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SUPERANNUATION LEGISLATION AMENDMENT BILL 2010 Explanatory Memorandum

SUPERANNUATION LEGISLATION AMENDMENT BILL 2010


2008-2009-2010




               THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA











                          HOUSE OF REPRESENTATIVES











               Superannuation LEGISLATION AMENDMENT BILL 2010














                           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    Superannuation unclaimed money  7


Chapter 2    Superannuation - transitional relief for income tax
              deductibility of total and permanent disability insurance
              premiums paid by superannuation funds      17


Chapter 3    Superannuation and relationship breakdowns  31


Chapter 4    Other superannuation amendments 39


Index 51



Glossary

         The following abbreviations and acronyms are used throughout this
         explanatory memorandum.

|Abbreviation        |Definition                   |
|APRA                |Australian Prudential        |
|                    |Regulation Authority         |
|ATO                 |Australian Taxation Office   |
|Commissioner        |Commissioner of Taxation     |
|IT(TP) Act          |Income Tax (Transitional     |
|                    |Provisions) Act 1997         |
|ITAA 1936           |Income Tax Assessment Act    |
|                    |1936                         |
|ITAA 1997           |Income Tax Assessment Act    |
|                    |1997                         |
|S(UMLM) Act         |Superannuation (Unclaimed    |
|                    |Money and Lost Members) Act  |
|                    |1999                         |
|SG                  |superannuation guarantee     |
|SIS Act 1993        |Superannuation Industry      |
|                    |(Supervision) Act 1993       |
|SIS Regulations 1994|Superannuation Industry      |
|                    |(Supervision) Regulations    |
|                    |1994                         |
|SMSF                |self managed superannuation  |
|                    |fund                         |
|TPD                 |total and permanent          |
|                    |disability                   |

General outline and financial impact

Superannuation unclaimed money


         Schedule 1 to this Bill amends the Superannuation (Unclaimed Money
         and Lost Members) Act 1999, and the Income Tax Assessment Act 1997
         to:


                . facilitate state and territory authorities and public
                  sector superannuation schemes paying unclaimed
                  superannuation moneys to the Commissioner of Taxation
                  (Commissioner); and


                . enable the Commissioner to accept, and subsequently pay
                  out, amounts transferred by state and territory
                  authorities and public sector superannuation schemes.


         Date of effect:  This measure commences the day after Royal Assent.


         Proposal announced:  This measure was announced in the 2010-
         11 Budget.


         Financial impact:  This measure will have an ongoing gain to
         revenue over the forward estimates period as follows:

|2009-10   |2010-11   |2011-12   |2012-13   |2013-14   |
|Nil       |Nil       |$28.8m    |$0.4m     |$0.4m     |


         Compliance cost impact:  Low.


Superannuation - transitional relief for income tax deductibility of total
and permanent disability insurance premiums paid by superannuation funds


         Schedule 2 and clause 4 of this Bill provide transitional relief
         for income tax deductibility of total and permanent disability
         (TPD) insurance premiums paid by superannuation funds by amending
         the Income Tax (Transitional Provisions) Act 1997 and the Income
         Tax Assessment Act 1997.


         The transitional relief will provide complying superannuation
         funds, for the 2004-05 to 2010-11 income years, with a greater
         scope to deduct premiums paid for insurance cover commonly regarded
         as TPD insurance.


         Date of effect:  The income years 2004-05 to 2010-11.


         Proposal announced:  This measure was announced in the Minister
         for Financial Services, Superannuation and Corporate Law's
         Media Release No. 027 of 13 October 2009.


         Financial impact:  Nil.


         Compliance cost impact:  Unquantifiable.  No quantitative figure is
         available as there is no information on the likely new fee
         structure required to meet the proposal on the deductibility of TPD
         premiums.  However, this transitional arrangement will reduce the
         compliance costs associated with the proposal as superannuation
         funds will not need to engage actuaries during the transitional
         period.


Superannuation and relationship breakdowns


         Schedule 3 to this Bill amends the Superannuation Industry
         (Supervision) Act 1993 (SIS Act 1993) to allow the trustee of a
         regulated superannuation fund to acquire an asset in specie from a
         related party of the fund, following the relationship breakdown of
         a member of the fund, without contravening the prohibition against
         related party acquisitions.


         This Schedule also amends Subdivision D of Division 1 of Part 8 of
         the SIS Act 1993 to ensure equitable application of the
         transitional arrangements in relation to in-house assets where an
         asset transfer occurs as the result of the relationship breakdown
         of a member of the fund.


         Date of effect:  These amendments will apply in relation to assets
         acquired by a superannuation fund trustee or investment manager on
         or after the date of Royal Assent.


         Proposal announced:  This measure has not previously been
         announced.


         Financial impact:  Unquantifiable, but expected to be small.


         Compliance cost impact:  Low.


Other superannuation amendments


         Schedule 4 to this Bill makes a number of minor amendments to
         improve the operation of the superannuation sections of the income
         tax legislation.  These amendments include:


                . allowing a deduction for eligible contributions to be
                  claimed from successor superannuation funds after 1 July
                  2011;


                . increasing the time-limit for deductible employer
                  contributions made for former employees;


                . clarifying the due date of the shortfall interest charge
                  for the purposes of excess contributions tax;


                . allowing the Commissioner of Taxation to exercise
                  discretion for the purposes of excess contributions tax
                  before an assessment is issued;


                . providing a regulation making power to specify additional
                  circumstances when a benefit from a public sector
                  superannuation scheme will have an untaxed element; and


                . streamlining references to the Immigration Secretary and
                  Immigration Department.


         Date of effect:  These amendments generally commence on the day
         after Royal Assent.


         Proposal announced:  These amendments were announced in the 2010-11
         Budget.


         Financial impact:  These amendments will have an ongoing
         unquantifiable revenue impact.


         Compliance cost impact:  Low.

Chapter 1
Superannuation unclaimed money

Outline of chapter


      1. Schedule 1 to this Bill amends the Superannuation (Unclaimed Money
         and Lost Monies) Act 1999 (S(UMLM) Act), and the Income Tax
         Assessment Act 1997 (ITAA 1997) to facilitate the transfer of
         unclaimed superannuation moneys from state and territory
         authorities and public sector superannuation schemes to the
         Commissioner of Taxation (Commissioner) and to enable the
         Commissioner to accept, and subsequently pay out amounts
         transferred by state and territory authorities and public sector
         superannuation schemes.


      2. All references to legislative provisions in this chapter are
         references to the S(UMLM) Act unless otherwise stated.


Context of amendments


      3. Private sector superannuation funds are currently required to pay
         unclaimed superannuation moneys to the Commissioner.  The term
         'unclaimed superannuation moneys' refers to three types of
         unclaimed money:


                . 'general' unclaimed superannuation money;


                . unclaimed superannuation of former temporary residents;
                  and


                . lost member accounts, that is, small accounts of lost
                  members and inactive accounts of unidentifiable members.


      4. State and territory public sector superannuation providers, on the
         other hand, are not required to report and pay 'general' unclaimed
         superannuation moneys or lost member accounts to the Commissioner
         provided they comply with a state or territory law which requires
         their unclaimed money be reported and paid to the relevant state or
         territory authority.  Nor are they required to pay unclaimed
         superannuation of former temporary residents to the Commissioner.


      5. If the state or territory law does not require payment to the state
         or territory authority, regulated public sector superannuation
         schemes are required to report and pay general unclaimed
         superannuation moneys and lost member accounts to the Commissioner.




      6. State and territory authorities may also currently hold some older
         private sector unclaimed superannuation paid to them prior to
         implementation of the current unclaimed superannuation money
         arrangements for private sector funds.


      7. The amendments in Schedule 1 will allow both state and territory
         authorities and public sector superannuation schemes to transfer
         unclaimed superannuation moneys to the Commissioner.


      8. For amounts transferred to the Commissioner, individuals will still
         be able to claim back their money from the Commissioner at any
         time.


      9. The amendments will facilitate more uniform treatment of unclaimed
         money across the private and public sectors and assist in the
         central administration of unclaimed superannuation moneys.


Summary of new law


     10. Schedule 1 amends the operation of the S(UMLM) Act to permit
         participating public sector superannuation schemes as well as state
         and territory authorities to comply with the S(UMLM) Act in the
         same way as a superannuation provider.


     11. This will allow public sector superannuation schemes and
         authorities to transfer unclaimed superannuation money to the
         Commissioner.


     12. The amendments will also enable the Commissioner to subsequently
         pay out, for entitled individuals, amounts transferred from the
         States and Territories and Commonwealth public sector schemes.


     13. Amendments to the ITAA 1997 will extend the application of the ITAA
         1997 to cover the transfer of unclaimed superannuation moneys from
         the States and Territories to the Commissioner as well as
         subsequent payment by the Commissioner for individuals entitled to
         the amounts transferred.  Amendments to the ITAA 1997 also clarify
         that the rules for working out the tax components of unclaimed
         money payments apply to a benefit which is an unclaimed
         superannuation money payment by a state or territory authority.


Comparison of key features of new law and current law

|New law                  |Current law              |
|Prescribed state and     |State and territory      |
|territory public sector  |public sector            |
|superannuation schemes   |superannuation providers |
|will be permitted, but   |do not have to pay       |
|not required to pay      |'general' unclaimed      |
|'general' unclaimed      |superannuation to the    |
|superannuation moneys to |Commissioner provided    |
|the Commissioner.        |they comply with a state |
|State and territory      |or territory law which   |
|authorities will be able |requires their unclaimed |
|to pay to the            |money be reported and    |
|Commissioner unclaimed   |paid to the relevant     |
|superannuation moneys.   |state or territory       |
|                         |authority.  If the state |
|                         |or territory law does not|
|                         |require payment to the   |
|                         |state or territory       |
|                         |authority, regulated     |
|                         |public sector            |
|                         |superannuation schemes   |
|                         |are required to report   |
|                         |and pay unclaimed        |
|                         |superannuation to the    |
|                         |Commissioner.            |
|The Commissioner will be |The Commissioner is not  |
|permitted to give a      |able to give notices     |
|notice about former      |about former temporary   |
|temporary residents to   |residents to trustees of |
|the trustees of          |state and territory      |
|prescribed public sector |public sector            |
|superannuation schemes   |superannuation schemes or|
|and prescribed unfunded  |to trustees of unfunded  |
|public sector schemes.   |public sector schemes.   |
|Prescribed state and     |State and territory      |
|territory public sector  |public sector            |
|superannuation schemes   |superannuation providers |
|will be permitted, but   |do not have to pay former|
|not required to pay      |temporary resident       |
|former temporary resident|unclaimed superannuation |
|unclaimed moneys to the  |to the Commissioner.     |
|Commissioner.            |                         |
|Prescribed state and     |State and territory      |
|territory public sector  |public sector            |
|superannuation schemes   |superannuation providers |
|will be permitted, but   |do not have to pay small |
|not required to pay small|accounts of lost members |
|accounts of lost members |and inactive accounts of |
|and inactive accounts of |unidentifiable members to|
|unidentifiable members to|the Commissioner provided|
|the Commissioner.        |they comply with a state |
|                         |or territory law which   |
|                         |requires their unclaimed |
|                         |money be reported and    |
|                         |paid to the relevant     |
|                         |state or territory       |
|                         |authority.               |
|Superannuation unclaimed |No equivalent.           |
|moneys held by state and |                         |
|territory authorities    |                         |
|that are transferred to  |                         |
|the Commissioner will be |                         |
|treated in the same way  |                         |
|as amounts transferred by|                         |
|prescribed state and     |                         |
|territory public sector  |                         |
|superannuation schemes.  |                         |


Detailed explanation of new law


     14. Regulated state and territory public sector superannuation schemes
         are currently not required to pay unclaimed superannuation moneys
         to the Commissioner provided they comply with a state or territory
         law which requires their unclaimed money be reported and paid to
         the relevant state or territory authority.


