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2002
THE
PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
HOUSE OF
REPRESENTATIVES
FAMILY LAW LEGISLATION
AMENDMENT
(SUPERANNUATION) (CONSEQUENTIAL
PROVISIONS) BILL 2002
EXPLANATORY
MEMORANDUM
(Circulated by authority of the
Attorney-General,
the Honourable Daryl Williams AM QC
MP)
TABLE OF CONTENTS
Page
General Outline 1
Financial
Impact Statement 1
Regulation Impact Statement
1
Notes on
Clauses 2
Schedule 1 – Amendment of the
Family Law Act 1975 3
Schedule 2 –
Amendment of the Judges’ Pensions Act
1968 6
Schedule 3 – Amendment of the
Social Security Act 1991 7
Schedule 4
– Amendment of the Veterans’ Entitlements Act
1986 15
The Family Law Legislation Amendment (Superannuation) (Consequential
Provisions) Bill 2002 (‘the Bill’) makes amendments to relevant
social security and veterans’ affairs legislation to ensure that
appropriate treatment of income streams is applied for the superannuation and
separation reforms contained in the Family Law Legislation Amendment
(Superannuation) Act 2001 (‘the Superannuation Act’).
The
Bill also makes amendments to ensure that the reforms contained in the
Superannuation Act are applied to Commonwealth judicial pensions.
The
Bill also makes minor amendments to clarify certain provisions of the
Superannuation Act.
The following Acts are amended by the
Bill:
– Family Law Act 1975;
– Judges’
Pensions Act 1968;
– Social Security Act 1991;
and
– Veterans’ Entitlements Act 1986.
The Bill
ensures appropriate treatment of Government income streams when a superannuation
interest is split on marriage breakdown.
The Bill commences on the day on
which it receives the Royal Assent. The substantive provisions of the Bill,
contained in Schedules 1, 2, 3 and 4, commence immediately after the
commencement of the Family Law Legislation Amendment (Superannuation) Act
2001 (‘the Family Law Superannuation Act’).
The amendments to the Social Security Act 1991 and the
Veterans’ Entitlements Act 1986 are designed to ensure that
superannuation interests that are split pursuant to a divorce settlement are
assessed consistently with the current assessment of other income and assets
under the means test. Accordingly, these amendments will have a negligible
impact on administered expenses.
A Regulation Impact Statement for the superannuation and separation
reforms was included in the Explanatory Memorandum to the Family Law
Legislation Amendment (Superannuation) Bill 2001 (‘the Family Law
Superannuation Bill’).
1. Clause 1 provides that when the Bill is enacted it will be called the
Family Law Legislation Amendment (Superannuation) (Consequential Provisions)
Act 2002 (‘the Second Consequential Act’).
Clause 2 -
Commencement
2. Clause 2 provides that the Second Consequential Act
commences on the day on which it receives the Royal Assent.
3. Clause 2
also provides that the Schedules to the Second Consequential Act commence
immediately after the commencement of the Family Law Superannuation
Act.
4. Section 2 of the Family Law Superannuation Act provides
that it will commence on a day to be fixed by Proclamation and that if it does
not commence within 18 months beginning on the day it receives the Royal Assent,
it commences on the first day after the end of that period, which will be 28
December 2002.
Clause 3 – Schedule(s)
5. Clause 3
provides that each Act that is specified in a Schedule to the Second
Consequential Act is amended as set out in the relevant Schedule.
Summary of amendments
6. The amendments of the Family
Law Act 1975 (‘the Family Law Act’) are minor correcting
amendments to ensure the effective operation of the superannuation and family
law reforms contained in Part VIIIB of the Family Law Act, which was inserted by
the Family Law Superannuation Act.
Item 1 – Section
90MD
7. Item 1 of Schedule 1 to the Second Consequential Act inserts
a definition of “reversionary beneficiary” into the Family Law
Act.
8. The scheme of Part VIIIB of the Family Law Act is that the
courts can order or parties can agree to divide splittable payments in respect
of a superannuation interest of a party to a marriage.
9. A splittable
payment will, generally, be one to the spouse with the superannuation interest
(eg. a payment to the member spouse after he or she retires) but, under
paragraphs 90ME(1)(d) and (e) of the Family Law Act, will include, when such a
spouse dies, a payment to a reversionary beneficiary or a payment to the legal
personal representative of a reversionary beneficiary after the death of that
reversionary beneficiary.
10. The term “reversionary
beneficiary” is not defined in Part VIIIB of the Family Law
Act.
11. The policy intention behind paragraphs 90ME(1)(d) and (e) is
that a person who receives any benefit on the death of the member spouse should
be a reversionary beneficiary for the purposes of Part VIIIB of the Family Law
Act.
12. However, the term “reversionary beneficiary” is
generally understood within the superannuation industry as only including a
person who becomes the recipient of an ongoing pension or a commuted lump sum as
a result of the death of a person already in receipt of a
pension.
