropriate for them to be treated as basic deposit
products. There are also considerations of competitive neutrality, as
issuers of FHSAs which are not banks, building societies or credit unions
will not be subject to the same exemptions.
.10 To resolve any doubt, all FHSAs are expressly excluded from the
definition of `basic deposit product'. [Schedule 2 to the FHSA (Consequential
Amendments) Bill 2008, item 5; section 761A, paragraph (da) of the definition of `basic
deposit product']
Providing First Home Saver Accounts is not a custodial or depository
service
.11 Sections 766A and 766E of the Corporations Act bring within the
definition of `financial service' a custodial or depository service. This
category was included in the Act to capture certain financial activities
which would not otherwise come within the definition of `financial
service'. Providing a custodial or depository service occurs where, under
an arrangement between the provider and the client, a financial product, or
a beneficial interest in a financial product, is held by the provider in trust
for, and on behalf of, the client or another person nominated by the client.
.12 FHSAs provided by public offer licensees, as interests in a trust,
could potentially come within the definition of `custodial or depository
service'. Given that FHSAs will be regulated under the First Home Saver
Accounts Bill 2008, and to avoid unnecessary cost and compliance
burdens, the provision of FHSAs (offered by public offer licensees) is
excluded from the meaning of `providing a custodial or depository
service' (section 766E). [Schedule 2 to the FHSA (Consequential Amendments)
Bill 2008, item 10; paragraph 766E(3)(cb)]
Statement of advice requirements
.13 Normally, when personal advice is given about a financial product to
a retail client, the person providing the advice must give the client a
statement of advice. (In the vast majority of cases, a person will acquire
Taxation
an FHSA as a retail client.) However, there is an exception, under section
946AA of the Corporations Act, for advice about `small investments'.
The relevant conditions are:
49 the total value of all investments in relation to which the
advice is provided does not exceed the `threshold amount'
(currently $15,000); and
50 the advice does not relate to a derivative, a general insurance
product or a life risk product, or to a superannuation product
or a retirement savings account product unless the client
already has an interest in the product.
However, the providing entity must keep, and provide to the client, a
record of advice.
.1 To avoid doubt, the section is amended to specify that the providing
entity does not have to give the client a statement of advice where the
advice relates to an FHSA product and the total value of all investments in
relation to which the advice is provided does not exceed the `threshold
amount'. [Schedule 2 to the FHSA (Consequential Amendments) Bill 2008, item 11;
subsection 946AA(1A)]
Financial product disclosure
.2 Generally a product disclosure statement is required to be given to a
person when a financial product is issued or sold and when personal
advice is given recommending a particular financial product. The product
disclosure statement content requirements for FHSAs will be outlined in
regulations made under the Corporations Act. The circumstances in
which a product disclosure statement must be given in the Corporations
Act will apply to FHSAs.
Meaning of `issue of a financial product'
.3 Section 761E of the Corporations Act defines when a financial
product is `issued' to a person. Subsection 761E(3A) broadly provides
that further contributions to financial products that are already held by the
client are not an `issue of a financial product'.
.4 There is some doubt that all FHSAs (especially those issued by public
offer licensees) are covered by the existing exclusions in
subsection 761E(3A). The provision is amended to ensure that all FHSAs
are treated the same, by:
51 inserting a new item 2A into the table in subsection 761E(3)
to specify when an FHSA product is issued [Schedule 2 to the
129
FHSA (Consequential Amendments) Bill 2008, item 7;
subsection 761E(3), item 2A in the table]; and
52 providing that a further contribution into an FHSA product
is not considered an issue of a financial product [Schedule 2 to
the FHSA (Consequential Amendments) Bill 2008, item 8;
paragraph 761E(3A)(ba)].
Application forms to be included in or accompany product disclosure
statements
.1 In general, an FHSA product only can be issued or sold in response to
an application form that is attached to or accompanies the product
disclosure statement. The Corporations Act does not specify the
requirements for an application form. For FHSAs, an application to open
an account will need to be made in a form approved by the Commissioner
of Taxation. [Part 3, Division 1, section 5 of the FHSA Bill 2008]
.2 Under section 1016A of the Corporations Act, a `restricted issue' or
`restricted sale' of an FHSA to a retail client may only be made using an
application form. (In practice, a `restricted issue' or `restricted sale' will
cover most situations where a product is sold or offered to a retail client.)
.3 A `relevant financial product' may only be issued or sold if the client
fills out an application form that is included with, or accompanies, a
product disclosure statement. Those products are managed investments,
superannuation, retirement savings accounts or any other product
specified in regulations which are made for the purposes of the definition.
.4 The definition of `relevant financial product' is amended to include an
FHSA product. [Schedule 2 to the FHSA (Consequential Amendments) Bill 2008,
item 12; paragraph 1016A(1)(da)]
Periodic statements for retail clients
.5 Account providers will be required to provide a periodic statement to
an FHSA holder who is a retail client.
.6 Under section 1017D of the Corporations Act, issuers of financial
products that have an investment component are required to provide
periodic statements to each holder of such a product for each reporting
period during which the holder holds the product. The list of products
currently includes managed investments, superannuation, retirement
savings accounts, investment life insurance products and deposit products.