     15. Currently, the Commissioner is not able to issue notices in
         relation to former temporary residents, that is, a section 20C
         notice, to either state and territory public sector superannuation
         schemes or unfunded public sector schemes.


     16. Where state or territory law does not require payment of unclaimed
         money to a state or territory authority, regulated public sector
         superannuation schemes are required to report and pay unclaimed
         superannuation to the Commissioner.


     17. In the case of Commonwealth public sector superannuation schemes,
         only regulated schemes are currently required to pay 'general'
         unclaimed money to the Commissioner.  The provisions relating to
         former temporary resident unclaimed money currently only apply to
         funded regulated Commonwealth public sector schemes while the lost
         member account provisions currently do not apply to Commonwealth
         public sector superannuation schemes which support or relate to
         defined benefit interests.


     18. These amendments will allow prescribed public sector superannuation
         schemes, as well as state and territory authorities, to transfer
         unclaimed superannuation to the Commissioner.  Individuals will
         still be able to claim back their money from the Commissioner at
         any time.


     19. These amendments will facilitate more uniform treatment of
         unclaimed money across the private and public sectors and assist in
         the central administration of unclaimed monies.


     20. Participating Commonwealth, state and territory public sector
         superannuation schemes will be prescribed in regulations.  The
         schemes to be listed will be determined in consultation with the
         States and Territories and relevant agencies.  Schemes will be able
         to prescribe for the purposes of any, or all, of the different
         elements of unclaimed money.  State and territory authorities do
         not need to be prescribed to be able to transfer superannuation
         unclaimed money amounts to the Commissioner.


     21. The simplified outline of the operation of the S(UMLM) Act will be
         amended to reflect that state and territory public sector
         superannuation schemes will be permitted to pay superannuation
         unclaimed money to the Commissioner in the same way as
         superannuation providers.  [Schedule 1, items 1 and 2, section 7]


     22. Section 8 is amended to revise or insert definitions for the
         following concepts:


                . Commonwealth public sector superannuation scheme means a
                  superannuation scheme established by or under a
                  Commonwealth law or a municipal corporation or other local
                  governing body or public authority established under the
                  authority of the Commonwealth or under a Commonwealth law
                  [Schedule 1, item 3, section 8];


                . Public sector superannuation scheme means either a
                  Commonwealth public sector superannuation scheme or a
                  state or territory public sector superannuation scheme
                  [Schedule 1, item 4, section 8];


                . State or territory public sector superannuation scheme has
                  the meaning used for the purposes of section 18 [Schedule
                  1, item 5, section 8]; and


                . Unfunded public sector schemes has the meaning given by
                  the Superannuation Guarantee (Administration) Act 1992
                  [Schedule 1, item 6, section 8].


     23. Under Part 3 of the S(UMLM) Act superannuation providers are
         required to give the Commissioner a statement of unclaimed money
         and pay unclaimed money amounts to the Commissioner.  Under section
         18, these requirements do not currently apply in relation to
         superannuation providers who are trustees of state and territory
         public sector superannuation schemes provided they comply with a
         state or territory law which requires their unclaimed money be
         reported and paid to the relevant state or territory authority.
         Unregulated public sector schemes, that is, schemes which do not
         satisfy the definition of superannuation provider, are also not
         required to pay 'general' unclaimed superannuation moneys to the
         Commissioner.


     24. Section 18AA is inserted to extend the application of the 'general'
         unclaimed money provisions of the S(UMLM) Act to public sector
         superannuation schemes that are prescribed in the regulations for
         the purposes of this section.


                . Broadly, 'general' unclaimed superannuation arises when:


                  - an individual reaches eligibility age and does not claim
                    their superannuation;


                  - the member is deceased and the superannuation provider
                    is unable to ensure that the benefit is received by the
                    person who is entitled to receive it; or


                  - a payment split applies and the superannuation provider
                    is unable to ensure that the non-member spouse or their
                    legal personal representative receives the amount.


     25. Only those schemes that have been nominated by the Commonwealth or
         the States and Territories will be listed in the regulations.  It
         will be possible, for example, for a particular state to specify
         that some of the state's schemes, but not others, are prescribed
         schemes for the purposes of section 18AA.


     26. Subsection 18AA(1) provides that those public sector schemes that
         have been prescribed in the regulations and which are not funds, as
         defined for the purposes of the S(UMLM) Act, will be treated in the
         same way as other superannuation funds for the purposes of sections
         6, 10 to 12,14,16,17, 18A to C and subsections 19(1) to (3),
         24C(6), 24E(5) and 25(2) of the S(UMLM) Act.  [Schedule 1, item 7,
         subsection 18AA(1)]


     27. Subsection 18AA(2) provides that prescribed state and territory
         public sector superannuation schemes are permitted but not required
         to give a statement to and pay an amount to the Commissioner
         provided that such a payment and statement are not prohibited by
         the governing rules of the scheme.  Permitting, rather than
         requiring, the States and Territories to pay unclaimed
         superannuation moneys to the Commissioner reflects the voluntary
         nature of these provisions.


     28. Prescribed, regulated state and territory public sector
         superannuation schemes that do not comply with a state or territory
         law which requires their unclaimed money be reported and paid to
         the relevant state or territory authority will continue to be
         subject to section 18 and therefore will not have the option of not
         giving a statement to and paying an amount to the Commissioner.


     29. Part 3A of the S(UMLM) Act requires the Commissioner to give a
         written notice (section 20C notice) to a superannuation provider
         for a fund if the Commissioner is satisfied that a former temporary
         resident has a superannuation interest in the fund.  The effect of
         a provider receiving a notice from the Commissioner under section
         20C is the requirement to give a statement and make a payment to
         the Commissioner by a certain time.  These requirements do not
         currently apply in relation to superannuation providers who are
         trustees of state and territory public sector superannuation
         schemes or to unfunded public sector schemes.


     30. Subsection 20C(3) is amended to allow the Commissioner to give a
         notice under subsection 20C(1) to both prescribed state or
         territory public sector superannuation schemes and prescribed
         unfunded public sector schemes [Schedule 1, item 8, subsection
         20C(3)].  Only those schemes agreed by the Commonwealth, States and
         Territories will be prescribed in the regulations.


     31. Section 20JA is inserted to extend the application of the former
         temporary resident unclaimed money provisions to public sector
         superannuation schemes that are prescribed in the regulations for
         the purposes of this section.


     32. Subsection 20JA(1) provides that those public sector superannuation
         schemes that have been prescribed in the regulations for the
         purposes of this section will be treated in the same way as other
         superannuation funds for the purposes of section 6, subsections
         16(7), 17(2A), 19(1) and (3), Part 3A (other than 20F(5) and (6))
         and subsections 24C(6), 24E(5) and 25(2A).  [Schedule 1, item 9,
         subsection 20JA(1)]


     33. Subsection 20JA(2) provides that where the trustee of a state or
         territory public sector superannuation scheme receives a 20C
         notice, they are permitted, but not required, to provide a
         statement to the Commissioner and permitted but not required to pay
         amounts to the Commissioner provided that such a payment and
         statement are not prohibited by the governing rules of the scheme.
         [Schedule 1, item 9, subsection 20JA(2)]


     34. Part 4A of the S(UMLM) Act requires superannuation providers to
         give the Commissioner a statement of small accounts of lost members
         and inactive accounts of unidentifiable members and to pay these
         accounts to the Commissioner.  Under section 24H, these
         requirements do not currently apply to state and territory public
         sector superannuation schemes that report and pay unclaimed moneys
         to the relevant state or territory authority.


     35. Section 24HA is inserted to extend the application of the lost
         member account provisions to public sector superannuation schemes
         prescribed in the regulations for the purposes of this section.


     36. Subsection 24HA(1) provides that those public sector superannuation
         schemes that have been prescribed in the regulations for the
         purposes of this section, will be treated in the same way as other
         superannuation funds for the purposes of section 6, subsections
         19(1) to (3), Part 4A (other than section 24F and 24HA) and
         subsections 25(3) and (4).  [Schedule 1, item 13, subsection
         24HA(1)]


     37. Subsection 24HA(2) provides that the trustee of a state or
         territory public sector superannuation scheme is permitted, but not
         required, to provide a statement of lost member accounts and pay
         those accounts to the Commissioner provided that such a payment and
         statement are not prohibited by the governing rules of the scheme.
         [Schedule 1, item 13, subsection 24HA(2)]


     38. Subsection 24HA(3) is inserted to ensure that a state or territory
         scheme that is prescribed for the purposes of this section, but
         which is also required to report and pay unclaimed superannuation
         to the Commissioner because it does not report and pay unclaimed
         superannuation moneys to the relevant state or territory authority,
         continues to be required to make a statement of unclaimed money and
         pays an amount to the Commissioner in accordance with subsections
         16(1) and 17(1).  [Schedule 1, item 13, subsection 24HA(3)]


     39. Section 49A is inserted to enable state and territory authorities
         to transfer unclaimed superannuation moneys to the Commissioner.


     40. Where unclaimed superannuation moneys have been paid to a state or
         territory authority (from either public sector or private sector
         sources) the authority will be treated as if it were the trustee of
         a prescribed state or territory public sector superannuation
         scheme, thus enabling state and territory authorities to transfer
         all unclaimed superannuation moneys to the Commissioner.  [Schedule
         1, item 14, section 49A]


Consequential amendments


     41. There are also amendments tidying up assorted references, notes and
         other matters that need to be changed because of the changes made
         to enable the transfer of unclaimed superannuation moneys from
         state and territory authorities and public sector superannuation
         schemes to the Commissioner.  [Schedule 1, items 10 to 12,
         subsection 24C(1) (note 1), subsection 24E(1) (note 1), section
         24H]


Amendments to the Income Tax Assessment Act 1997


     42. Section 306-20 of the ITAA 1997 specifies that an unclaimed money
         payment paid to the Commissioner paid in accordance with the
         S(UMLM) Act is not assessable and is not exempt income.  This
         section is amended to extend its application to capture unclaimed
         money payments paid to the Commissioner by state and territory
         public sector schemes and authorities.  [Schedule 1, item 15,
         section 306-20 of the ITAA 1997]


     43. Subsection 307-5(1) of the ITAA 1997 currently defines a
         'superannuation benefit' as including unclaimed money payments paid
         to an individual under specified sections of the S(UMLM) Act.


     44. Subsection 307-5(1) of the ITAA 1997 is amended to extend the
         definition of superannuation benefit to also include an unclaimed
         money payment paid to a state or territory public authority and
         amounts paid by a state or territory authority as mentioned in,
         respectively, subsections 18(4) and (5) of the S(UMLM) Act.
         [Schedule 1, item 16, subsection 307-5(1) (item 5 in the table)]


     45. The rules to work out the tax-free and taxable components of a
         superannuation benefit that is a payment by the Commissioner under
         the S(UMLM) Act are set out in section 307-142 of the ITAA 1997.
         Like any other superannuation benefit, a payment from the
         Commissioner can consist of a 'tax-free' component and a 'taxable
         component'.