13. The superannuation industry does not, for example, generally
understand the term to include a spouse or other dependent who receives a
pension on the death of the member spouse who dies while still in employment (in
those circumstances the member spouse would have been receiving a salary and not
a pension) or such a spouse who receives lump sum benefits on the death of the
member spouse.
14. Inserting a definition of “reversionary
beneficiary” in section 90MD of the Family Law Act ensures that the
intended meaning of the term is captured.
Item 2 – Subsection
90MX(3)
15. Item 2 of Schedule 1 to the Second Consequential Act
omits “another person” and substitutes “a person other than
the member spouse”.
16. One aspect of Part VIIIB of the
Family Law Act contemplates the possibility of a member spouse successively
splitting future payments in respect of a superannuation interest if he or she
then re-marries and this second marriage subsequently breaks
down.
17. Section 90MX of the Family Law Act provides for the order of
precedence where the one superannuation interest is subject to successive splits
(the payment split with the earlier operative time is satisfied
first).
18. The provision has been drafted on the basis that the person
with the entitlement under the earlier payment split (the first former spouse)
will be – as it will almost invariably be – a different person from
the person with the entitlement under later payment splits (any second and
subsequent former spouse).
19. However it is possible that parties to a
marriage may divorce, have a property settlement (including a split of
superannuation), remarry again, subsequently separate or divorce and again wish
to split their superannuation.
20. If those circumstances were ever to
occur, existing subsection 90MX(3) of the Family Law Act would not work as it
provides that ‘the amount of the splittable payment is taken to be reduced
by the amount to which another person (emphasis added) is entitled
under’ the next earlier payment split.
21. Item 2 replaces the
words “another person” with a formulation that covers the
possibility that the first former spouse is in fact the same person as the
subsequent former spouse.
Item 3 – Subsections 90MZ(1), (2) and
(3)
22. Item 3 of Schedule 1 to the Second Consequential Act omits
“fund or RSA” and substitutes “fund, approved deposit fund,
RSA or exempt public sector superannuation scheme”.
23. One aspect
of the scheme in Part VIIIB, contained in section 90MZ of the Family Law Act, is
that the entitlement of a non-member spouse under a payment split (that is, a
superannuation agreement or a court order splitting future splittable payments
in respect of a superannuation interest of a party to a marriage) is subject to
the preservation requirements in relation to:
– a split of an
interest in a regulated superannuation fund or an approved deposit fund, in the
Superannuation Industry (Supervision) Regulations;
– a split of an
RSA, in the Retirement Savings Account Regulations; and
– a split of
an interest in an exempt public sector superannuation scheme, in laws or other
instruments (eg. the trust deed of the scheme).
24. The effect of these
preservation requirements is generally that any amount that the non-member
spouse is entitled to receive under a payment split because his or her former
spouse has received a splittable payment must be preserved in the superannuation
system (rather than being available as a cash payment) if the non-member spouse
has not reached retirement age.
25. This item ensures that these
preservation requirements will also apply to any interest that the non-member
spouse has in an approved deposit fund or to an exempt public sector
superannuation scheme.
Item 4 – Section
90MZC
26. Item 4 of Schedule 1 to the Second Consequential Act omits
“date” and substitutes “time” in section 90MZC of the
Family Law Act.
27. The reason for this is that during the House of
Representatives’ debate on the Family Law Superannuation Act, a batch of
Government amendments were moved to replace the term of “operative
date”, which had been used in a number of provisions in the Family Law
Superannuation Bill as introduced, with “operative time”, a term
defined in the opening provisions of Part VIIIB.
Summary of amendment
28. The amendment of the
Judges’ Pensions Act 1968 (‘the Judges’ Pensions
Act’) authorises the making of regulations to set out factors for use in
determining the proportion of a judge’s pension that had accrued at the
time of a judge’s marriage breakdown.
Item 1 – At the end
of section 21
29. Item 1 of Schedule 2 to the Second Consequential
Act inserts new subsection 21(2) into the Judges’ Pensions
Act.
30. The Family Law (Superannuation) Regulations 2001 prescribe an
interest in the superannuation scheme constituted under the Judges’
Pensions Act (‘the Judges’ Pension Scheme’) as a
percentage-only interest for the purposes of the Family Law Act. As such,
splittable payments made in respect of an interest in the Judges’ Pension
Scheme can only be split, by agreement or by court order, by one of the
following two methods:
– a specified set percentage that is to apply to all splittable payments in respect of the interest; or
– a specified percentage of, essentially, so much of each payment as
can be considered to have accrued up until the date of the final separation of
the parties.
31. When the second method is to be used, the relevant
formulae in the Family Law (Superannuation) Regulations 2001 refer to the
accrued benefit multiple, as defined in the governing rules of the relevant
superannuation entity, at the dates of separation and payment. The
Judges’ Pensions Act currently does not contain factors that would
constitute accrued benefit multiples for the purposes of the
formulae.
32. Section 21 of the Judges’ Pensions Act contains a
regulation-making power in the standard form. New subsection 21(2) confers
express power to make regulations to prescribe accrued benefit multiples for the
purposes of Part VIIIB of the Family Law Act or regulations made under that Act
in relation to the Judges’ Pensions Scheme.