.7 The list of products in paragraph 1017D(1)(b) is amended to include
an FHSA product. [Schedule 2 to the FHSA (Consequential Amendments)
Bill 2008, item 13; subparagraph 1017D(1)(b)(iiia)]
Taxation
Cooling-off periods
.8 A 14 day cooling-off period will apply when an individual who is a
retail client opens an FHSA. The individual will be able to withdraw the
funds deposited and close the account within the earlier of 14 days of
receiving confirmation that the account has been opened or five days
after the account was opened. (See also paragraph 5(3)(eb) of the
FHSA Bill 2008.) They will not be required to transfer the funds to
another FHSA.
.9 Sections 1019A and 1019B of the Corporations Act provide that
certain financial products are subject to a 14 day cooling-off period.
Those products are risk insurance products, investment life insurance
products, managed investment products, superannuation products and
retirement savings account products.
.10 The list in paragraph 1019A(1)(a) is amended to include FHSA
products. [Schedule 2 to the FHSA (Consequential Amendments) Bill 2008, item 14;
subparagraph 1019A(1)(a)(iiia)]
131
53 Chapter 8
Administration and other issues
Outline of chapter
.1 Schedule 4 of the First Home Saver Accounts (Consequential
Amendments) Bill 2008 (FHSA (Consequential Amendments) Bill 2008)
amends:
54 the Social Security Act 1991 and the Veterans' Entitlements
Act 1986 so that First Home Saver Accounts (FHSAs) are not
taken into account for the income and assets tests that apply
to various Commonwealth benefits;
55 the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 so that Act applies to the provision of
FHSAs regardless of the type of entity providing the account;
and
56 various other Commonwealth Acts to make changes
consequential upon the introduction of FHSAs.
.1 Parts 5 and 6 of the First Home Saver Accounts Bill 2008 (FHSA Bill
2008) and Schedule 1 to the FHSA (Consequential Amendments) Bill
2008 establish administrative arrangements for FHSAs including:
57 who administers various provisions;
58 providing information to the Commissioner of Taxation
(Commissioner);
59 rights of review of decisions;
60 enforcement powers; and
61 tax file numbers and secrecy rules to protect the
confidentiality of information provided.
133
Context
Significant amendments to other Commonwealth Acts
.1 As is usual with the introduction of a significant new measure, the
enactment of the FHSA legislation necessitates consequential amendment
to other Commonwealth legislation to ensure that the new legislation
interacts with existing legislation as the Government intends. In this case,
significant amendments are required to:
62 the Social Security Act 1991 and the Veterans' Entitlements
Act 1986; and
63 the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006.
Working out social security and veterans' entitlements
.1 Currently, in working out a person's eligibility for social security
income support payments and veterans' entitlements, a person's income
and assets are assessed. The Government intends that FHSAs are not to
be taken into account in working out entitlements.
Anti-Money Laundering and Counter Terrorism Financing Act 2006
.2 The Government proposes that FHSA providers be required to comply
with the requirements in the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006, including identifying customers
when opening an FHSA. This is to ensure consistency of regulation
across similar financial products which are already captured under the
Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
.3 For authorised deposit-taking institutions (ADIs) and life insurance
companies the requirements will be the same as those currently applying
to other products they provide. However, public offer superannuation
licensees are not currently required to comply with the initial customer
identification obligations (subsection 39(6) of the Anti-Money Laundering
and Counter-Terrorism Financing Act 2006).
Administration
.4 Administrative arrangements are necessary to allow for the effective
operation and administration of FHSAs. Where possible, the
arrangements are designed to align with the operational obligations that
are currently imposed on entities that are eligible to provide FHSAs. For
Taxation
example, the tax file number (TFN) quotation arrangements that apply to
FHSAs reflect the arrangements of the superannuation system.
.5 In addition, where possible, these arrangements have been designed to
mirror the existing administrative arrangements for similar laws (eg,
superannuation and taxation laws). For example, the use of the general
interest charge and approved forms.
.6 Regulatory responsibility for administering the FHSA legislation is
divided along functional lines between the Commissioner, the Australian
Prudential Regulation Authority (APRA) and the Australian Securities
and Investments Commission (ASIC). This division of responsibility is
consistent with the Regulators' respective current responsibilities.
Summary of new law
Important amendments to other Commonwealth Acts
Income and assets test for benefits
.7 The income and assets tests under the Social Security Act 1991 and
Veterans' Entitlements Act 1986 are amended to ensure that FHSAs are
not taken into account in working out entitlements under those Acts.
.8 This has been achieved by amending the definitions of:
64 `return on a person's investments';
65 `financial investment';
66 `investment'; and
67 `designated private trust'.
Anti-Money Laundering and Counter-Terrorism Financing Act 2006
.1 FHSA providers are required to comply with the requirements in the
Anti-Money Laundering and Counter-Terrorism Financing Act 2006,
including identifying customers when opening an FHSA, regardless of the
type of entity providing the FHSA.
135
Administration
Responsibility for administering the new law
.2 The general administration of the FHSA Bill 2008 is divided between
the Commissioner, APRA and ASIC.
.3 The Commissioner is responsible for the provisions about individual
transactions (opening accounts, contributions into accounts and payments
from accounts) and Government contributions. The Commissioner also
has administration of the relevant taxation law (including the FHSA
misuse tax).