     46. Subsection 307-142(1) is amended to ensure the rules for working
         out the tax components of a superannuation benefit apply to
         payments by a state or territory authority as mentioned in
         subsection 18(5) of the S(UMLM) Act.  [Schedule 1, item 17,
         subsection 307-142(1) of the ITAA 1997]


     47. The rules to calculate the tax-free components of a superannuation
         benefit that is an unclaimed money payment are set out in
         subsection 307-142(3).  This section is amended to include
         superannuation benefits that are unclaimed money payments by state
         and territory authorities.  [Schedule 1, items 18 and 19,
         subsection 307-142(3) of the ITAA 1997]


     48. Subsection 307-142(3A) is inserted to set the tax-free component of
         an unclaimed money payment by the Commissioner as nil if the
         unclaimed money payment is an amount paid to the Commissioner by a
         state or territory public sector superannuation scheme or authority
         and the Commissioner has not been provided with sufficient
         information to work out the tax-free component of the payment.
         [Schedule 1, item 20, subsection 307-142(3) of the ITAA 1997]


     49. Where state and territory public sector schemes and authorities
         provide the Commissioner with details of the tax-free and taxable
         components of transferred unclaimed superannuation moneys, those
         components will be determined in accordance with that information.




     50. If a taxpayer is able to produce information that shows that the
         tax-free amount should be an amount other than nil, the
         Commissioner is able to use the information provided to determine
         the tax-free component of the unclaimed money payment.


Application provision


     51. Changes relating to the transfer of unclaimed superannuation moneys
         to the Commissioner by state and territory authorities will apply
         in relation to transfers occurring, before, on or after the
         commencement of this item.  [Schedule 1, item 21, subparagraph
         49A(1)(b)(i)]


     52. Changes to section 307-142 of the ITAA 1997 will apply in relation
         to payments made on or after the commencement of this item.
         [Schedule 1, item 21, section 307-142 of the ITAA 1997]



Chapter 2
Superannuation - transitional relief for income tax deductibility of total
and permanent disability insurance premiums paid by superannuation funds

Outline of chapter


      53. Schedule 2 and clause 4 of this Bill provide transitional relief
          for income tax deductibility of total and permanent disability
          (TPD) insurance premiums paid by superannuation funds by amending
          the Income Tax (Transitional Provisions) Act 1997 (IT(TP) Act)
          and the Income Tax Assessment Act 1997 (ITAA 1997).


      54. The transitional relief will provide complying superannuation
          funds, for the 2004-05 to 2010-11 income years, with a greater
          scope to deduct premiums paid for insurance cover commonly
          regarded as TPD insurance.


      55. All legislative references in this chapter are to the IT(TP) Act
          unless otherwise stated.


Context of amendments


Insurance provided through superannuation funds


      56. Superannuation funds commonly take out death and disability
          insurance policies to insure their risk for a liability they may
          incur to their members.  How a fund insures that risk (for
          example, in whole or in part, with or without other risks) may
          vary among funds and policies.


      57. Superannuation funds obtaining death and disability insurance for
          this purpose is consistent with the key objective of
          superannuation.  That is, to provide benefits to members in
          retirement or, in the event of the member's death, to the
          member's beneficiaries.


      58. Disability insurance taken out by superannuation funds includes
          TPD insurance.  The definition of the TPD cover provided can vary
          across insurance policies.  For example, insurance policies can
          include TPD cover based on a definition of 'permanent disability'
          as the inability of the member to perform 'any occupation', or as
          the inability of the member to continue to perform his or her
          'own occupation'.  Other TPD cover is known as 'loss of
          independence', 'home duties' or 'loss of limbs/sight'.


      59. As the fund contracts with an insurance provider, any payout
          under the insurance policy due to the occurrence of an insured
          event will be made to the fund.


      60. A fund can only provide a benefit referable to that payment (and
          any other preserved benefits) to the member if a condition of
          release of benefits has been satisfied.  These conditions are
          contained in the Superannuation Industry (Supervision)
          Regulations 1994 (SIS Regulations 1994), and include retirement,
          attaining the age of 65, death, permanent incapacity and
          temporary incapacity.


      61. There may be circumstances where, as a consequence of the
          definition of 'permanent disability' used in the policy, a fund
          receives an insurance payment due to the occurrence of an insured
          event but no condition of release has been satisfied.  In these
          cases, the fund will retain the proceeds of the insurance payment
          in the fund until a condition of release is met.


      1.


                  Bill is a member of ABC Super which took out a TPD
                  insurance policy to cover its members in the event of them
                  being permanently disabled by a 'loss of limb'.  Bill had
                  an accident which resulted in a loss of limb, but after a
                  period of rehabilitation could still perform his regular
                  employment duties.


                  ABC Super received a payout under the insurance contract.
                  However, it could not pay this amount to Bill immediately
                  as the permanent incapacity condition of release had not
                  been met.  ABC Super could pay the money to Bill only in
                  the event of a condition of release, for example,
                  retirement.


Outline of existing law


         Income Tax Assessment Act 1997


      62. As part of the 2007 Better Super reforms, the provisions
          regarding deductibility of TPD insurance premiums paid by
          superannuation funds were transferred from Division 3 of Part IX
          of the Income Tax Assessment Act 1936 (ITAA 1936) to Division 295
          of the ITAA 1997, with effect from the 2007-08 income year.


      63. Subsection 295-465(1) of the ITAA 1997 provides a tax deduction
          for all or part of a TPD insurance premium paid by a complying
          superannuation fund in certain circumstances.  A fund is allowed
          to deduct a premium paid for an insurance policy for a liability
          of the fund to provide a disability superannuation benefit.  This
          is defined in the ITAA 1997 to mean a 'superannuation benefit'
          if:


                . the benefit is paid to a person because he or she suffers
                  from ill-health (whether physical or mental); and


                . two legally qualified medical practitioners have certified
                  that, because of the ill-health, it is unlikely that the
                  person can ever be gainfully employed in a capacity for
                  which he or she is reasonably qualified because of
                  education, experience or training.


      64. This definition is similar to the definition of 'permanent
          incapacity' in the SIS Regulations 1994 which is a condition of
          release of benefits.


      65. Where part of an insurance premium is specified in the policy as
          wholly giving rise to a liability of the fund to provide a
          'disability superannuation benefit', as defined, a fund can fully
          deduct that portion of the premium.


      66. Partial deductibility arises where the TPD definition in the
          insurance policy differs from the definition of 'disability
          superannuation benefit' in the ITAA 1997.  Under subsection 295-
          465(3), if apportioning is required, an actuary's certificate
          must be obtained which specifies how much of the policy premium
          is attributable to the liability of the fund to provide
          disability superannuation benefits.


         Income Tax Assessment Act 1936


      67. The now repealed provisions of the ITAA 1936 allowed a deduction
          for the whole or part of the premium for 'death or disability
          benefits', if the whole or part of the premium is specified in
          the policy as being wholly attributable to a liability of the
          fund to provide disability benefits to members.  An actuary's
          certificate was required if no amount was specified or if only
          part of the amount specified was attributable to the liability of
          the fund to provide death or disability benefits to members.


      68. In the ITAA 1936, death or disability benefits was defined to
          include a benefit provided to the member in the event of the
          permanent disability of the member.  No definition of 'permanent
          disability' was provided.


         Summary


      69. The current law provides that TPD insurance premiums are
          deductible only to the extent the policies have the necessary
          connection to a liability of a fund to provide permanent
          incapacity benefits.  Where proportioning is necessary, an
          actuary's certificate is required to support the deduction
          claimed.  This was also the case under the previous ITAA 1936
          provisions.


         Industry views and practice


      70. Industry representatives have indicated they consider that, under
          the ITAA 1936 provisions, the premium was fully deductible if
          paid for a policy insuring against some form of permanent
          disability.  Industry has advised that this practice has
          continued after the 2006-07 income year under the provisions of
          the ITAA 1997.


      71. Industry has raised concerns about the application of the
          provisions of the ITAA 1997.  For example, for industry practice
          to become aligned with the law, changes to insurance policies,
          premiums, systems, disclosure and actuarial certification
          practices would be necessary.


         Consistency with retirement income policy objectives


      72. Under the ITAA 1997, a tax deduction is provided in relation to
          TPD benefits that would satisfy the 'permanent incapacity'
          condition of release (or in effect provide benefits in
          retirement).  This is consistent with one of the underlying
          objectives of retirement income policy - that superannuation
          funds must generally be maintained for the sole purpose of
          providing benefits on a member's retirement (or on or after the
          occurrence of earlier contingencies such as death or ill-health).




      73. It appears industry's practice under the ITAA 1936 was to claim
          deductions for premiums relating to TPD policies -
          notwithstanding that, in some cases, claims under such policies
          may result in payouts to the fund trustee in circumstances where
          the member could not satisfy the 'permanent incapacity' release
          condition.


      74. In such cases, the moneys are held in the fund until the member
          satisfies a condition of release, such as retirement at or after
          preservation age (see Example 2.1).  This results in a tension
          with retirement income policy, as it provides a tax concession to
          a fund for that portion of the cost of an insurance policy that
          may give rise to payments to the funds which are not directly or
          immediately related to a liability of the fund to provide death
          and disability benefits to members.


         Announcement of transitional relief


      75. The Government has recognised the concerns raised by industry
          regarding its ability to immediately begin deducting TPD premiums
          in accordance with the ITAA 1997.


      76. On 13 October 2009, the Minister for Financial Services,
          Superannuation and Corporate Law announced amendments to the tax
          law to provide transitional relief to complying superannuation
          funds for the deduction of TPD insurance premiums.  The Minister
          noted that the transitional relief will minimise disruption to
          the industry and allow enough time for funds to make the
          necessary administrative changes.


Summary of new law


      77. Schedule 2 and clause 4 of this Bill amend the ITAA 1997 and the
          IT(TP) Act, and contain stand-alone provisions altering the
          operation of the ITAA 1936, to provide transitional relief for
          income tax deductibility of TPD insurance premiums paid by
          superannuation funds for the income years from 2004-05 to 2010-
          11.


      78. The transitional relief allows complying superannuation funds to
          deduct in full the insurance premiums commonly regarded as TPD
          policy premiums.  This is achieved by allowing, in the
          transitional period, broader definitions of 'death or disability
          benefits' in the ITAA 1936 and 'disability superannuation
          benefit' in the ITAA 1997 to the extent they relate to the
          deductibility of TPD insurance premiums.


      79. For the transitional relief to apply to a TPD insurance policy
          premium, the insured permanent disability must be one that is
          described in regulations made for the purposes of the
          transitional provisions.


      80. The amendments do not limit the operation of the current law.
          The current provisions of the ITAA 1997 will apply throughout the
          transitional period; however, the definition of 'disability
          superannuation benefit' will be broadened by the transitional
          arrangements.