33. The amendments made to the Social Security Act 1991
(‘the Social Security Act’) by Schedule 3 to the Second
Consequential Act are in consequence of Part VIIIB of the Family Law Act, which
was inserted by Schedule 1 to the Superannuation Act.
34. They provide a
framework for allowing income stream payments in respect of a superannuation
interest, that have been split pursuant to an order or agreement under Part
VIIIB of the Family Law Act to be assessed consistently with other income and
assets under the social security means test.
35. Schedule 3 also makes
other consequential amendments to the Social Security Act.
Item 1
– Subsection 9(1) (definition of assessable growth
component)
36. Item 1 of Schedule 3 to the Second Consequential
Act repeals the definition of “assessable growth component” in
subsection 9(1) of the Social Security Act.
37. The reason for this
is that this definition is only currently used in relation to the operation of
Subdivision A of Division 1C of Part 3.10 of the Social Security Act, which is
being repealed by Item 15 of Schedule 3.
Item 2 – Subsection
9(1) (definition of assessable period)
38. Item 2 of Schedule
3 to the Second Consequential Act repeals the definition of “assessable
period” in subsection 9(1) of the Social Security Act.
39. The
reason for this is that this definition is only currently used in relation to
the operation of Subdivision A of Division 1C of Part 3.10 of the Social
Security Act, which is being repealed by Item 16 of Schedule 3.
Item 3
– Subsection 9(1) (definition of asset-tested income stream (long
term))
40. Item 3 of Schedule 3 to the Second Consequential Act
amends the definition of “asset-tested income stream (long term)” in
subsection 9(1) of the Social Security Act.
41. The reason for this is to
include any secondary FLA income stream (as defined in Item 10 of Schedule 3)
that satisfies the requirements of new section 9D, which is being inserted by
Item 14 of Schedule 3.
Item 4 – Subsection 9(1) (definition of
asset-tested income stream (short term))
42. Item 4 of
Schedule 3 to the Second Consequential Act amends the definition of
“asset-tested” income stream (short term)” in subsection 9(1)
of the Social Security Act.
43. The reason for this is to include any
secondary FLA income stream (as defined in Item 10 of Schedule 3) that satisfies
the requirements of new section 9D, which is being inserted by Item 14 of
Schedule 3.
Item 5 – Subsection 9(1)
44. Item 5 of
Schedule 3 to the Second Consequential Act inserts a short definition of
“family law affected income stream” into subsection 9(1) of the
Social Security Act.
45. This definition makes reference to the meaning
of that term given at new subsection 9C(1), which is being inserted by Item
14 of Schedule 3.
Item 6 – Subsection 9(1) (After paragraph (f)
of the definition of income stream)
46. Item 6 of Schedule 3
to the Second Consequential Act inserts new paragraph 9(1)(fa) into the Social
Security Act.
47. The reason for this is so that a family law affected
income stream, which is defined by new section 9C of the Social Security Act,
will be an income stream for the purposes of that Act.
Item 7
– Subsection 9(1)
48. Item 7 of Schedule 3 to the Second
Consequential Act inserts a short definition of “original family law
affected income stream” into subsection 9(1) of the Social Security
Act.
49. This definition makes reference to the meaning of that term
given at new subsection 9C(1), which is being inserted by Item 14 of Schedule
3.
Item 8 – Subsection 9(1)
50. Item 8 of Schedule 3
to the Second Consequential Act inserts a short definition of “primary FLA
income stream” into subsection 9(1) of the Social Security
Act.
51. This definition makes reference to the meaning of that term
given at new subsection 9C(1), which is being inserted by Item 14 of Schedule
3.
Item 9 – Subsection 9(1)
52. Item 9 of Schedule 3
to the Second Consequential Act repeals the definition of “realise”
in subsection 9(1) of the Social Security Act.
53. The reason for this is
that this definition is only currently used in relation to the operation of
Subdivision A of Division 1C of Part 3.10 of the Social Security Act, which is
being repealed by Schedule 3.
Item 10 – Subsection
9(1)
54. Item 10 of Schedule 3 to the Second Consequential Act
inserts a short definition of “secondary FLA income stream” into
subsection 9(1) of the Social Security Act.
55. This definition makes
reference to the meaning of that term given at new subsection 9C(1), which is
being inserted by Item 14 of Schedule 3.
Item 11 – Subsections
9(10) and (11)
56. Item 11 of Schedule 3 to the Second Consequential
Act repeals subsections 9(10) and (11) of the Social Security
Act.
57. The reason for this is subsections 9(10) and 9(11) of the Social
Security Act only relate to the definition of “realise” in
subsection 9(1) of the Social Security Act, which is being repealed by Item 9 of
Schedule 3 to the Second Consequential Act.
Item 12 – Paragraph
9A(2)(h)
58. Item 12 of Schedule 3 to the Second Consequential Act
inserts new subparagraph 9A(2)(h)(iva) into the Social Security
Act.