.4 APRA is responsible for the prudential regulation of FHSAs. In
particular, APRA is responsible for authorising Registrable
Superannuation Entity (RSE) licensees (trustees) as FHSA providers, and
is responsible for the prudential regulation of trustee providers and
FHSA trusts under Division 2, Part 7 of the FHSA Bill 2008. Division 2
of Part 7 of the FHSA Bill 2008 applies relevant provisions of the
Superannuation Industry (Supervision) Act 1993 (SIS Act) to
FHSA providers that are trustees and FHSA trusts, subject to any
provisions of the SIS Act that is administered by ASIC.
.5 ASIC is responsible for the administration of provisions of the SIS
Act as they apply in Division 2 of Part 7 of the FHSA Bill 2008. These
provisions apply to FHSA providers that are trustees and FHSA trusts, and
establish when trustees may offer, issue and redeem an interest in an
FHSA trust, the circumstances in which trustees may pay commission and
brokerage, and requirements in relation to members' or beneficiaries'
reports.
Information and access to premises
.6 The FHSA (Consequential Amendments) Bill 2008 contains
information gathering and access powers for the Commissioner in relation
to administration of the Government contribution. For FHSA matters
contained in the income tax law (eg, the FHSA misuse tax in the Income
Tax Assessment Act 1997 (ITAA 1997)) the Commissioner can rely on the
normal information gathering and access powers under the income tax
law.
.7 The FHSA (Consequential Amendments) Bill 2008 also contains
reporting obligations for FHSA providers, requiring them to provide the
Commissioner with certain information relating to FHSAs they provide.
All FHSA providers are required to report data to APRA in accordance
with the Financial Sector (Collection of Data) Act 2001 (discussed in
more detail in Chapter 5).
Taxation
Rights of review of decisions
.8 Decisions of the Commissioner in relation to Government
contributions are subject to merits-based review by an officer of the
Australian Taxation Office (ATO).
.9 APRA's decisions relating to the authorisation of trustees as FHSA
providers, and decisions to make, vary or revoke prudential standards that
apply to specific trustees, are subject to merits review by the
Administrative Appeals Tribunal.
Secrecy and Tax File Numbers
.10 The FHSA Bill 2008 contains secrecy provisions, to protect the
confidentiality of information received by the Regulators in relation to an
individual's FHSA received by the regulators. These provisions have
been modelled on the secrecy arrangements that currently apply to the
superannuation co-contribution for low income earners. As such, to
facilitate the effective administration of the FHSA Bill 2008 and other
related legislation, specific disclosure of protected information are
permitted. For example, disclosing information necessary to perform
duties under the Bill.
68 The privacy obligations of FHSA providers are regulated by
the Privacy Act 1988
.1 The FHSA Bill 2008 also contains provisions that require an
individual to quote their TFN in order to open, be issued with or hold an
FHSA. This is explained in Chapter 1. These arrangements are necessary
to ensure that only one account is opened per individual, and to assist the
Commissioner in paying the Government contribution. To ensure that this
TFN information is used appropriately, this Bill contains provisions which
regulate the quotation, use and storage of TFNs. These are modelled on
the arrangements which currently apply to superannuation.
Detailed explanation
Income and assets test for benefits
.2 The income and assets tests under the Social Security Act 1991 and
Veterans' Entitlements Act 1986 are amended to ensure that FHSAs are
not taken into account in working out entitlements under those Acts.
137
Social Security Act 1991
.3 The value of an individual's FHSA is not taken into account when
calculating the value of a person's assets as the funds are not readily
accessible to the individual. This is because the funds in an FHSA must
be used to purchase a first home or contributed to superannuation.
[Schedule 3, item 35, FHSA (Consequential Amendments) Bill 2008; paragraph
1118(1)(fa) of the Social Security Act 1991]
.4 The definition of `investment' has been amended to define an
investment in an FHSA as having benefits in an FHSA, regardless of
whether the benefits are attributable to amounts contributed by the FHSA
holder. [Schedule 3, items 30, and 33, FHSA (Consequential Amendments) Bill 2008;
paragraph 9(1)(c) and subsection 9(9B) of the Social Security Act 1991]
.5 An investment in an FHSA has also been excluded from the definition
of `financial investment', `managed investments' and `designated private
trust'. [Schedule 3, items 29, 32 and 36, FHSA (Consequential Amendments) Bill
2008; subsection 9(1), paragraphs 9(1C)(cb) and 1207P(1)(d) of the Social Security Act
1991]
.6 For the purposes of the Youth Allowance Rate Calculator at the end
of section 1067G of the Social Security Act 1991, `trust' does not include
an FHSA. [Schedule 3, item 34, FHSA (Consequential Amendments) Bill 2008;
paragraph 10B(2)(ca) of the Social Security Act 1991]
.7 A return on an individual's investment in an FHSA has been excluded
from the definition of `income'. `Return' in relation to an FHSA, means
any increase in the value of the FHSA. [Schedule 3, items 28 and 31, FHSA
(Consequential Amendments) Bill 2008; paragraphs 8(8)(ba) and 9(1)(c) of the Social
Security Act 1991]
Veterans' Entitlements Act 1986
.8 The value of a person's FHSA is not taken into account when
calculating the value of a person's assets. The definition of `investment'
has been amended to define an investment in an FHSA as having benefits
in an FHSA, regardless of whether the benefits are attributable to amounts
contributed by the account holder. [Schedule 3, items 41, 44 and 45,
FHSA (Consequential Amendments) Bill 2008; subsections 5J(1)(c) and 5J(6B) and
paragraph 52(1)(faa) of the Veterans' Entitlements Act 1986]
Taxation
.9 An investment in an FHSA has also been excluded from the definition
of financial investment, managed investments and designated private trust.