Comparison of key features of new law and current law

|New law                  |Current law              |
|For the transitional     |Complying superannuation |
|period (the income years |funds can claim an income|
|from 2004-05 to 2010-11),|tax deduction for        |
|complying superannuation |premiums to the extent   |
|funds may claim a        |that the policy has the  |
|deduction for TPD        |necessary connection to a|
|insurance premiums that  |liability of the fund to |
|provide cover for the    |provide permanent        |
|permanent disability of  |incapacity benefits.     |
|the member.  Permanent   |                         |
|disabilities will be     |                         |
|described in regulations.|                         |
|For the transitional     |A fund is able to deduct |
|period, the meanings of  |a premium paid for an    |
|'disability              |insurance policy for a   |
|superannuation benefit'  |liability of the fund to |
|and 'death or disability |provide a 'disability    |
|benefits' will be        |superannuation benefit'  |
|broadened by regulation. |(in the ITAA 1997) or    |
|                         |'death or disability     |
|                         |benefits' (in the        |
|                         |ITAA 1936).              |
|For the transitional     |When an unknown part of a|
|period, a policy that has|specified amount of a    |
|specified a portion of a |premium is attributable  |
|premium to be for the    |to the liability of the  |
|liability to provide TPD |fund to provide the above|
|benefits under the       |benefits to members, an  |
|broader meaning, will not|actuary's certificate is |
|require actuarial        |required to support the  |
|certification to claim a |deduction claimed as an  |
|deduction for the        |actuary is required to   |
|specified TPD insurance  |determine the deductable |
|premium.                 |amount.                  |


Detailed explanation of new law


      81. Schedule 2 and clause 4 of this Bill provide transitional relief
          for income tax deductibility of TPD insurance premiums paid by
          superannuation funds.  The transitional relief will provide
          complying superannuation funds, for the 2004-05 to 2010-11 income
          years, with a greater scope to deduct premiums paid for insurance
          cover commonly regarded as TPD insurance.


      82. This is achieved by amending the IT(TP) Act and the ITAA 1997,
          and enacting stand-alone provisions altering the operation of the
          ITAA 1936.


      83. A new section 295-466, inserted into the IT(TP) Act, provides an
          expanded meaning for the term, 'disability superannuation
          benefit' with effect for the  income years from 2007-08 to 2010-
          11.  [Schedule 2, item 5]


      84. The stand-alone provisions in this Schedule provide an expanded
          meaning for the term 'death or disability benefits' with effect
          for the income years 2004-05 to 2006-07.  [Schedule 2, item 1]


Scope of the transitional arrangements


      85. The transitional relief applies to a complying superannuation
          fund if the fund pays a premium for a TPD insurance policy in the
          income years 2004-05 to 2010-11.  The policy must be wholly or
          partly to cover the liabilities of the superannuation fund,
          whether they are current or contingent, to provide benefits to
          members.  [Schedule 2, subitem 1(1) and item 5, subsection 295-
          466(1)]


Operation of the transitional arrangements


         The expanded meaning of 'disability superannuation benefit' and
         'death or disability benefits'


      86. The terms 'disability superannuation benefit', in the ITAA 1997,
          and 'death or disability benefits', in the ITAA 1936 are expanded
          for the transitional period 2004-05 to 2010-11.  [Schedule 2,
          subitem 1(2) and item 5, subsection 295-466(2)]


      87. A benefit is to be treated as a 'disability superannuation
          benefit' if it is a superannuation benefit that is conditional on
          the disability of the member and the disability to which it
          relates is described as a permanent disability in regulations
          made for the purposes of the new section 295-466 of the IT(TP)
          Act.  [Schedule 2, item 5,
          subsection 295-466(2)]


      88. The scope of the expanded meaning of 'death or disability
          benefits' in the ITAA 1936 is exactly the same as that for
          'disability superannuation benefit' in the ITAA 1997.  Benefits
          are treated as 'death or disability benefits' if they are
          conditional on the disability of the member and the disability is
          described as a permanent disability for the regulations made for
          the purposes of section 295-466 of the IT(TP) Act.  [Schedule 2,
          subitem 1(2)]


      89. Regulations made for the purpose of section 295-466 of the IT(TP)
          Act will describe particular permanent disabilities.  The
          regulations will be drafted after consultation with industry and
          cover meanings of 'disability' commonly considered permanent
          disabilities in TPD insurance policies in the relevant incomes
          years, 2004-05 to 2010-11.  [Schedule 2, item 1, paragraph (2)(b)
          and item 5, paragraph 295-466(2)(b)]


      1.


                Extra Super Fund pays premiums to Bonus Insurance in the
                income years 2004-05 to 2010-11.  The policy specifies that
                a certain portion of the insurance is to cover Extra's
                liabilities to its members in the event of the permanent
                disability of Extra's members.  The insurance contract
                between Extra and Bonus states that 'permanent disability'
                means a disability which prevents a member performing his or
                her occupation.


                A disability that prevents a member from performing his or
                her own occupation is described as a permanent disability in
                regulations made for the purposes of section 295-466 of the
                IT(TP) Act.


                For the income years 2004-05 to 2010-11, under the
                transitional arrangements, Extra will be able to claim a
                deduction for the whole premium.  This is because the
                meaning of 'permanent disability' given in the policy
                corresponds to the expanded meanings of 'death or disability
                benefits' in the ITAA 1936 and 'disability superannuation
                benefit' in the ITAA 1997.  The same would apply if
                'permanent disability' in the insurance contract had
                encompassed any disability described as a permanent
                disability in the regulations made for the purposes of
                section 295-466 of the IT(TP) Act.


         Entitlement to deduction


      90. The expanded meanings of 'disability superannuation benefit' and
          'death or disability benefits' apply to the sections of the
          ITAA 1997 and the ITAA 1936 which allow superannuation funds to
          deduct TPD insurance premiums.  [Schedule 2, item 5, section 295-
          466 and item 1]


      91. Overall, the broadening of the terms 'disability superannuation
          benefit' and 'death or disability benefits' allows complying
          superannuation funds to claim deductions for insurance premiums
          for the 2004-05 to 2010-11 income years under the expanded
          meanings of these terms.  By expanding these terms to broadly
          align with industry's view of 'permanent disability', the
          requirement for superannuation funds to obtain extra actuarial
          certification when claiming a deduction for TPD benefits is
          removed.  A superannuation fund will be required to obtain
          actuarial certification when no amount is specified in the policy
          and there is no current apportionment by an actuary in line with
          the broader definition.  [Schedule 2, subitem 1(3) and item 5,
          subsection 295-466(3)]


      1.


                FunTime Super Fund takes out specific TPD insurance policies
                to cover its members in the event of them being permanently
                disabled.  The definition of permanently disabled in the
                policy covered members for 'loss of limb'.


                'Loss of limb' insurance is not clearly aligned with the
                SIS Regulations 1994 permanent incapacity condition of
                release.


                For FunTime to correctly claim a deduction under the current
                law, FunTime must engage an actuary to determine how much of
                the policy premium relates to the narrow definition of
                'disability superannuation benefit' under the ITAA 1997
                (item 6 in the table in
                subsection 295-465(1) of the ITAA 1997).


                However, under the transitional provisions, 'loss of limb'
                is considered a permanent disability for the purposes of the
                expanded meaning of 'disability superannuation benefit'.
                This means that the whole of Funtime's premium is
                deductible.  Hence, under the transitional provisions,
                Funtime's situation falls under item 5 in the table in
                subsection 295-465(1) of the ITAA 1997 as the policy
                specifies the amount of premium and no actuarial
                certification is necessary.


         Nexus between deductibility and insured events under the
         transitional arrangements


      92. In effect, the current law provides that premiums for a TPD
          policy will only be deductible if an event that triggers a payout
          under the insurance policy would also trigger the permanent
          incapacity condition of release of benefits in SIS Regulations
          1994.  (For more details, see paragraphs 2.4 to 2.9.)


      93. The transitional provisions mean that there would not be a
          necessary nexus between the payout by the insurer to the fund and
          the satisfaction of the permanent incapacity condition of release
          of benefits to members.


      94. For the purposes of applying former subsections 279(1) and (3) of
          the ITAA 1936, the benefits are to be treated as 'death or
          disability benefits', in broader circumstances than the former
          law allowed, as the term 'death or disability benefits' has an
          extended meaning.  That is, the member being permanently disabled
          - according to the disability described in the regulations as
          permanent disability - is a necessary but not a sufficient
          condition for the release of benefits to the member.  [Schedule
          2, subitems 1(2) (including the note) and (3)]


      95. Similarly, for the purposes of applying subsection 295-465(1) and
          paragraph 295-460(b) of the ITAA 1997, the benefits are to be
          treated as a 'disability superannuation benefit' to the extent
          that the disability on which the policy is conditional is
          described in the regulations as a permanent disability.
          [Schedule 2, item 5, subsections 295-466(2) (including the note)
          and (3)]


      96. Thus the transitional arrangements ensure there is no requirement
          that a permanent disability event, which triggers an insurance
          payout, also triggers an immediate liability of the fund to pay
          benefits to a member of the fund.  Rather, other events might
          have to occur after the permanent disability of the members
          before the fund pays the benefits to the members.  For example,
          the members might have to satisfy a condition of release of
          benefits specified in a standard made under paragraph 31(2)(h) of
          the Superannuation Industry (Supervision) Act 1993, such as
          attaining age 65 or reaching preservation age.


      1.


                Triple D Super Fund takes out TPD insurance policies with
                Help Insurer to cover its liabilities to its members in the
                event of them being permanently disabled and unable to
                perform their 'own occupation'.


                Nina is a member of Triple D.  The premium for the insurance
                policy relating to an injury Nina might suffer was paid by
                Triple D to Help in the income years 2005-06 to 2008-09.


                Nina is a hairdresser.  In a nasty accident she loses three
                fingers from her right hand.  The injury prevents Nina from
                performing her own occupation; however, Nina takes up a role
                as a sales representative for hair products.


                Nina's accident triggers a payout under the policy by Help
                to Triple D.  Triple D does not make a payment to Nina
                because she has not retired.  The monies remain in the fund
                until Nina retires at the age of 65.


                The event of Nina's accident triggered an insurance payout,
                but did not immediately trigger a liability of Triple D to
                provide benefits to Nina.  Despite this, the whole of the
                premium relating to TPD is tax deductible by Triple D Super
                fund under the transitional arrangements as applied to
                section 279 of the ITAA 1936 and as they apply to subsection
                295-465(1) of the ITAA 1997.


Relation between the transitional arrangements and the current law


      97. The transitional measure explicitly does not limit the operation
          of the current law.  It merely broadens the circumstances in
          which superannuation funds may claim a tax deduction for a
          premium paid for a TPD insurance policy.  [Schedule 2, item 1,
          paragraph (3)(b), and item 5, paragraph 295-466(3)(b)]


      98. A fund that has been applying the current law and specifying what
          portion of a policy premium, for a TPD insurance policy, is
          wholly responsible for the liability to provide a 'disability
          superannuation benefit' under the narrower meaning in the current
          law will not be disadvantaged.  Such a fund will be able to claim
          a greater deduction if a greater portion of the policy is for the
          liability to provide a 'disability superannuation benefit' due to
          that term's expanded meaning.  However, if there is no way of
          working out the amount of the extra deduction by the information
          specified in the policy, the fund will be required to obtain
          actuarial certification.  This is because the situation will fall
          under item 6 in the table in subsection 295-465(1).


      1.


                Sunshine Super Fund takes out TPD insurance policies to
                cover its liabilities to its members in the event of them
                being unable to continue performing their 'own occupation'.
                'Own occupation' insurance is not clearly aligned with the
                SIS Regulations 1994 permanent incapacity condition of
                release.