59. New subparagraph 9A(2)(h)(iva) allows a superannuation provider
to make provision in the contract or governing rules of their income stream
products for commutations that will give effect to an entitlement of a
member’s spouse, or former spouse, under a payment split pursuant to the
Family Law Act, without that income stream necessarily losing its asset-test
exempt status for social security means testing purposes.
Item 13
– Paragraph 9B(2)(h)
60. Item 13 of Schedule 3 to the Second
Consequential Act inserts new subparagraph 9B(2)(h)(iva) into the Social
Security Act.
61. New subparagraph 9B(2)(h)(iva) allows a superannuation
provider to make provision in the contract or governing rules of their income
stream products for commutations that will give effect to an entitlement of a
member’s spouse, or former spouse, under a payment split pursuant to the
Family Law Act, without that income stream necessarily losing its asset-test
exempt status for social security means testing purposes.
Item 14
– After section 9B
62. Item 14 of Schedule 3 to the Second
Consequential Act inserts new sections 9C and 9D into the Social Security
Act.
63. New section 9C provides for the definitions of “original
FLA income stream”, “primary FLA income stream”,
“secondary FLA income stream” and “family law affected income
streams”.
64. New paragraph 9C(1)(a) provides that where a person
(member) acquires or purchases a relevant income stream from a relevant
superannuation fund then that income stream is the “original FLA income
stream” for the purposes of the Social Security Act.
65. New
subsection 9C(2) provides the definitions of a “relevant income
stream” and a “relevant superannuation fund”. A
“relevant income stream” is an income stream that falls within
paragraphs (a) through (c) of the definition of “income stream” in
subsection 9(1). A “relevant superannuation fund” is basically any
superannuation fund that can be affected by a payment split under Part VIIIB of
the Family Law Act.
66. New subsection 9C(1) provides that where a
member’s spouse, or former spouse, becomes entitled to be paid some or all
of the original FLA income stream pursuant to a payment split under Part VIIIB
of the Family Law Act then the part of the income stream that is to be paid to
the spouse as an income stream will be a “secondary FLA income
stream” for the purposes of the Social Security Act. The remainder of the
original FLA income stream, which belongs to the member, is defined as the
“primary FLA income stream” for the purposes of the Social Security
Act.
67. As an example, if the member’s spouse, or former spouse,
receives a lump sum payment from the income stream then this payment will not be
a secondary FLA income stream. Where the spouse uses the lump sum to buy a new
income stream, or rolls it over into a new income stream, this income stream
will not be a secondary FLA income stream, or a family law affected income
stream, because the spouse has not received it as a series of ongoing payments.
After the payment of any lump sum to the member’s spouse, or former
spouse, and any secondary FLA income stream, what is left of the original FLA
income stream will be the primary FLA income stream.
68. New subsection
9D(1) provides that where a primary FLA income stream meets the definition of an
asset-tested income stream (long term) or (short term), or would meet that
definition if it were subject to the Social Security Act, then any related
secondary FLA income stream will also be treated as falling within this same
definition for social security purposes. For example, if the primary FLA income
stream is an asset-tested income stream (short term), then any related secondary
FLA income stream would also be treated as an asset-tested income stream (short
term).
69. New subsection 9D(2) provides that if there is no primary FLA
income stream in relation to an original FLA income stream, but there is a
secondary FLA income stream in relation to the original FLA income stream then,
if there had been a primary FLA income stream and it would have been either an
asset-tested income stream (long term) or (short term), the secondary FLA income
stream will also be treated as having that same character. It is possible under
the Family Law Act for the whole amount of the original FLA income stream to be
transferred to the spouse, in which case there will be no relevant primary FLA
income stream in relation to a secondary FLA income stream, but only a secondary
FLA income stream.
Item 15 – Subdivision A of Division 1C of
Part 3.10
70. Item 15 of Schedule 3 to the Second Consequential Act
repeals Subdivision A of Division 1C of Part 3.10 of the Social Security Act,
including sections 1096 and 1097.
71. Sections 1096 and 1097 of
the Social Security Act contain rules that count part of the profit component of
a withdrawal from a superannuation fund by a person under age 55 as income of
the person for 12 months.
72. If these provisions were not repealed, it
would mean that if a superannuation interest in the growth phase was split
pursuant to Part VIIIB of the Family Law Act, then, for social security
purposes, this would be considered to be a withdrawal by the member spouse.
This could result in the inequitable outcome that part of the superannuation
withdrawal paid to the other spouse could be treated as income of the member
spouse.
73. Additionally, the need for these provisions has been greatly
reduced by other policy changes in recent years, to the point where they affect
very few customers. It was announced in the 2001 Federal Budget that people
over 55 would be exempted from these provisions, and, it should be noted that,
superannuation is generally inaccessible until age 55. The repeal of these
complex provisions is also in accord with the policy objective of simplifying
social security arrangements wherever this is possible, given the need to
achieve other policy objectives.