[Schedule 3, items 40, 43 and 46, FHSA (Consequential Amendments) Bill 2008;
subsection 5J(1), paragraphs 5J(1C)(cb) and 52ZZB(1)(d) of the Veterans' Entitlements
Act 1986]
.10 A return on a person's investment in an FHSA has been excluded
from the definition of `income'. `Return' in relation to an FHSA, means
any increase in the value of the FHSA. [Schedule 3, items 39 and 42, FHSA
(Consequential Amendments) Bill 2008; paragraphs 5H(8)(ia) and 5J(1)(aa)) of the
Veterans' Entitlements Act 1986]
Anti-Money Laundering and Counter-Terrorism Financing Act 2006
.11 FHSA providers are required to comply with the requirements in the
Anti-Money Laundering and Counter-Terrorism Financing Act 2006,
including identifying customers when opening an FHSA. This is to
ensure consistency of regulation across similar financial products, such as
deposit accounts, life insurance policies and superannuation accounts,
which are already captured under the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006. [Schedule 3 to the
FHSA (Consequential Amendments) Bill 2008, items 1 to 4]
.12 The amendments to the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006 ensure that the acceptance of
contributions to the FHSA and the cashing out of an interest in an FHSA
(either to purchase a home, to transfer the balance to another FHSA
provider or to transfer the balance into superannuation) (to the FHSA
holder) are captured as a `designated service'. Providers of a `designated
service' are a reporting entity under the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006 and must, amongst other things,
carry out procedures to verify a customer's identity before providing a
designated service to a customer. [Schedule 3 to the FHSA (Consequential
Amendments) Bill 2008; items 1 to 4, sections 5 and 6 of the Anti-Money Laundering
and Counter-Terrorism Financing Act 2008]
.13 Upfront customer identification requirements for FHSAs are different
to the Anti-Money Laundering and Counter-Terrorism Financing Act
2006 obligations that trustees of superannuation funds are currently
required to comply with relation to superannuation products. This reflects
the higher money laundering and terrorist financing risk associated with
the shorter term of FHSAs and their use for real estate purchases.
139
Administration
Responsibility for administering the new law
.14 An FHSA is a financial product, offered by certain prudentially
regulated financial institutions, which provides incentives to save through
the taxation system. As a result, like superannuation, the general
administration of the FHSA Bill 2008 is divided between the
Commissioner, APRA and ASIC. [Section 3]
.15 Depending on which institution administers the particular provision
being applied, the Regulator of the Bill will vary. [Section 18]
The Commissioner of Taxation
.16 The Commissioner has the general administration of most of the
regulatory activities for FHSAs including: the eligibility rules for
opening, issuing and holding an FHSA; rules relating to contributions to
an FHSA; administration and payment of the Government contribution;
the taxation of earnings; payment rules; the FHSA misuse tax; and TFNs.
The Commissioner has the general administration of:
69 Part 3, which relates to eligibility, contribution and payment
rules;
70 Part 4, which relates to Government contributions;
71 Part 5, which relates to the administration of the FHSA
system, except where it relates to the review of certain APRA
decisions under Subdivision B of Division 4; and
72 Part 6, which relates to enforcement activities.
[Subsection 3(1)]
Australian Prudential Regulation Authority
.1 APRA has administration of provisions about establishing and
enforcing prudential standards and practices for FHSA providers. These
provisions are designed to operate alongside APRA's current regulatory
activity of potential FHSA providers (public offer superannuation fund
trustees, ADIs, life insurance companies and friendly societies). APRA
has general administration of:
73 Part 7, which relates to the prudential regulation of FHSA
providers, except where ASIC has general administration;
and
Taxation
74 Subdivision B of Division 4 of Part 5, which relates to the
review of certain APRA decisions.
[Subsection 3(2)]
Australian Securities and Investment Commission
.1 ASIC has general administration of provisions which relate to
ensuring that consumer protection arrangements apply for the benefit of
FHSA holders and potential FHSA holders. These provisions are
designed to operate parallel to ASIC's current licensing, conduct, advice
and disclosure regulation under the Corporations Act.
.2 To ensure consistency with the SIS Act the main Bill provides ASIC
with the general administration of the same provisions it has general
administration of in the SIS Act as they apply to FHSA providers. ASIC
has general administration of:
75 section 101 (duty to establish arrangements for dealing with
inquiries or complaints) and section 103 (duty to keep
minutes and records); and
76 Part 19 (public offer entities: provisions relating to
superannuation interests).
[Subsection 3(3)]
Powers and duties of the Regulators
.1 In order to allow the Regulators to administer the provisions for which
they are responsible, they are provided with powers and duties for the
purposes of provisions they respectively administer [subsection 3(4)].
77 Where a function is performed under the FHSA Bill 2008 it
also refers to a duty being performed. [Section 18].
Reporting by providers
.1 For FHSAs they provide, FHSA providers are required to report
certain information to the Commissioner. This includes:
78 personal contributions made to FHSAs during the period;
79 payments made from FHSAs during the period;
141
80 the balances of FHSAs during the period; and
81 the opening and closing of FHSAs during the period.