                Sunshine engages an actuary who estimates under item 6 of
                subsection 295-465(1) that 80 per cent of the payouts would
                relate to conditions where the member can be re-employed in
                another occupation for which they are reasonably qualified
                by education, experience and training and only 20 per cent
                would satisfy the SIS Regulations 1994 permanent incapacity
                condition of release which requires that the member cannot
                be re-employed in another occupation for which they are
                reasonably qualified.  Thus the proportion of the insurance
                premium that relates to a liability of the fund to provide
                TPD benefits is 20 per cent.


                Sunshine Super Fund has been applying the current law and
                claiming only 20 per cent of the TPD insurance premium as a
                deduction in line with the actuarial estimate.


                Under the transitional arrangements, Sunshine Super Fund
                could continue to deduct 20 per cent in line with its
                established practice.  Alternatively, it could claim the
                full deduction for the income years 2004-05 to 2010-11 since
                a disability that prevents a member from performing his or
                her own occupation is described in the regulations made for
                the purposes of section 295-466 of the IT(TP) Act as a
                permanent disability.


      2.


                Rainbow Super Fund takes out TPD insurance policies to cover
                its liabilities to its members in the event of them being
                unable to perform 'any occupation'.  The 'any occupation'
                permanent disability event is aligned with the SIS
                Regulations 1994 permanent incapacity condition of release.
                Rainbow Super Fund has been claiming a full deduction for
                the premiums.


                Under both the transitional arrangements and the current law
                Rainbow Super Fund has correctly been claiming the full
                deduction.  No actuarial certificate has been or will be
                required.


                This is because under the current law, Rainbow had specified
                in the policy a premium which aligned with the narrow
                definition of 'disability superannuation benefit'.  The
                expanded meaning of 'disability superannuation benefit' in
                the transitional provisions will not affect a narrow policy
                such as the policy Rainbow has for it's liability to provide
                benefits to members.


Amendment of assessments


      99. Section 170 of the ITAA 1936 limits the ability of the
          Commissioner of Taxation (Commissioner) to amend tax assessments.
           By the time these transitional arrangements receive Royal
          Assent, the four-year period for making amended assessments for
          the 2004-05 income year will have closed and will be near closing
          for the 2005-06 income year.  Thus, section 170 would prevent
          superannuation funds, which have claimed a deduction for past
          years in accordance with the current law, from choosing the
          broader deduction allowed under the transitional provisions.


     100. To counter this, the transitional amendments preclude the
          application of section 170 to allow a superannuation fund to
          claim the broader tax deduction allowed by the expanded
          definition of 'permanent incapacity'.  Section 170 is precluded
          if the amendment is made for the purpose of giving effect to the
          transitional arrangements, the original assessment was made
          before the commencement of the transitional arrangements, and the
          amendment is made within two years of commencement of the
          transitional arrangements.  A window of two years after Royal
          Assent of the transitional provisions provides a reasonable time
          for amended assessments to be made.  [Clause 4 and Schedule 2,
          item 5, subsection 295-466(4)]


Consequential amendments


     101. A note is inserted after paragraph 295-460(b) of the ITAA 1997
          alerting the reader to transitional provisions in the IT(TP) Act.
           [Schedule 2, item 2]


     102. Item 5 in the table in subsection 295-465(1) is permanently
          amended, to clarify the operation of the item in the table.
          Under item 5, a deduction will be allowed for a premium specified
          in the policy as being wholly for the liability to provide
          certain benefits, if those benefits are referred to in
          section 295-460.  Hence all that is needed to be specified in a
          policy are the type of benefits, not that the benefits are
          literally 'wholly for the liability to provide benefits referred
          to in section 295-460'.  [Schedule 2, item 3]


     103. The heading of section 295-465 of the IT(TP) Act is amended to
          accommodate the insertion of the transitional provisions
          contained in this Bill and to make the headings in the IT(TP) Act
          consistent with the headings in the ITAA 1997.  [Schedule 2,
          item 4]


Commencement


     104. Commencement is to be by proclamation which will be timed to
          coincide with the commencement of the regulations.  [Clause 2,
          item 2, item 3 in the table]


     105. This is appropriate as the extended meanings of the terms
          'disability superannuation benefit' (in the ITAA 1997) and 'death
          or disability benefits' (in the ITAA 1936) are dependant on the
          description of 'permanent' disability which will be contained in
          regulations.


Repealing provision


     106. The transitional amendments to the IT(TP) Act and the note
          inserted in paragraph 295-460(b) of the ITAA 1997 will be
          repealed on 1 January 2017.  By such time any amendments to tax
          assessments for the period that the transitional arrangements
          apply (2004-05 to 2010-11 income years) will have been made,
          given the four-year amendment period for tax assessments.  Such
          tax assessments will no longer be amendable by the Commissioner.
          [Schedule 2, items 2 (note in paragraph 295-460(b) of the ITAA
          1997), 6 and 7, section 295-466]

Chapter 3
Superannuation and relationship breakdowns

Outline of chapter


      1. Schedule 3 to this Bill amends the Superannuation Industry
         (Supervision) Act 1993 (SIS Act 1993) to allow the trustee of a
         regulated superannuation fund to acquire an asset in specie from a
         related party of the fund, following the relationship breakdown of
         a member of the fund, without contravening the prohibition against
         related party acquisitions.


Context of amendments


    107.    Subsection 66(1) of the SIS Act 1993 generally prohibits a
         trustee from acquiring assets from a related party of the fund.


    108. Paragraphs 66(2)(a) to (c) respectively provide exceptions relating
         to listed securities, business real property, and assets acquired
         under a merger of two regulated funds.  Subsection 66(2A) provides
         an exception for certain in-house assets.  Paragraph 66(2)(d)
         empowers the regulators, by legislative instrument, to create
         further exceptions.


    109. Part VIIIB of the Family Law Act 1975 allows, on the breakdown of a
         marriage or a de facto relationship, certain payments that are
         payable in respect of a person's superannuation interests to be
         allocated between the parties to the relationship.  This may be
         achieved in various ways, for example, the Superannuation Industry
         (Supervision) Regulations 1994 (SIS Regulations 1994) contain rules
         that facilitate the creation of separate superannuation interests
         for the non-member spouse and the acquisition of these interests by
         the trustee of another regulated fund.


    110. Subsection 66(5) of the SIS Act 1993 provides that accepting money
         is not considered to be acquiring an asset.  However, in the event
         of a relationship breakdown many small superannuation funds may not
         have sufficient cash to make a payment to another fund.  As a
         result, trustees may wish to separate the superannuation interests
         of the parties by making an in specie transfer.


    111. This is facilitated to some extent by the Australian Taxation
         Office (ATO) Determination SPR 2006/MB1, made on 28 August 2006.
         The Determination ensures that a trustee of a self managed
         superannuation fund (SMSF) does not breach section 66 of the SIS
         Act 1993 when it acquires an asset from another regulated
         superannuation fund following the marriage breakdown of a member of
         the SMSF, even where it is acquired from a related party.


    112. The ATO Determination has a number of limitations:


                . it does not apply to opposite-sex or same-sex de facto
                  relationships (and is therefore inconsistent with
                  legislative developments to avoid discrimination toward
                  opposite-sex and same-sex de facto relationships in
                  superannuation, taxation and family law); and


                . by virtue of the scope of the Commissioner of Taxation's
                  regulatory powers under the SIS Act 1993, it does not
                  cover transfers or roll-overs made to funds regulated by
                  the Australian Prudential Regulation Authority (APRA).


    113. With these gaps, subsection 66(1) of the SIS Act 1993 can have the
         effect of preventing certain in specie acquisitions resulting from
         a relationship breakdown.


    114. In addition, the ATO Determination is not consistent with recent
         legislative developments to extend the capital gains tax marriage
         breakdown roll-over (including for opposite-sex de facto
         relationships), to in specie transfers of personal superannuation
         interests from a small superannuation fund to another complying
         superannuation fund.


Summary of new law


    115. Schedule 3 amends section 66 of the SIS Act 1993 so that a trustee
         or investment fund manager of a regulated superannuation fund is
         not prohibited from acquiring an asset from a related party of the
         fund where the acquisition occurs as the result of the relationship
         breakdown of a member of the fund.


    116. This Schedule also amends Subdivision D of Division 1 of Part 8 of
         the SIS Act 1993 to ensure equitable application of the
         transitional arrangements in relation to in-house assets where an
         asset transfer occurs as the result of the relationship breakdown
         of a member of the fund.


    117. Relationship covers those in respect of marriage, and opposite-sex
         and same-sex de facto relationships.


    118. These amendments will ensure that section 66 is not an impediment
         to separating partners achieving a 'clean break' from each other in
         terms of their superannuation arrangements, and does not
         discriminate against opposite-sex and same-sex de facto
         relationships.


Comparison of key features of new law and current law

|New law                  |Current law              |
|An exception to the      |An exception to the      |
|subsection 66(1)         |subsection 66(1)         |
|prohibition is provided  |prohibition is provided  |
|through a provision in   |through ATO Determination|
|the SIS Act 1993.        |SPR 2006/MB1.            |
|A trustee or investment  |A trustee of an SMSF may |
|manager of a regulated   |acquire an asset in      |
|superannuation fund may  |specie from a related    |
|acquire an asset in      |party of the fund,       |
|specie from a related    |following the marriage   |
|party of the fund,       |breakdown of a member of |
|following the            |the fund.                |
|relationship breakdown of|The asset may be acquired|
|a member of the fund.    |from a trustee or        |
|Relationship breakdown   |investment manager of    |
|covers those in respect  |another regulated        |
|of marriage, and         |superannuation fund.     |
|opposite-sex and same-sex|                         |
|de facto relationships.  |                         |
|The asset may be acquired|                         |
|from a trustee or        |                         |
|investment manager of    |                         |
|another regulated        |                         |
|superannuation fund.     |                         |
|Where a transferred asset|Where a transferred asset|
|would have been subject  |is subject to the        |
|to the in-house asset    |in-house asset           |
|transitional exemption   |transitional exemption   |
|provisions had it always |provisions in the        |
|been held by the         |transferring fund, that  |
|receiving fund, that     |exemption no longer      |
|exemption will apply to  |applies to the asset in  |
|the asset in the         |the receiving fund.      |
|receiving fund even where|                         |
|it did not in the        |                         |
|transferring fund.       |                         |


Detailed explanation of new law


    119. These amendments allow for a trustee or investment manager of a
         regulated superannuation fund to acquire assets from a related
         party where the acquisition occurs as the result of the
         relationship breakdown of a member.  [Schedule 3, item 2,
         subsections 66(2B) and (2C)]


    120. They also allow for the application of the transitional exemption
         provisions in relation to in-house assets where assets are acquired
         as the result of a relationship breakdown.  [Schedule 3, item 3,
         section 71EA]


Scope of the measure


    121. Subsection 66(1) of the SIS Act 1993 does not prohibit a trustee or
         investment manager acquiring an asset from a related party of the
         fund if:


                . the asset is acquired for the benefit of a particular
                  member of the acquiring fund from the trustee or
                  investment manager of another regulated superannuation
                  fund  [Schedule 3, item 2, paragraph 66(2B)(a)];


                . at the time of the acquisition:  the member and his or her
                  spouse or former spouse are separated and there is no
                  reasonable likelihood of cohabitation being resumed
                  [Schedule 3, item 2, paragraph 66(2B)(b)];


                . the acquisition occurs because of reasons directly
                  connected with the breakdown of the relationship [Schedule
                  3, item 2, paragraph 66(2B)(c)]; and


                . the asset represents the whole, or a part, of either:


                  - the member's own interests in the transferring fund
                    [Schedule 3, item 2, paragraph 66(2B)(d)]; or


                  - the member's entitlements as determined under Part VIIIB
                    of the Family Law Act 1975 in relation to the interests
                    of the member's spouse, or former spouse, in the
                    transferring fund [Schedule 3, item 2, paragraph 66
                    (2B)(d)].