Item 16 – Subdivision B of
Division 1C of Part 3.10 (heading)
74. Item 16 of Schedule 3 to the
Second Consequential Act repeals the existing heading of Subdivision B of
Division 1C of Part 3.10 of the Social Security Act and substitutes a new
heading.
75. The reason for this is that this subdivision will now only
deal with income streams that are not family law affected income
streams.
Item 17 – Before section 1098 in Subdivision B of
Division 1C of Part 3.10
76. Item 17 of Schedule 3 to the Second
Consequential Act inserts new section 1097A into the Social Security
Act.
77. New section 1097A provides that the scope of Subdivision B of
Division 1C of Part 3.10 of the Social Security Act is confined to income
streams that are not family law affected income streams.
Item 18
– Sections 1098, 1099 and 1099A
78. Item 18 of Schedule 3 to
the Second Consequential Act omits the term “asset-test exempt income
stream” and substitutes the term “asset-test exempt income stream to
which this Subdivision applies” in sections 1098, 1099 and 1099A of the
Social Security Act. These sections relate to the income testing of an
asset-test exempt (ATE) income stream.
79. The reason for this is that
those sections apply only to ATE income streams other than family law affected
ATE income streams. Family law affected ATE income streams will be subject to
the income test under new section 1099DB, which is inserted by Item 20 of
Schedule 3 to the Second Consequential Act.
Item 19 – Sections
1099B, 1099C and 1099D
80. Item 19 of Schedule 3 to the Second
Consequential Act omits the term “asset-tested income stream (long term)
and substitutes the term “asset-tested income stream (long term) to which
this Subdivision applies” in Sections 1099B, 1099C and 1099D of the Social
Security Act. These sections relate to the income testing of an asset-tested
income stream (long term).
81. The reason for this is that those sections
apply only to asset-tested income streams (long term) other than family law
affected asset-tested income streams (long term). Family law affected
asset-tested income streams (long term) are subject to the income test under new
section 1099DC, which is inserted by Item 20 of Schedule 3 to the Second
Consequential Act.
Item 20 – At the end of Division 1C of Part
3.10
82. Item 20 of Schedule 3 to the Second Consequential Act
inserts new Subdivision C into Division 1C of Part 3.10 of the Social Security
Act, which deals with the income testing of family law affected income
streams.
83. New section 1099DA of the Social Security Act provides that
new Subdivision C applies to family law affected income streams.
84. New
section 1099DB of the Social Security Act provides that where a social security
customer has a family law affected income stream, which is also an ATE income
stream, then that customer will be taken to receive from that income stream each
year an amount calculated with reference to guidelines determined by the
Secretary for the purposes of paragraph (a), if the income stream is not a
defined benefit income stream, or paragraph (b) if the income stream is a
defined benefit income stream.
85. New section 1099DC of the Social
Security Act provides that where a social security customer has a family law
affected income stream that is also an asset-tested income stream (long term),
then that customer will be taken to receive from that income stream each year an
amount calculated with reference to guidelines determined by the Secretary for
the purposes of paragraph (a), if the income stream is not a defined benefit
income stream, or paragraph (b) if the income stream is a defined benefit income
stream.
86. New section 1099DD of the Social Security Act provides that
any guideline made by the Secretary under sections 1099DB or 1099DC is a
disallowable instrument, for the purposes of the Acts Interpretation Act
1901.
Item 21 – Subsections 1119(1) and
1120(1)
87. Item 21 of Schedule 3 to the Second Consequential Act
amends subsections 1119(1) and 1120(1) of the Social Security Act so that they
only apply to income streams that are not family law affected income
streams.
88. These subsections relate to the valuation of asset-tested
income streams other than family law affected income streams. Subsection
1119(1) relates to income streams that are not defined benefit income streams,
and subsection 1120(1) applies to defined benefit income streams. Family law
affected income streams, which are not ATE income streams, will be valued in
accordance with new section 1120A, inserted by Item 22 of Schedule 3 to the
Second Consequential Act.
Item 22 – After section
1120
89. Item 22 of Schedule 3 to the Second Consequential Act
inserts new section 1120A, which deals with the asset-testing of family law
affected income streams, into the Social Security Act.
90. New section
1120A of the Social Security Act applies to the valuation of family law affected
income streams that are not ATE income streams for social security
purposes.
91. New subsection 1120A(2) of the Social Security Act provides
that a family law affected income stream that is not a defined benefit income
stream will be taken to have an asset value, for social security purposes, that
is calculated in accordance with guidelines determined by the Secretary for the
purposes of this subsection.
92. New subsection 1120A(3) of the Social
Security Act provides that a family law affected income stream that is a defined
benefit income stream will be taken to have an asset value, for social security
purposes, that is calculated in accordance with guidelines determined by the
Secretary for the purposes of this subsection.
93. New subsection
1120A(4) of the Social Security Act provides that any guideline made by the
Secretary under subsection 1120A(2) or 1120A(3) of the Social Security Act is a
disallowable instrument, for the purposes of the Acts Interpretation Act
1901.