[Schedule 1, item 66, FHSA (Consequential Amendments) Bill 2008;
subsection 391-5(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)]
.1 This does not apply in relation to FHSAs that have been transferred to
another FHSA provider during the specified period. [Schedule 1, item 66,
FHSA (Consequential Amendments) Bill 2008; subsection 391-5(2) of Schedule 1 to the
TAA 1953]
.2 Unless the Commissioner determines otherwise, the specified period
is a financial year. The Commissioner is able to specify different periods
for different information. [Schedule 1, item 66, FHSA (Consequential
Amendments) Bill 2008; subsections 391-5(3) and (4) of Schedule 1 to the TAA 1953]
.3 The statement must be in the form approved by the Commissioner,
and must be given to the Commissioner on or before the date determined
by the Commissioner. [Schedule 1, item 66, FHSA (Consequential Amendments)
Bill 2008; subsections 391-5(5) to (9) of Schedule 1 to the TAA 1953]
.4 The approved form may require the statement to contain the TFN of
the provider, the FHSA holder, and if the FHSA is a trust, that trust. This
does not limit the information which the approved form may require the
statement to provide. [Schedule 1, item 66, FHSA (Consequential Amendments)
Bill 2008; subsections 391-5(10) and (11) of Schedule 1 to the TAA 1953]
Information gathering and access powers
Information gathering
.5 The FHSA Bill 2008 contains information gathering and access
powers for the Commissioner in relation to his administration of the
Government contribution. For FHSA matters contained in the income tax
law (eg, the FHSA misuse tax in the ITAA 1997) the Commissioner can
rely on his standard information gathering and access powers under the
income tax law.
.6 The information gathering and access powers in the FHSA Bill 2008
for the Commissioner are broadly the same as in the Superannuation
(Government Co-Contribution for Low Income Earners) Act 2003.
.7 APRA and ASIC will be able to rely on their existing information
gathering powers under the existing Acts.
Taxation
From the FHSA holder
.8 The Commissioner may require a person or their legal personal
representative, through a written notice, to give the Commissioner
information to enable the Commissioner to determine:
82 whether a Government contribution is payable;
83 the amount of any Government contribution;
84 where the Government contribution should be paid in
respect of the FHSA holder;
85 whether an overpayment amount is recoverable under
section 50 in respect of the person;
86 the amount overpaid; and
87 any other matters prescribed by the regulations.
[Paragraphs 77(1)(a) to (d)]
.1 Notices can be given at any time, however, they must specify the
period (not less than 21 days after the notice is given) in which
compliance with the notice is required. [Subsections 77(1) and (3)]
.2 Failure to comply with such a notice (in relation to overpayments) is
an offence with a penalty of 30 penalty units. [Subsection 77(2)]
From the FHSA provider
.3 The Commissioner has the same powers and obligations when seeking
information from an FHSA provider relating to an FHSA holder as they
do from an FHSA holder. [Section 78]
.4 Failure to comply with any such notice is an offence with a penalty of
30 penalty units. [Subsection 78(2)]
Self-incrimination
.5 A person is not excused from providing a statement to the
Commissioner (as required by sections 77 and 78) on the grounds that the
statement might tend to incriminate the person, or make them liable to a
penalty. [Subsection 79(1)]
143
.6 However, if the person is an individual, neither the statement or
anything obtained as a direct result of the statement, is admissible against
the individual in any criminal proceedings, other than against:
88 section 77 or 78 of the FHSA Bill 2008; or
89 section 137.1 or 137.2 of the Criminal Code Act 1995 that
relates to this Bill.
[Subsection 79(2)]
Access to premises
General
.1 The Commissioner requires powers for authorised persons to be able
to enter the premises of persons. These powers may be used to ensure that
an FHSA provider (or other person) has reported the correct information
and where it may be necessary to inspect documents which might
otherwise not be available for inspection if access powers were not
available.
.2 The issues that the Commissioner may be seeking to resolve through
the use of these access powers may be in relation to more than one
person's Government contribution and as such there may be a significant
revenue risk involved.
.3 The Commissioner may only appoint ATO employees to be
authorised persons for the purposes of the access to premises provisions in
sections 81 to 85. [Section 80]
.4 An authorised person may, with the consent of the occupier, or in
accordance with a warrant issued under section 87, enter the premises.
[Paragraphs 81(1)(a) and (b)]
.5 They must enter the premises only for the purposes of determining:
90 whether a Government contribution is payable;
91 the amount of any Government contribution;
92 whether an overpayment amount is recoverable under
section 3-50 in respect of the person;
93 the amount overpaid; and
94 whether a person has contravened a provision of this Bill.
Taxation
[Paragraphs 81(1)(c) and (d)]
.1 If an authorised person enters any premises they may search the
premises for, inspect, examine, take extracts from, and make copies of,
any examinable documents. [Subsection 81(2)]
.2 In all cases, authorised officers must only enter premises if they have
shown their identity cards if requested and given the occupier a written
statement of the occupiers' rights and obligations. If, after an authorised
person has entered the premises, they fail to produce their identity card
when requested by the occupier to do so, they are unable to exercise their
powers under Division 2 of the main Bill. [Subsections 82(1) and (2)]
Obligations of authorised person -- entry by consent
.3 An authorised person is only able to enter premises with the consent
of the occupier (under paragraph 81(1)(a)) if they have informed the
occupier that the occupier is entitled to refuse consent and that the
authorised person must leave if asked to do so. If the occupier does
request the authorised person to leave, the authorised person must do so.