Relationship breakdown


    122. For the purposes of subsections 66(2B) and 71EA(3), the question
         whether the spouses, or former spouses, have separated is to be
         determined in the same way as it is for the purposes of section 48
         of the Family Law Act 1975 (as affected by sections 49 and 50 of
         that Act).  [Schedule 3, item 2, subsection 66(2C) and item 3,
         subsection 71EA(2)]


    123. The mere fact that two separated people live in the same home (that
         is, they are genuinely separated but living under one roof) does
         not amount to 'cohabitation' for this purpose.


Transitional arrangements in relation to in-house assets


    124. The effect of section 71EA is that for the purpose of applying
         Subdivision D of Division 1 of Part 8 (Transitional arrangements in
         relation to in-house assets) to an asset acquired by the trustee or
         investment manager of a fund as mentioned in subsection 71EA(1),
         treat:


                . the acquisition as having occurred at the time the trustee
                  or investment manager of the transferring fund acquired
                  the asset [Schedule 3, item 3, paragraph 71EA(3)(a)];


                . anything done by, for or in relation to the transferring
                  fund in relation to the asset before the acquisition time,
                  as having been done by, for or in relation to the
                  acquiring fund  [Schedule 3, item 3, paragraph
                  71EA(3)(b)]; and


                . anything done by, for or in relation to the trustee or
                  investment manager of the transferring fund in relation to
                  the asset before the acquisition time, as having been done
                  by, for or in relation to the trustee or investment
                  manager of the acquiring fund [Schedule 3, item 3,
                  paragraph 71EA(3)(c)].


    125. Consequently, where an asset is transferred as the result of a
         relationship breakdown, it will be considered to be an in-house
         asset in relation to the acquiring fund only to the same extent it
         would have been had that asset always been held by the trustee or
         investment manager of that fund.


      1.


                Seamus and Lucy each have a personal interest in a regulated
                superannuation fund.  The fund is subject to a payment
                splitting order which requires that the trustee transfer all
                of the assets reflecting Seamus's personal interest to
                another regulated superannuation fund for Seamus.


                The assets reflecting Seamus's personal interest include a
                unit in a related trust acquired by the fund prior to 11
                August 1999 and covered by the in-house asset transitional
                exemption provisions.


                If the trustee transfers the unit in the related trust to
                the other regulated superannuation fund it would continue to
                be exempt from the in-house asset rules, even if the unit
                trust is a related trust of the other regulated
                superannuation fund.


                Note:  This would be the outcome even if the unit was
                transferred for Lucy's benefit.


      2.


                Harry is a member of an SMSF which holds an asset consisting
                of a partly paid unit in a related trust.  Since a payment
                was made on the unit to the issuer after 30 June 2009, the
                asset is an in-house asset but has a reduced value for the
                purposes of working out the total value of in-house assets
                in the fund, according to the formula set out in subsection
                71A(3).


                As a result of a relationship breakdown the asset is
                transferred to a superannuation fund in which Harry's former
                partner Matthew is a member.  The unit trust is a related
                trust of the regulated superannuation fund of which Matthew
                is a member.  Any payments made on the asset while in the
                hands of Harry's fund would now be taken to have been made
                by the trustee of Matthew's fund, with the result that the
                asset would have the same value for the purpose of working
                out the total value of in-house assets in the fund as it did
                in Harry's fund.


      3.


                Paul is the sole member of an SMSF which holds an asset
                subject to an uninterrupted series of lease agreements which
                commenced before 11 August 1999 with a partnership, in which
                his spouse Rachael, but not himself, is a partner.  Under
                this arrangement the asset is not an in-house asset of the
                SMSF.


                As a result of a relationship breakdown the asset in
                question is transferred to an SMSF of which Rachael is the
                sole member and continues to be leased to the partnership.
                The asset would now be considered to be an in-house asset.
                However, as the lease agreements would be taken to have
                commenced before 11 August 1999, the asset would be covered
                by the in-house asset transitional exemption provisions even
                though they did not apply in the hands of the transferring
                fund.


      4.


                Paul is the sole member of an SMSF which holds an asset that
                is subject to a lease agreement which commenced on 1 July
                2009 with a partnership, in which his spouse Rachael, but
                not himself, is a partner. Under this arrangement the asset
                is not an in-house asset of the SMSF.


                As a result of a relationship breakdown the asset in
                question is transferred to an SMSF of which Rachael is the
                sole member and continues to be leased to the partnership.
                The asset is an in-house asset of Rachel's SMSF.  This is
                the case despite the fact that the asset was not an in-house
                asset of Paul's SMSF.


The transferring fund must give any section 71E election to the acquiring
fund


    126. If the trustee of the transferring fund has a duty under
         subsection 103(2A) to retain an election or a copy of an election,
         under section 71E, the trustee must, within 14 days of the asset
         being acquired by the acquiring fund, give the election or copy of
         the election to a trustee or investment manager of the acquiring
         fund.  If the trustee fails to do so, they commit an offence of
         strict liability.  [Schedule 3, item 3, subsections 71EA(4) to (6)]


    127. Given the difficult circumstances of relationship breakdown it is
         necessary to ensure the trustee of the transferring fund is
         compelled to comply with the requirement to provide a copy of an
         election to the acquiring fund.  This may be particularly relevant
         for assets transferred from a single member fund.


    128.  A 'regulated superannuation fund' has the meaning given in
         subsection 19(1) of the SIS Act 1993.


    129. Under subsection 10(1) of the SIS Act 1993, a related party of a
         superannuation fund means any of the following:


                . a member of the fund or a Part 8 associate of a member; or




                . a standard employer-sponsor of the fund or a Part 8
                  associate of a standard employer-sponsor of the fund.


    130. Under subsection 10(1) of the SIS Act 1993 a spouse of a person
         includes:


                . another person (whether of the same sex or a different
                  sex) with whom the person is in a relationship that is
                  registered under a law of a state or territory prescribed
                  for the purposes of section 22B of the Acts Interpretation
                  Act 1901 as a kind of relationship prescribed for the
                  purposes of that section; and


                . another person who, although not legally married to the
                  person, lives with the person on a genuine domestic basis
                  in a relationship as a couple.


         [Schedule 3, item 1, definition of 'spouse' in subsection 10(1)]


Application and transitional provisions


    131. These amendments will apply in relation to assets acquired by a
         superannuation fund trustee or investment manager on or after the
         date of Royal Assent.

Chapter 4
Other superannuation amendments

Outline of chapter


    132. Schedule 4 to this Bill modifies the operation of the
         superannuation sections of the income tax law to:


                . allow a deduction for eligible contributions to be claimed
                  from successor superannuation funds after 1 July 2011;


                . increase the time-limit for deductible employer
                  contributions made for former employees;


                . clarify the due date of the shortfall interest charge for
                  the purposes of excess contributions tax;


                . allow the Commissioner of Taxation (Commissioner) to
                  exercise discretion for the purposes of excess
                  contributions tax before an assessment is issued;


                . provide a regulation-making power to specify additional
                  circumstances when a benefit from a public sector
                  superannuation scheme will have an untaxed element; and


                . streamline references to the Immigration Secretary and
                  Immigration Department.


Context of amendments


Background


         Deduction notices for successor fund transfers


    133. A person can generally claim a tax deduction for personal
         superannuation contributions if they are less than 75 years of age,
         earned less than 10 per cent of their total income as an employee
         during the financial year and notified their superannuation
         provider of their intention to claim a deduction.


    134. Superannuation funds are permitted to transfer a member's benefit
         from the original fund to a successor fund where the successor fund
         confers equivalent rights to those that the member had under the
         original fund in respect of the benefits.  Successor fund transfers
         commonly occur where funds are merged, for example, following a
         corporate restructure.


    135. Trustees of superannuation funds are not obliged to advise their
         members that a successor fund transfer is about to occur.  Members
         who are moved from one superannuation fund to another as a result
         of a successor fund transfer are not able to provide a successor
         superannuation fund with a valid notice of intent to deduct a
         contribution as they are no longer a member of the superannuation
         fund to which the contribution was made.  Similarly, a member is
         not able to vary a notice of intention to claim a deduction.


    136. Tax Laws Amendment (2009 Measures No. 6) Act 2010 permits a member
         in a fund to provide a deduction notice to a successor fund even
         though the contribution was made to the original fund.  This
         applies in relation to transfer events that happen on or after 24
         December 2008 and before 1 July 2011.


         Deductibility of employer contributions for former employees


    137. Employers are entitled to a deduction for certain superannuation
         contributions made on behalf of former employees.  These include:


                . contributions to satisfy superannuation guarantee (SG)
                  obligations;


                . one-off salary sacrifice contributions that relate to a
                  period when the person was an employee; and


                . contributions made in lieu of salary or wages that relate
                  to a period of service during which they were an employee
                  if made within two months of them ceasing employment.


    138. The Superannuation Guarantee (Administration) Act 1992 requires
         that employers pay SG contributions within 28 days of the end of
         the quarter, and as such, employers may pay superannuation every
         four months.  However, contributions made by an employer on behalf
         of a former employee are not deductible where the contribution is
         made more than two months after the person ceased employment.


         Deductibility of employer contributions to defined benefit
         interests on behalf of former employees


    139. As outlined above, there are restrictions on when an employer can
         claim a deduction for a superannuation contribution.  Defined
         benefits funds may require additional funding from employer
         sponsors to fund the pensions of retired members several months, or
         years after the employee ceased employment in order to ensure the
         fund remains solvent.  However, it is not clear that these
         contributions are deductible if they are made more than two months
         after the person ceased employment.


         Clarify the due date for shortfall interest charge relating to
         excess contributions tax


    140. The taxation laws currently do not provide a due date for the
         shortfall interest charge in relation to excess contributions tax.


         Amend the timing of the Commissioner's discretion relating to
         excess contributions tax


    141. Excess contributions tax applies to superannuation contributions
         that exceed the concessional or non-concessional contributions cap.
          The Commissioner can disregard or allocate to another financial
         year all or part of a person's contributions for the purposes of
         excess contributions tax.  Such discretion can be exercised only
         where there are special circumstances and doing so is consistent
         with the purposes of the law in relation to excess contributions
         tax.  However, the Commissioner cannot exercise this discretion
         without first issuing an excess contributions tax assessment.