Summary of amendments
94. The amendments made to the
Veterans’ Entitlements Act 1986 (‘the Entitlements
Act’) by Schedule 3 are in consequence of the insertion of Part VIIIB of
the Family Law Act, which was inserted by Schedule 1 to the Superannuation
Act.
95. They provide a framework for the means test treatment of income
stream payments in respect of superannuation interests, that have been split
under an agreement or by a court order under the provisions of Part VIIIB of the
Family Law Act. The amendments provide for the income stream payments to be
treated consistently with other income and assets under the means
test.
Item 1 – Section 5 (Index of
definitions)
96. Item 1 of Schedule 4 to the Second Consequential Act
inserts a listing of the location for the individual definitions “family
law affected income stream, 5JC(1)”; “original family law affected
income stream, 5JC(1)”; “primary FLA income stream, 5JC(1)”
and “secondary FLA income stream, 5JC(1)” into section 5 (index of
definitions).
97. These individual definitions are being inserted into
the Entitlements Act by Items 8, 9, 10 and 11 respectively and it is, therefore,
necessary to include the new definitions in the index of
definitions.
Item 2 – Section 5 (Index of
definitions)
98. Item 2 of Schedule 4 to the Second Consequential Act
repeals the section 5 (index of definitions) listing for and the location of the
individual definitions “assessable growth component, 5J(1)” and
“assessable period, 5J(1)”.
99. These individual definitions
are being repealed by Items 3 and 4 and it is, therefore, not necessary to
include them in the index of definitions.
Item 3 – Subsection
5J(1) (definition of assessable growth component)
100. Item 3
of Schedule 4 to the Second Consequential Act repeals the definition of
“assessable growth component” from subsection 5J(1).
101. The
reason for this is that the definition is only used in the provisions of
Subdivision A of Division 4 of Part IIIB of the Entitlements Act, which are
being repealed by Item 15 of Schedule 4.
Item 4 – Subsection
5J(1) (definition of assessable period)
102. Item 4 of
Schedule 4 to the Second Consequential Act repeals the definition of
“assessable period” from subsection 5J(1).
103. The reason
for this is that the definition is only used in the provisions of Subdivision A
of Division 4 of Part IIIB of the Entitlements Act, which are being repealed by
Item 15 of Schedule 4.
Item 5 – Subsection 5J(1) (definition of asset-tested income
stream (long term))
104. Item 5 of Schedule 4 to the Second
Consequential Act amends the definition of “asset-tested income stream
(long term)” in subsection 5J(1) of the Entitlements Act.
105. The
reason for this is to include any secondary FLA income stream (as defined in
Item 11 of Schedule 4) that satisfies the requirements of new section 5JD, which
is being inserted by Item 14 of Schedule 4.
Item 6 – Subsection
5J(1) (definition of asset-tested income stream (short
term))
105. Item 6 of Schedule 4 to the Second Consequential Act
amends the definition of “asset-tested income stream (short term)”
in subsection 5J(1) of the Entitlements Act.
106. The reason for this is
to include any secondary FLA income stream( as defined in Item 11 of Schedule 4)
that satisfies the requirements of new section 5JD, which is being inserted by
Item 14 of Schedule 4.
Item 7 – Subsection
5J(1)
107. Item 7 of Schedule 4 to the Second Consequential Act
inserts a short definition of “family law affected income stream”
into subsection 5J(1) of the Entitlements Act.
108. This definition makes
reference to the meaning of that term given at new subsection 5JC(1), which is
being inserted by Item 14 of Schedule 4.
Item 8 – Subsection
5J(1) (after paragraph (f) of the definition of income
stream)
109. Item 8 of Schedule 4 to the Second Consequential Act
inserts new paragraph 5J(1)(fa) into the Entitlements Act.
110 The reason
for this is so that a family law income stream, which is defined by new
subsection 5JC(1) of the Entitlements Act, will be an income stream for the
purposes of that Act.
Item 9 – Subsection
5J(1)
111. Item 9 of Schedule 4 to the Second Consequential Act
inserts a short definition of “original family law affected income
stream” into subsection 5JC(1) of the Entitlements Act.
112. This
definition makes reference to the meaning of that term given at new subsection
5JC(1), which is being inserted by Item 14 of Schedule 4.
Item 10
– Subsection 5J(1)
113. Item 10 of Schedule 4 to the Second
Consequential Act inserts a short definition of “primary FLA income
stream” into subsection 5J(1) of the Entitlements Act.
114. This
definition makes reference to the meaning of that term given at new subsection
5JC(1), which is being inserted by Item 14 of Schedule 4.
Item 11
– Subsection 5J(1)
1154. Item 11 of Schedule 4 to the Second
Consequential Act inserts a short definition of “secondary FLA income
stream” into subsection 5J(1) of the Entitlements Act.
116. This
definition makes reference to the meaning of that term given at new subsection
5JC(1), which is being inserted by Item 14 of Schedule 4.
Item 12
– After subparagraph 5JA(2)(h)(iv)
117. Item 12 of Schedule 4
to the Second Consequential Act inserts new subparagraph 5JA(2)(h)(iva) into the
Entitlements Act.