[Section 83]
Obligations of authorised person -- entry under warrant
.4 An authorised person is only able to enter premises under a warrant
(under paragraph 81(1)(b)) if they have:
95 announced that they are authorised to enter the premises;
and
96 given any person on the premises an opportunity to allow
entry to the premises.
[Subsection 84(1)]
.1 However, an authorised person is not required enter the premises
where they believe on reasonable grounds that immediate entry to the
premises is required to ensure the effective execution of the warrant is not
frustrated. [Subsection 84(2)]
.2 If the occupier, or any person who appears to represent the occupier,
is present when the warrant is being executed, an authorised person must
identify themselves and make a copy of the warrant available to the
occupier. The warrant need not include the signature of the authorising
magistrate. [Subsections 84(3) to (5)]
145
.3 A person must not obstruct or hinder an authorised person in the
exercise of the authorised person's power under section 81, and the
authorised person exercises that power in accordance with a warrant
issued under section 44. Doing so is an offence with a penalty of
30 penalty units. [Section 85]
.4 If an authorised person enters any premises under section 41 in
accordance with a warrant issued under section 87, the occupier or person
in charge must, if requested to do so by the authorised person, provide
reasonable assistance to the authorised person in the exercise of his or her
powers. Failure to do so is an offence with a penalty of 30 penalty units.
[Section 86]
Issue of warrants
.5 Warrants are only able to be issued in relation to the premises of an
FHSA provider. Magistrates are only able to issue warrants, on
application by an authorised person, if they are reasonably satisfied based
on information on oath or affirmation that there are reasonable grounds
for believing there are examinable documents on particular premises of an
FHSA provider. The magistrate must also be satisfied the warrant is
reasonably required for the purposes of ascertaining:
97 whether a Government contribution is payable;
98 the amount of any Government contribution;
99 whether an overpayment amount is recoverable under
section 3-120 in respect of the person;
100 the amount overpaid; and
101 whether a person has contravened a provision of this Bill.
[Paragraphs 87(1)(a) and (b)]
.1 These warrants may authorise an authorised person to enter particular
premises with such assistance as is necessary and reasonable, and during
the hours that the warrant specifies. However, these warrants do not
authorise for the use of force, unlike the corresponding power in the
Superannuation (Government Co-contribution for Low Income Earners)
Act 2003. [Paragraphs 87(1)(c) and (d)]
.2 The warrant must specify the purpose of the warrant, the powers
exercisable under subsection 81(2) and the day on which the warrant
ceases to have effect. [Subsection 87(2)]
Taxation
.3 The function of issuing a warrant is conferred on a magistrate in their
personal capacity, rather than as a court or member of a court. The
magistrate does not need to accept the conferral of this function.
[Subsection 87(3)]
.4 The Commissioner may cause an identity card to be issued to an
authorised person. This card must contain a recent photograph of the
authorised person and be in a form approved by the Commissioner. A
person who ceases to be an authorised person and does not immediately
return the card to the Commissioner commits an offence with a penalty of
one penalty unit. [Section 88]
Secrecy
.5 Secrecy provisions have been inserted into the FHSA Bill 2008 to
protect the confidentiality of an individual's information in relation to
their FHSA. These provisions are modelled on arrangements that
currently apply to superannuation and impose strict obligations on tax
officers who receive FHSA information.
.6 In relation to an individual's FHSA it is an offence for particular
people to communicate information to others unless it is for the purposes
of, or in performing duties under the FHSA Bill 2008, regulations made
under the main Bill or a taxation law. This protection applies even if
communicating information to a Minister or in a court. [Section 70]
Tax file numbers
.7 Under section 19 an FHSA provider is not able to open or issue an
FHSA unless the person has quoted their TFN. This is necessary as the
quotation of TFNs is vital to the integrity of FHSAs to:
102 ensure that only one account is opened per person;
103 facilitate the payment of the Government contribution; and
104 allow the balance of an FHSA to be contributed to
superannuation.
.1 The use of TFN information is restricted by the Privacy Act 1988 and
the Privacy Commissioner's Tax File Number Guidelines issued under
section 17 of the Privacy Act 1988.
.2 In line with these requirements, provisions have been inserted into the
FHSA Bill 2008 which are designed to restrict the use of a person's TFN
information and ensure compliance with the Privacy Act 1988 and the
Privacy Commissioner's Tax File Number Guidelines issued under
147
section 17 of the Privacy Act 1988. They have been modelled on the TFN
arrangements that currently apply for superannuation. They apply to the
Commissioner, FHSA providers and persons applying to open or be
issued with an FHSA.
Obligation to quote a tax file number
.3 An individual may quote their TFN if they inform another person of
the number in the approved form. [Paragraph 56(a)]
.4 To open or be issued with an FHSA an individual must quote their
TFN in relation to the main Bill and the `Superannuation Acts' as defined
in section 18.