Summary of new law


    142. Schedule 4 to this Bill modifies the operation of the income tax
         law to:


                . allow an individual to give a notice of intent to deduct a
                  contribution (made to an original fund) to a successor
                  superannuation fund;


                . allow employers to claim a deduction for superannuation
                  contributions made in respect of a former employee within
                  four months of the employee ceasing employment and at any
                  time after the employee ceases employment for defined
                  benefit interests;


                . clarify the due date of the shortfall interest charge for
                  the purposes of excess contributions tax is 21 days after
                  the Commissioner provides notice of the amount payable;


                . allow the Commissioner to exercise discretion to disregard
                  or allocate to another financial year all or part of a
                  person's contributions for the purposes of excess
                  contributions tax before an assessment is issued;


                . provide a regulation-making power to specify additional
                  circumstances when a benefit from a public sector
                  superannuation scheme will have an untaxed element; and


                . streamline references to the Immigration Secretary and
                  Immigration Department in relation to disclosure of
                  migration and citizenship information for the legislated
                  purposes.


Comparison of key features of new law and current law

|New law                  |Current law              |
|Members of a successor   |Members of a successor   |
|fund can provide a       |fund can provide a       |
|deduction notice to the  |deduction notice to the  |
|fund for contributions   |fund for contributions   |
|made to the original     |made to the original fund|
|fund.                    |before 1 July 2011.      |
|Employers can claim a    |Employers can claim a    |
|deduction for            |deduction for            |
|superannuation           |contributions made in    |
|contributions made in    |lieu of salary or wages  |
|respect of a former      |in respect of former     |
|employee within four     |employees within two     |
|months of the employee   |months of them ceasing   |
|ceasing employment and at|employment.              |
|any time after the       |                         |
|employee ceases          |                         |
|employment for defined   |                         |
|benefit interests.       |                         |
|Shortfall interest       |Shortfall interest charge|
|charge, in relation to   |in relation to excess    |
|excess contributions tax,|contributions tax does   |
|is due 21 days after the |not currently have a     |
|Commissioner gives notice|clear due date.          |
|of the amount payable.   |                         |
|The Commissioner can     |The Commissioner can only|
|exercise the discretion  |exercise discretion to   |
|to disregard (or         |disregard or reallocate  |
|reallocate) contributions|contributions for the    |
|for the purposes of      |purposes of excess       |
|excess contributions tax |contributions tax after  |
|without first issuing an |issuing an assessment.   |
|excess contributions tax |                         |
|assessment.              |                         |
|There will be scope to   |There is no scope to     |
|specify in regulations   |specify in regulations   |
|additional circumstances |additional circumstances |
|in which benefits will   |in which benefits will   |
|have an untaxed element. |have an untaxed element. |
|The Immigration          |The Secretary of a       |
|Secretary, within the    |Department administered  |
|meaning of the Income Tax|by a Minister            |
|Assessment Act 1936 or an|administering a provision|
|Australian Public Service|of the Migration Act 1958|
|employee in the          |or the Australian        |
|Immigration Department   |Citizenship Act 2007 or  |
|(within the meaning of   |an Australian Public     |
|that Act) may disclose   |Service employee in such |
|migration and citizenship|a Department may disclose|
|information for the      |migration and citizenship|
|legislated purposes.     |information for the      |
|                         |legislated purposes.     |


Detailed explanation of new law


Deduction notices for successor funds


    143. This amendment will allow members of the original superannuation
         fund to provide a deduction notice to the successor superannuation
         fund for contributions made to the original fund after 1 July 2011.
          [Schedule 4, Part 1, item 3, subsection 290-170(5) of the Income
         Tax Assessment Act 1997 (ITAA 1997)]


    144. There are no other changes to the existing requirements to claim a
         deduction.  That is, a person can generally claim a tax deduction
         for personal superannuation contributions if they are less than 75
         years of age, earned less than 10 per cent of their total income as
         an employee during the financial year and notified their
         superannuation provider of their intention to claim a deduction.


    145. The provision requires that after making the contribution, all of
         the member's superannuation interest in the original fund (to which
         the contribution was made for which the notice is given) must be
         transferred to the successor fund and the member must not have
         previously provided a valid notice to any superannuation provider
         in relation to the contribution.  [Schedule 4, Part 1, item 3,
         paragraphs 290-170(5)(c) and (d) of the ITAA 1997]


    146. The amendment will permit the member to vary a valid deduction
         notice, however a valid notice cannot be revoked or withdrawn.  The
         variation can only reduce the contribution amount stated.
         [Schedule 4, Part 1, item 4, subsection 290-180(5) of the ITAA
         1997].  This means that a member can vary a deduction notice in
         relation to a contribution made to the original fund by giving the
         variation notice to the successor fund.  The other existing
         conditions for giving a variation notice remain unchanged.  That
         is, the time limits for giving the variation apply, you must be a
         member of the successor fund, the successor fund must hold the
         contributions and an income stream must not have commenced to be
         paid.


      1. :  Variation of a deduction notice


                Mary makes a contribution to Fund A.  As she satisfies all
                the deduction requirements, she advises Fund A that she
                wishes to claim a deduction for the contribution.  The
                trustee acknowledges receipt of the notice.  At a later
                date, Mary is advised that her entire superannuation
                interest has been transferred to Fund B.  Mary wishes to
                vary the original deduction notice which she gave to Fund A.
                 She can do this by giving the variation notice to Fund B.


         Contribution cap effects


    147. This amendment clarifies that if the contribution is ultimately
         deductible it will be a concessional contribution.  [Schedule 4,
         Part 1, item 5, paragraph 292-25(2)(b) of the ITAA 1997]


    148. This amendment also clarifies that if the contribution is not
         ultimately deductible it will remain a non-concessional
         contribution.  [Schedule 4, Part 1, item 6, paragraph 292-90(2)(b)
         of the ITAA 1997]


         Fund income tax effects


    149. A contribution transferred in a roll-over superannuation benefit to
         a successor fund must be included in the assessable income of the
         successor fund where:


                . the contribution made to the original fund in the current
                  or previous financial year was not covered by a valid and
                  acknowledged notice given to any provider; and


                . while the benefit, which includes the contribution made to
                  the original fund, is held by the successor fund, the
                  contribution becomes covered by a valid and acknowledged
                  notice given to the superannuation provider of the
                  successor fund.


         [Schedule 4, Part 1, items 7 and 8, subsection 295-190(1) of the
         ITAA 1997]


    150. In addition, the successor provider must include this contribution
         in the assessable income of the fund in the income year in which
         the transfer is received (provided that the notice is received by
         the time the trustee lodges its income tax return for that
         financial year).  Otherwise, it is included in the income year in
         which the notice is received.  [Schedule 4, Part 1, item 11,
         subsections 295-190(5) and (6) of the ITAA 1997]


         Variation notice effects on the fund's income tax


    151. Where the successor provider receives a variation notice before its
         income tax return is lodged in the year in which the benefit was
         transferred, the relevant contribution is not included in the
         assessable income to the extent that the relevant contribution has
         been reduced by the variation notice.  [Schedule 4, Part 1, item
         14, subsections 295-197(1) and (2) of the ITAA 1997]


    152. Where the variation notice is received after the provider has
         lodged its income tax return, the successor provider has a choice
         as to how to treat the benefit amount (as reduced by the variation
         notice).  The successor provider is entitled to a deduction in the
         income year in which it is notified.  Alternatively, the successor
         provider has the option to amend its tax return for the income year
         in which the contribution was transferred, but only if that would
         result in a greater reduction in tax for that year than the
         reduction in tax that would occur for the income year in which the
         notice is received.  [Schedule 4, Part 1, items 14 and 16,
         subsections 295-197(3)and (4) and subsection 295-490(1) of the ITAA
         1997]


Deductibility of employer contributions for former employees, including to
defined benefit interests.


    153. This amendment will allow an employer to claim a deduction for a
         superannuation contribution made in respect of a former employee
         (or group of employees) where the contribution is made within four
         months of the employee's cessation of employment, providing the
         existing requirements are met.  [Schedule 4, Part 2, item 21,
         subsection 290-85(1AA) of the ITAA 1997]


    154. This amendment will allow an employer to claim a deduction for a
         superannuation contribution made in respect of a former employee to
         fund a defined benefit interest which accrued whilst the member was
         an employee regardless of when those contributions are made
         [Schedule 4, Part 2, item 21, subsection 290-85(1AB) of the ITAA
         1997].  The existing deduction requirements must still be met and
         the definition of a defined benefit interest is outlined in section
         292-175 of the ITAA 1997.


    155. The contribution made by the employer must relate to a benefit
         which accrued while the member was an employee.  [Schedule 4, Part
         2, item 21, subsections 290-85(1AA) and (1AB) of the ITAA 1997]


    156. The employer can claim a deduction if the contribution:


                . would have been deductible if the employer had made it at
                  a time when the other person was their employee; and


                . would have been deductible if the current law had applied
                  when the person was employed by the employer.


         [Schedule 4, Part 2, item 21, subsections 290-85(1AA) and (1AB) of
         the ITAA 1997]


      1. :  Claiming a deduction under the current law


                Nick finishes employment with his employer in 2002.  Nick's
                employer makes a contribution to a defined benefit interest
                in 2012.  The contribution made by Nick's employer relates
                to a benefit which accrued while Nick was an employee.
                Assuming the other laws that apply to deductibility in 2012
                are also met, then the contribution is deductible.
                Therefore, Nick's employer is entitled to a deduction for
                the contribution.


    157. The term contribution is not defined and as such, it may include
         superannuation guarantee contributions or a payment in lieu of
         salary or wages.


    158. To ensure the integrity of this measure, a number of safeguards
         have been put in place, including:


                . the employer must be at arm's length with the former
                  employee in relation to the contribution; and


                . actuarial verification is required to confirm that
                  additional contributions are required


         [Schedule 4, Part 2, item 21, subsection 290-85(1AB) of the ITAA
         1997]


    159. A deduction is also available for a contribution made where an
         employer makes a contribution for a person who is an employee of a
         company in which the employer has a controlling interest [Schedule
         4, Part 2, item 23, subsections 290-85(1B) and (1C) of the ITAA
         1997].  The current controlling interest deduction rules in section
         290-90 of the ITAA 1997 continue to apply.


Clarify the due date for the shortfall interest charge relating to excess
contributions tax


    160. This amendment will clarify that any shortfall interest charge that
         a taxpayer is liable to pay, in relation to excess contributions
         tax, is due and payable 21 days after the day on which the
         Commissioner gives the taxpayer notice of the amount of the
         shortfall interest charge.  [Schedule 4, Part 3, items 25 and 26
         section 280-102A in Schedule 1 (note) of the Taxation
         Administration Act 1953]


Amend the Commissioner's discretion relating to excess contributions tax


    161. This amendment will allow the Commissioner to make a determination
         to disregard (or reallocate) contributions for the purposes of
         excess contributions tax without first issuing an excess
         contributions tax assessment.  This will thus facilitate
         administration of the timing of the use of the discretionary power.
          [Schedule 4, Part 4, item 28, paragraphs 292-465(2)(a) and (b) of
         the ITAA 1997]


    162. The Commissioner can only make a determination after all of the
         contributions to be disregarded or reallocated have been made.  If
         you receive an excess contributions tax assessment the existing
         application period of 60 days following the receipt of the
         assessment applies, or a longer period as determined by the
         Commissioner.  [Schedule 4, Part 4, item 28, paragraphs 292-
         465(2)(a) and (b) of the ITAA 1997]


    163. The Commissioner may include notice of a determination made in a
         notice of assessment.  The amendments also clarify that a person
         may object to an excess contributions tax assessment on the grounds
         that they are dissatisfied with the Commissioner's determination or
         the Commissioner's decision not to make a determination.  In
         addition, the making of a determination is a decision forming part
         of the process of making an assessment of tax for the purposes of
         the Administrative Decisions (Judicial Review) Act 1977.  [Schedule
         4, Part 4, item 29, subsections 292-465(8) and (9) of the ITAA
         1997]


    164. There is no change to the criteria used to determine whether the
         determination should be made.  Specifically, the current law
         outlines that the Commissioner may make the determination only if
         he or she considers that:


                . there are special circumstances; and


                . making the determination is consistent with the object of
                  Division 292 of the ITAA 1997.