118. New subparagraph 5JA(2)(h)(iva) allows a
superannuation provider to make a provision in the contract or governing rules
of an income stream product for a commutation to give effect to the entitlement
of a member’s spouse, or former spouse, to the payment of an income stream
split as the result of an agreement or by a court order as provided for in the
Family Law Act. An asset-test exempt income stream commuted in such
circumstances will not lose its asset-test exempt status for the purposes of the
income and assets tests.
Item 13 – After subparagraph
5JB(2)(h)(iv)
119. Item 13 of Schedule 4 to the Second Consequential
Act inserts new subparagraph 5JB(2)(h)(iva) into the Entitlements
Act.
120. New subparagraph 5JB(2)(h)(iva) allows a superannuation
provider to make a provision in the contract or governing rules of an income
stream product for a commutation to give effect to the entitlement of a
member’s spouse, or former spouse, to the payment of an income stream
split as the result of an agreement or by a court order as provided for in the
Family Law Act. An asset-test exempt income stream commuted in such
circumstances will not lose its asset-test exempt status for the purposes of the
income and assets tests
Item 14 – After section
5JB
121. Item 14 of Schedule 4 to the Second Consequential Act
inserts new sections 5JC and 5JD into the Entitlements Act.
122. New
section 5JC provides for the definitions of the individual terms that are
collectively referred to as “family law affected income streams”.
The individual terms are “original family law affected income
stream”, “primary FLA income stream” and “secondary FLA
income stream”.
123. Paragraph 5JC(1)(a) provides that where a
person (member) acquires or purchases the relevant income stream from the
relevant superannuation fund then that income stream is the “original
family law affected income stream”.
124. Subsection 5JC(2) defines
the terms “relevant income stream” and “relevant
superannuation fund”. A “relevant income stream” is an income
stream that falls within paragraphs (a) through (c) of the definition of
“income stream” in subsection 5J(1). A “relevant
superannuation fund” is a superannuation fund that can be affected by a
payment split under Part VIIIB of the Family Law Act.
125. Subsection
5JC(1) is applicable in the circumstances where a member’s spouse, or
former spouse, becomes entitled to be paid some or all of the original family
law affected income stream pursuant to a payment split under Part VIIIB of the
Family Law Act. In such circumstances that part of the income stream that is to
be paid to the spouse as an income stream is defined as the “secondary FLA
income stream”. The remainder of the original family law affected income
stream belonging to the member will be defined as being the “primary FLA
income stream”.
126. In some circumstances the split will not
result in the creation of either a “secondary FLA income stream” or
a “primary FLA income stream”. An example of such an occurrence
will result, where the spouse (or former spouse) receives a lump sum payment
instead of an entitlement to income stream payments from the income stream. The
lump sum payment will not be a “secondary FLA income stream” and
neither would the use by the spouse of the lump sum to buy a new income stream,
or the rolling over of the lump sum into a new income stream result in the
creation of a “secondary FLA income stream” or a family law affected
income stream.
127. After the payment of any lump sum to the
member’s spouse or former spouse or of any secondary FLA income stream,
what is left of the original FLA income stream will be regarded as being the
primary FLA income stream.
128. New subsection 5JD(1) provides that where
a primary FLA income stream meets the definition of an asset-tested income
stream (long term) or (short term), or would meet that definition if it were
subject to the Entitlements Act, then any related secondary FLA income stream
will also be treated as falling within this same definition for the purposes of
the income and assets tests. For example, if the primary FLA income stream is
an asset-tested income stream (short term) then any related secondary FLA income
stream would also be treated as an asset-tested income stream (short
term).
129. Subsection 5JD(2) is applicable in the circumstances where
there is no primary FLA income stream in relation to an original FLA income
stream, but there is a secondary FLA income stream. In such circumstances, if
there had been a primary FLA income stream that would have been either an
asset-tested income stream (long term) or an asset-tested income stream (short
term), the secondary FLA income stream will be treated as having that same
character. Such circumstances will arise where the whole amount of the original
FLA income stream has been transferred to the spouse with the result that there
will be no relevant primary FLA income.
Item 15 – Subdivision A
of Division 4 of Part IIIB
130. Item 15 of Schedule 4 to the Second
Consequential Act repeals Subdivision A of Division 4 of Part IIIB of the
Entitlements Act, which comprises sections 46Q and 46R.
131. Item 15
repeals Subdivision A of Division 4 of Part IIIB of the Entitlements Act, which
comprises sections 46Q, 46R and 46S.
132. Sections 46Q and 46R of the
Entitlements Act contain the rules that treat part of the profit component of a
withdrawal from a superannuation fund by a person under age 55 as income of the
person for 12 months.
133. If these provisions were not repealed, it
would mean that if a superannuation interest was split during its growth phase
under the provisions of Part VIIIB of the Family Law Act, then the split would
be treated as a withdrawal by the member spouse. This would result in the
inequitable outcome that part of the superannuation withdrawal paid to the
partner of the member spouse could be treated as the income of the member
spouse.