105 The Superannuation Industry (Supervision) Regulations
1994 (SIS Regulations) require an individual to quote their
TFN to allow them to make a post-tax contribution. An
individual must quote their TFN in relation to the
Superannuation Acts, in addition to the FHSA Bill 2008, to
ensure that a superannuation provider is able to accept post-
tax contributions from an FHSA.
.1 To assist in the process of opening and issuing FHSAs, the approved
form to be completed by an individual may request they quote their TFN
[subsection 68(3)].
106 An individual is not required to quote their TFN, and if
they choose not to, they have not committed an offence under
section 137.1 of the Criminal Code Act 1995
[sections 59 and 69].
107 However if they choose not to quote their TFN they will
not be able to hold an FHSA.
Request of a TFN
.1 If an FHSA provider inadvertently opens or issues an FHSA where a
TFN has not been quoted the FHSA provider must request the TFN in the
approved form within 28 days of becoming aware of this fact [subsections
58(1) and (2)].
108 The FHSA provider may request a person's TFN at any
time [section 57].
Taxation
.1
On 15 July 2010 Kristen opened an FHSA with ABC Bank. On
18 November 2010, ABC Bank identified that Kristen had not supplied
a TFN. ABC Bank must request Kristen to quote her TFN within
28 days.
Deemed quotation of a TFN
.2 A person does not have to quote their TFN personally. They may be
deemed to have quoted their TFN in connection with the operation or
future operation of the FHSA Bill 2008 and the Superannuation Acts if:
109 the Commissioner gives notice of a person's TFN. This
may occur where the Commissioner assesses a TFN quoted
to either be cancelled, withdrawn or wrong and the
Commissioner is satisfied that the person has a TFN
[section 66];
110 an FHSA provider transfers a holder's FHSA to a second
FHSA provider and informs it of the person's TFN in the
approved form;
111 an FHSA provider contributes an amount in a person's
FHSA to a superannuation provider and informs it of the
person's TFN in the approved form:
.1 however, where an FHSA provider contributes an FHSA
balance to a complying superannuation plan that is not in
the name of the FHSA holder, the provider is not required
to provide the FHSA holder's TFN to that superannuation
provider; and
112 after the commencement of the main Bill the person quotes
their TFN under a provision of: the TAA 1953, the Income
Tax Assessment Act 1936 (ITAA 1936), the ITAA 1997 or
the Superannuation Acts:
.1 if the quotation is made before the commencement of this
Bill, the FHSA provider must request that person to quote
a TFN in relation to this Bill and the Superannuation Acts.
This is to ensure that when a person quotes their TFN they
are aware that they are quoting it for the purposes of
administering FHSAs.
[Sections 62 to 65]
149
Incorrect quotation of a tax file number
.2 An FHSA provider may record a TFN which when reported to the
Commissioner is assessed to be cancelled, withdrawn or wrong.
.3 If the Commissioner is satisfied that the FHSA holder has a TFN, the
Commissioner may provide the person's TFN to the FHSA provider.
[Section 66]
.4 If the Commissioner is not satisfied that the FHSA holder has a TFN,
the Commissioner may provide a notice to the FHSA provider and the
FHSA holder stating that they are not satisfied that the FHSA holder has a
TFN and that the FHSA provider will be:
113 unable pay any amounts to the FHSA under section 26;
114 unable to pay any amount from the FHSA under section 31;
and
115 required to close the FHSA and contribute the balance to a
complying superannuation plan under section 22.
[Section 67]
Provider's obligations to retain and destroy an individual's tax file
number
.1 An FHSA provider is also required to record and retain the TFN of an
FHSA holder (and an FHSA applicant who becomes an FHSA holder). It
must destroy the TFN as soon as reasonably practicable after:
116 the FHSA holder ceases to hold an FHSA; or
117 the FHSA provider no longer requires the TFN:
.1 an FHSA provider must record and retain a TFN that has
been quoted or taken to have been quoted by an applicant
and destroy it as soon as reasonably practicable after the
application ceases; and
.2 this obligation does not apply if a TFN has been quoted
for another purpose and it is still required for that purpose.
[Section 60]
Taxation
Provider's obligations when using a tax file number to locate amounts
.3 To protect the privacy of an individual's TFN information FHSA
providers are only permitted to use a TFN to identify amounts it holds in
an FHSA for a person, if it first uses other information to locate the
amounts. It may then use the TFN where the other information is
insufficient or to confirm the identification of that FHSA resulting from
the use of that other information. [Subsection 60(6)]
Provider's obligations when transferring FHSA savings
.4 If a person chooses to transfer their FHSA to another FHSA provider,
the other FHSA provider requires the person's TFN to open or issue them
an FHSA. In addition, if an FHSA provider is required to contribute the
FHSA to superannuation, the complying superannuation plan will require
the person's TFN to be able to accept it as a post-tax contribution.
.5 To assist with the administration of these provisions, where an FHSA
is transferred to another FHSA provider or contributed to superannuation
the FHSA provider must quote the FHSA holder's TFN in the approved
form [section 61].
118 This obligation only applies to where an FHSA provider
transfers or contributes the FHSA for the benefit of the
FHSA holder (ie, if the FHSA is contributed for the benefit
of another individual, for example, under a family law
obligation, the FHSA provider is not required to quote a
TFN).