Untaxed elements in Public Sector Super Schemes


    165. This amendment provides a regulation-making power to specify
         additional circumstances in which a benefit will consist of an
         untaxed element.  [Schedule 4, Part 5, item 30, section 307-297 of
         the ITAA 1997]


Amendment in relation to the disclosure of migration and citizenship under
the Superannuation (Unclaimed Money and Lost Members) Act 1999


    166. Part 6 of Schedule 4 amends the administration provisions of Part
         3A of the Superannuation (Unclaimed Money and Lost Members)
         Act 1999 (S(UMLM) Act).


    167. Specifically, paragraphs 20N(2)(a) and (b) of the S(UMLM) Act are
         amended to incorporate references to the 'Immigration Secretary'
         and the 'Immigration Department' within the meaning of the Income
         Tax Assessment Act 1936 (ITAA 1936).  While the references are
         replaced, there is no material change in the criteria used for
         disclosure of migrant and citizenship information.


    168. This follows the approach taken in Tax Laws Amendment
         (2009 Measures No. 4) Act 2009 (Schedule 4, Part 1), which inserted
         streamlined references to Ministers, Departments and Secretaries.
         Item 38 of Schedule 4 to that amending Act inserted into the ITAA
         1936 the definition of 'Immigration Department'; item 40 inserted
         the definition of 'Immigration Secretary'.  [Schedule 4, Part 6,
         item 31, paragraphs 20N(2)(a) and (b)]


Application and transitional provisions


Application provisions


    169. The amendments made by Part 1 of Schedule 4 apply to:


                . deduction notices for personal contributions given on or
                  after commencement of this item;


                . notices of variation of deduction notices for personal
                  contributions given on or after commencement of this item
                  (whether the notices being varied were given before, on or
                  after commencement of this item)


    170. The amendments made by Part 2 of Schedule 4 apply to employer
         contributions made for former employees on or after commencement of
         this item.


    171. The amendments made by Part 4 of Schedule 4 apply to applications
         made for the exercise of the Commissioner's discretion for the
         purposes of excess contributions tax on or after commencement of
         this item.  [Schedule 4, Part 7, item 32]


Transitional provisions


    172. If the Commissioner has granted a taxpayer an extension of time to
         apply for a determination for the exercise of the Commissioner's
         discretion before commencement of the amendments in Part 4 of
         Schedule 4, transitional provisions allow this extension of time to
         continue to apply after commencement of those amendments.
         [Schedule 4, Part 7, item 33]


Consequential amendments


    173. A number of consequential amendments are made to adjust the wording
         to incorporate successor and original funds in the legislation,
         including the definition of a successor fund.  [Schedule 4, Part 2,
         item 1, subparagraph 290-170(2)(d)(ii); item 2, subsection 290-
         170(4); item 9, subsection 295-190(1A); item 10 before subsection
         295-190(2); item 12, section 295-195 (heading); item 13,
         subsections 295-195(1) and (2); item 15, subsection 295-490(1);
         cell at item 2 in the table, column headed 'can deduct' and item
         17, subsection 995-1(1) of the ITAA 1997]


    174. Two provisions from the Tax Laws Amendment (2009 Measures No. 6)
         Act 2010 are repealed as they are no longer required.  [Schedule 4
         Part 2, item 18]


    175. A number of consequential amendments are made to adjust the wording
         to incorporate the additional deduction provisions for employer
         contributions in the legislation.  [Schedule 4, Part 2, item 19
         paragraph 290-85(1)(b); item 20, paragraph 290-85(1)(c); item 22,
         subparagraph 290-85(1A)(d)(iii); and item 24, paragraph 290-
         85(3)(a) of the ITAA 1997]


    176. A wording change is required to incorporate the changes to the
         Commissioner's determination for excess contributions tax.
         [Schedule 4, Part 4, item 27, subsection 292-465(2) of the ITAA
         1997]



Index

Schedule 1:  Unclaimed money

|Bill reference                              |Paragraph     |
|                                            |number        |
|Items 1 and 2, section 7                    |1.21          |
|Item 3, section 8                           |1.22          |
|Item 4, section 8                           |1.22          |
|Item 5, section 8                           |1.22          |
|Item 6, section 8                           |1.22          |
|Item 7, subsection 18AA(1)                  |1.26          |
|Item 8, subsection 20C(3)                   |1.30          |
|Item 9, subsection 20JA(1)                  |1.32          |
|Item 9, subsection 20JA(2)                  |1.33          |
|Items 10 to 12, subsection 24C(1) (note 1), |1.41          |
|subsection 24E(1) (note 1), section 24H     |              |
|Item 13, subsection 24HA(1)                 |1.36          |
|Item 13, subsection 24HA(2)                 |1.37          |
|Item 13, subsection 24HA(3)                 |1.38          |
|Item 14, section 49A                        |1.40          |
|Item 15, section 306-20 of the ITAA 1997    |1.42          |
|Item 16, subsection 307-5(1) (item 5 in the |1.44          |
|table)                                      |              |
|Item 17, subsection 307-142(1) of the       |1.46          |
|ITAA 1997                                   |              |
|Items 18 and 19, subsection 307-142(3) of   |1.47          |
|the ITAA 1997                               |              |
|Item 21, subparagraph 49A(1)(b)(i)          |1.51          |
|Item 21, section 307-142 of the ITAA 1997   |1.52          |


Schedule 2:  Disability insurance premiums paid by superannuation funds

|Bill reference                              |Paragraph     |
|                                            |number        |
|Item 1                                      |2.32          |
|Item 1, paragraph (2)(b) and item 5,        |2.37          |
|paragraph 295-466(2)(b)                     |              |
|Item 1, paragraph (3)(b), and item 5,       |2.45          |
|paragraph 295-466(3)(b)                     |              |
|Item 2                                      |2.49          |
|Items 2 (note in paragraph 295-460(b) of the|2.54          |
|ITAA 1997), 6 and 7, section 295-466        |              |
|Item 3                                      |2.50          |
|Item 4                                      |2.51          |
|Item 5                                      |2.31          |
|Item 5, section 295-466 and item 1          |2.38          |
|Item 5, subsection 295-466(2)               |2.35          |
|Item 5, subsections 295-466(2) (including   |2.43          |
|the note) and (3)                           |              |
|Subitem 1(1) and item 5, subsection         |2.33          |
|295-466(1)                                  |              |
|Subitem 1(2)                                |2.36          |
|Subitem 1(2) and item 5, subsection         |2.34          |
|295-466(2)                                  |              |
|Subitems 1(2) (including the note) and (3)  |2.42          |
|Subitem 1(3) and item 5,                    |2.39          |
|subsection 295-466(3)                       |              |


Schedule 3:  Superannuation and relationship breakdowns

|Bill reference                              |Paragraph     |
|                                            |number        |
|Item 1, definition of 'spouse' in subsection|3.25          |
|10(1)                                       |              |
|Item 2, paragraph 66(2B)(a) to (d)          |3.16          |
|Item 2, subsections 66(2B) and (2C)         |3.14          |
|Item 2, subsection 66(2C) and item 3,       |3.17          |
|subsection 71EA(2)                          |              |
|Item 3, section 71EA                        |3.15          |
|Item 3, paragraph 71EA(3)(a) to (c)         |3.19          |
|Item 3, subsections 71EA(4) to (6)          |3.21          |


Schedule 4:  Other amendments

|Bill reference                              |Paragraph     |
|                                            |number        |
|Item 18                                     |4.43          |
|Part 1, item 3, subsection 290-170(5) of the|4.12          |
|Income Tax Assessment Act 1997 (ITAA 1997)  |              |
|Part 1, item 3, paragraphs 290-170(5)(c) and|4.14          |
|(d) of the ITAA 1997                        |              |
|Part 1, item 4, subsection 290-180(5) of the|4.15          |
|ITAA 1997                                   |              |
|Part 1, item 5, paragraph 292-25(2)(b) of   |4.16          |
|the ITAA 1997                               |              |
|Part 1, item 6, paragraph 292-90(2)(b) of   |4.17          |
|the ITAA 1997                               |              |
|Part 1, items 7 and 8, subsection 295-190(1)|4.18          |
|of the ITAA 1997                            |              |
|Part 1, item 11, subsections 295-190(5) and |4.19          |
|(6) of the ITAA 1997                        |              |
|Part 1, items 14 and 16,                    |4.21          |
|subsections 295-197(3)and (4) and           |              |
|subsection 295-490(1) of the ITAA 1997      |              |
|Part 1, item 14, subsections 295-197(1) and |4.20          |
|(2) of the ITAA 1997                        |              |
|Part 2, item 1, subparagraph                |4.42          |
|290-170(2)(d)(ii); item 2,                  |              |
|subsection 290-170(4); item 9,              |              |
|subsection 295-190(1A); item 10 before      |              |
|subsection 295-190(2); item 12, section     |              |
|295-195 (heading); item 13, subsections     |              |
|295-195(1) and (2); item 15,                |              |
|subsection 295-490(1); cell in the table at |              |
|item 2, column headed 'can deduct' and item |              |
|17, subsection 995-1(1) of the ITAA 1997    |              |
|Part 2, item 19, paragraph 290-85(1)(b);    |4.44          |
|item 20, paragraph 290-85(1)(c); item 22,   |              |
|subparagraph 290-85(1A)(d)(iii); and item   |              |
|24, paragraph 290-85(3)(a) of the ITAA 1997 |              |
|Part 2, item 21, subsection 290-85(1AA) of  |4.22          |
|the ITAA 1997                               |              |
|Part 2, item 21, subsections 290-85(1AA) and|4.24, 4.25    |
|(1AB) of the ITAA 1997                      |              |
|Part 2, item 21, subsection 290-85(1AB) of  |4.23, 4.27    |
|the ITAA 1997                               |              |
|Part 2, item 23, subsections 290-85(1B) and |4.28          |
|(1C) of the ITAA 1997                       |              |
|Part 3, items 25 and 26 section 280-102A in |4.29          |
|Schedule 1 (note) of the Taxation           |              |
|Administration Act 1953                     |              |
|Part 4, item 27, subsection 292-465(2) of   |4.45          |
|the ITAA 1997                               |              |
|Part 4, item 28, paragraphs 292-465(2)(a)   |4.30, 4.31    |
|and (b) of the ITAA 1997                    |              |
|Part 4, item 29, subsections 292-465(8) and |4.32          |
|(9) of the ITAA 1997                        |              |
|Part 5, item 30, section 307-297 of the ITAA|4.34          |
|1997                                        |              |
|Part 6, item 31, paragraphs 20N(2)(a)       |4.37          |
|and (b)                                     |              |
|Part 7, item 32                             |4.40          |
|Part 7, item 33                             |4.41          |