134. Section 46S of the Entitlements Act provides for an
adjustment to the ordinary income of a person who has realised an investment at
a loss. It is only applicable in the circumstances where there has been a
realisation and section 46R is applicable. With the repeal of section 46R the
provision becomes obsolete.
135. Additionally, the need for these
provisions has been greatly reduced by other policy changes in recent years, to
the point where they affect very few pensioners. The 2001 Federal Budget
exempted people over 55 from these provisions, and superannuation is generally
inaccessible until age 55.
Item 16 – Subdivision B of Division 4
of Part IIIB (heading)
136. Item 16 of Schedule 4 to the Second
Consequential Act repeals the existing heading of Subdivision B of Division 4 of
Part IIIB and substitutes a new heading.
137. The reason for this is that
this subdivision will now only deal with income streams that are not
family law affected income streams.
Item 17 – Before section 46T
in Subdivision B of Division 4 of Part IIIB
138. Item 17 of Schedule
4 to the Second Consequential Act inserts new section 46SA into the Entitlements
Act.
139. New section 46SA provides that the Subdivision applies to
income streams that are not family law affected income streams.
Item
18 – Sections 46T, 46U and 46V
140. Item 18 of Schedule 4 to
the Second Consequential Act omits the term “asset-test exempt income
streams” and substitutes the term “asset-test exempt income stream
to which this Subdivision applies” in sections 46T, 46U and 46V of the
Entitlements Act. These sections relate to the income test treatment of ATE
income streams.
142. The reason for this amendment is that family law
affected ATE income streams are subject to the income test provisions of new
section 46ZA, which is being inserted into the Entitlements Act by Item 20 of
Schedule 4.
Item 19 – Sections 46W, 46X and
46Y
143. Item 19 of Schedule 4 to the Second Consequential Act omits
the term “asset-tested income stream (long term) and substitutes the term
“asset-tested income stream (long term) to which this Subdivision
applies”. These sections relate to the income testing of an asset-tested
income stream (long term).
144. The reason for this amendment is that
family law affected asset-tested income streams (long term) will be subject to
the income test provisions of new section 46ZB, which is being inserted into the
Entitlements Act by Item 20 of Schedule 4.
Item 20 – At the end
of Division 4 of Part IIIB
145. Item 20 of Schedule 4 to the Second
Consequential Act inserts new Subdivision C into Division 4 of Part IIIB of the
Entitlements Act, which deals with the income testing of family law affected
income streams.
146. New section 46Z provides that new Subdivision C is
applicable to family law affected income streams.
147. New section 46ZA
is applicable where a person has a family law affected income stream which is an
asset-test exempt income stream. The person will be taken to receive from that
income stream each year an amount of ordinary income that is to be calculated by
referring to the guidelines determined by the Repatriation Commission for the
purpose. New paragraphs 46ZA(a) and (b) provide that separate guidelines are to
be determined by the Repatriation Commission for income streams that are not
defined benefit income streams and for income streams that are defined benefit
income streams.
148. New section 46ZB is applicable where a person has a
family law affected income stream which is an asset-tested income stream (long
term). The person will be taken to receive from that income stream each year an
amount of ordinary income that is to be calculated by referring to the
guidelines determined by the Repatriation Commission for the purpose. New
paragraphs 46ZB(a) and (b) provide that separate guidelines are to be determined
by the Repatriation Commission for income streams that are not defined benefit
income streams and for income streams that are defined benefit income
streams.
149. New section 46ZC provides that the guidelines made by the
Repatriation Commission under sections 46ZA or 46ZB are disallowable
instruments, for the purposes of section 46A of the Acts Interpretation Act
1901.
Item 21 – At the end of subsections 52A(1) and
52B(1)
150. Item 21 of Schedule 4 to the Second Consequential Act
amends subsections 52A(1) and 52B(1) of the Entitlements Act so that they are
only applicable to income streams that are not family law affected income
streams.
151. These subsections provide for the valuation of asset-tested
income streams. Subsection 52A(1) applies to income streams that are not
defined benefit income streams and subsection 52B(1) applies to defined benefit
income streams. Family law affected income streams, which are not asset-test
exempt, will be valued in accordance with new section 52BA, which is being
inserted by Item 22 of Schedule 4.
Item 22 – After section
52B
152. Item 22 of Schedule 4 to the Second Consequential Act
inserts new section 52BA into the Entitlements Act.
153. New section 52BA
provides that, for the purposes of the assets test, the value of the income
stream is to be calculated by referring to the guidelines determined by the
Repatriation Commission for that purpose. New subsection 52BA(2) and (3)
provide that separate guidelines are to be determined by the Repatriation
Commission for income streams that are not defined benefit income streams and
for income streams that are defined benefit income streams.
154. New
subsection 52BA(4) provides that the guidelines made by the Repatriation
Commission under subsections 52BA(2) or (3) are disallowable instruments, for
the purposes of section 46A of the Acts Interpretation Act 1901.