.1
Jack and Jill are filing for divorce. Under the Family Law Act 1975 Jill
is entitled to half of Jack's assets, including his FHSA balance. Jack's
FHSA provider, the Australian Bank, receives a request from Jack to
contribute half of his FHSA balance to Jill's superannuation plan.
When the Australian Bank makes this contribution, it is not required to
provide Jack's TFN to Jill's superannuation plan.
Offence
.2 If the FHSA provider fails to comply with its TFN obligations there
are alternative offences depending on the level of culpability of the FHSA
provider. These offences and the applicable penalties are essentially the
same as those in the SIS Act.
.3 Where the relevant fault element in the Criminal Code Act 1995 is
proven, the FHSA provider is liable and a penalty of up to 100 penalty
151
units applies. This penalty reflects the serious nature of breaches of a
person's privacy. [Subsections 58(4) and 60(8), and 61(4)]
.4 Where an offence of strict liability (requiring no fault element) is
proven the FHSA provider is liable for a penalty of up to 50 penalty units.
[Subsections 58(5), 60(9), and 61(5)]
Provision of tax file numbers in forms etc.
.5 To assist with the administration of FHSAs, certain forms to be
submitted to the Regulator may require an FHSA provider's TFN. These
are:
119 the approved form to apply for authorisation as an FHSA
provider which must be submitted to APRA under
section 89; and
120 a financial return form which must also be submitted to
APRA under section 13 of the Financial Sector (Collection
of Data) Act 2001.
[Section 68]
Facilitation of the administration
.1 Section 202 of the ITAA 1936 creates a system of TFNs to assist with
the administration of various pieces of legislation including the SIS Act.
.2 This system of TFNs will also be used to facilitate the administration
of individual's TFNs in Division 2 of Part 5 of the main Bill. It will also
be used to facilitate the administration of FHSA providers in relation to
the main Bill. [FHSA (Consequential Amendments) Bill 2008, Schedule 1, item 6,
subsection 202(ka)]
Other administrative matters
External territories
.3 The FHSA Bill 2008 applies to all external territories. It is intended
that people living in Norfolk Island, Christmas Island and Cocos
(Keeling) Islands be eligible to open an FHSA to acquire a first home in
the territory in which they live. Where they do this, the associated
legislation (eg, about taxation treatment) is intended to apply in the same
way it does for residents of mainland Australia. [Section 5]
Commissioner's annual report
Taxation
.4 As is usual for Acts administered by the Commissioner, the
Commissioner is required to prepare an annual report. The report is about
the working of those parts of the Bill for which the Commissioner has
general administration. It is envisaged that the Commissioner will
include the report in his annual report about the various taxation laws the
Commissioner administers. [Section 126]
.5 APRA and ASIC will also include information about their
administration of FHSAs in their annual reports under existing obligations
in the APRA and ASIC Acts.
Approved form
.6 For provisions of the Bill administered by the Commissioner, the
standard approved form provisions (in section 388-50 of Schedule 1 to the
TAA 1953) for taxation laws apply. Although these provisions empower
the Commissioner to require the use of a particular form in the sense of a
standard document he makes available (eg, an annual income tax return),
it is expected that under most provisions requiring an approved form the
Commissioner would not require this. Rather, he would stipulate the
particular information that must be provided and leave the design of the
document (if one is required) to the entity providing the required
information.
.7 The application of the approved form provisions also means that
where an approved form is not given on time, the generic administrative
penalties for failing to notify on time (in Division 286 of Schedule 1 to the
TAA 1953) apply. [Section 55]
Decisions about Government contributions to be in writing
.8 A decision by the Commissioner about Government contributions
must be recorded in writing, but this can include electronic recording.
Computer programs may be used to make these decisions, which are taken
to be decisions of the Commissioner. [Part 4, Division 1, sections 53 and 54]
Miscellaneous matters
Application of the main Bill not to be excluded or modified
.9 The operation of the main Bill can not be excluded or modified by the
terms and conditions of the FHSA including any provisions that seek to
substitute provisions of other law for all or any of the provisions of that
Bill. [Section 4]
Civil liability of an FHSA holder
153
.10 An FHSA provider is not subject to any civil liability where it
performs an action required under the FHSA legislation. This provision is
included to avoid doubt. [Section 127]
Bankruptcy
.11 If an FHSA holder becomes bankrupt, the FHSA legislation does not
prevent the FHSA holder paying to the trustee in bankruptcy an amount
out of the FHSA to be property divisible among the FHSA holder's
creditors. See Chapter 2 for a more detailed discussion of these issues.
[Section 128]
Constitutional savings provisions
.12 The main Bill includes provisions (as a matter of caution) to prevent
any contravention of the Constitution that could result from:
121 the acquisition of property on unjust terms; or
122 the main Bill applying to State insurance not extending
beyond the State in question [sections 129 and 130].
Regulations
.1 The main Bill includes a standard power permitting the
Governor-General to make regulations. [Section 131]
Application and transitional
.2 The amendments formally commence on the day after the date of
Royal Assent to the Bills. [Section 2 of the FHSA Bill 2008; section 2 of the
FHSA (Consequential Amendments) Bill 2008; section 2 of the Income Tax (FHSA
Misuse Tax) Bill 2008]
.3 However, their practical effect is in relation to FHSAs, which can
only be opened on or after 1 October 2008 (or a later dater specified by
regulation). [Section 8 of the FHSA Bill 2008]
155
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