SUPERANNUATION CORONAVIRUS LEGISLATION
Noel Davis
Barrister, Sydney and author of The Law of Superannuation in Australia (LexisNexis)
Introduction
As part of the Commonwealth Government’s economic response to assist people who are economically affected by the coronavirus, legislation has been passed to allow them to withdraw up to $10,000 from their superannuation fund or funds in the 2019/20 financial year and up to another $10,000 in the 2020/21 financial year.
Those amounts are received tax free.
The legislation
The relevant Act is the Coronavirus Economic Response Package Omnibus Act 2020 (the Act).
Schedule 13 of the Act makes amendments to the Superannuation Industry (Supervision) Regulations 1994.
The grounds for payment of a benefit
It is clear that a person who has been made redundant or whose working hours have been reduced by at least 20% is only entitled to receive a benefit if the redundancy or reduction occurred on or after 1 January 2020. However, if the basis of applying for the payment of a benefit is one of those specified in the first 4 dot points above, an application can be made even if the condition which is the foundation for the application commenced before 1 January 2020, such as unemployment having commenced before that date.
There is an anomaly between redundancy and unemployment being the basis for an application. Redundancy has to have occurred on or after 1 January 2020 whereas unemployment can have commenced before that date. The effect of the legislation is that if a person was made redundant before 1 January 2020 and has been unemployed since, the person can make an application on the basis of being unemployed.
When can an application for payment of a benefit be made?
Two applications by a member of a superannuation fund for the payment of a benefit can be made-one in the 2019-20 financial year and one in the 2020-21 financial year, but it has to be made by 25 September 2020-regulation 6.19B(2).
The procedure for obtaining payment
If the ATO, having considered the application, decides that the grounds for the release of a benefit have been satisfied, it must make a determination to that effect in writing and give a copy of it both to the applicant and to the relevant superannuation fund or funds- regulation 6.19B(3) and (6).
The trustee of the superannuation fund is required to pay the benefit to the member as soon as practicable after the trustee receives a copy of the determination from the ATO, without requiring any further application from the member, but the trustee is not required to make a payment from a defined benefit interest- regulation 6.19D(3) and (4).
A defined benefit interest is one where the member’s benefit is defined by reference to the member’s salary (such as a multiple of salary) or is a specified benefit amount or is an interest in an unfunded public sector fund-regulation 1.03AA.
The requirement to pay a benefit as soon as practicable is a standard with which a trustee of a superannuation fund must comply under section 31 of the Superannuation Industry (Supervision) Act 1993 (the SIS Act)-regulation 6.17D(1). A trustee must ensure that it complies with that standard and a reckless or intentional contravention of that obligation is an offence-section 34 of the SIS Act.
It is not prescribed what constitutes payment as soon as practicable but, if a trustee has to redeem investments to make the payments to a large number of members and there is an unavoidable delay in redeeming the investments, payments of benefits soon after the redemptions are made would constitute payment as soon as practicable.
A dilemma for a trustee may be if investments can only be redeemed quickly at a loss, should the trustee accept the loss in order to pay benefits quickly? A reasonable interpretation of the obligation to pay the benefits as soon as practicable is that the loss should be realised unless the trustee can be satisfied, on well founded grounds, that if the redemption is deferred for a short time the loss will be significantly less.
The effect of the payments
A payment of a benefit to a member is not assessable income of the member-section 303-15 of the Income Tax (Transitional Provisions) Act 1997. A member will not, therefore, have to declare the benefit received, as income.
Another effect is that withdrawals made by members with low account balances will result in some of them withdrawing the whole of their benefits. This will inevitably cause a reduction in the number of members in some funds.
It is possible that some members will not understand the long term impact on their retirement benefits of withdrawing benefits now. That may result in some members wanting to repay some or all of the benefits to their funds. Generally that will be able to be done by the repayments being accepted as member contributions.
As part of the Commonwealth Government’s economic response to assist people who are economically affected by the coronavirus, legislation has been passed to allow them to withdraw up to $10,000 from their superannuation fund or funds in the 2019/20 financial year and up to another $10,000 in the 2020/21 financial year.
Those amounts are received tax free.
The legislation
The relevant Act is the Coronavirus Economic Response Package Omnibus Act 2020 (the Act).
Schedule 13 of the Act makes amendments to the Superannuation Industry (Supervision) Regulations 1994.
The grounds for payment of a benefit
- One of the amendments to the regulations is the insertion of new regulation 6.19B. Under that regulation, a member of a superannuation fund can apply to the Australian Tax Office (ATO) for a determination that an amount up to $10,000 can be paid from the fund to the member on the ground that it is required to assist the member to deal with the adverse economic effects of the coronavirus if:
- the person is unemployed (regardless of when the unemployment commenced); or
- the person is eligible to receive, under the Social Security Act 1991, the jobseeker payment, parenting payment or special benefit (regardless of when those payments commenced); or
- the person is eligible to receive the youth allowance under the Social Security Act 1991 (other than on the basis that the person is undertaking full-time study or is a new apprentice) and regardless of when the youth allowance commenced; or
- the person is eligible to receive the farm household allowance under the Farm Household Support Act 2014 (regardless of when the allowance commenced); or
- the person was made redundant, or their working hours were reduced by at least 20%, on or after 1 January 2020 (this applies regardless of whether the cause of the redundancy or reduction was the coronavirus); or
- a sole trader’s business was suspended or suffered a reduction in turnover of at least 20% on or after 1 January 2020 (this applies regardless of what the cause of the suspension or reduction was). It is not apparent whether this applies if the sole trader’s business was conducted through a company or a trust but may not apply if the business was conducted in a partnership, such as a husband and wife partnership.
It is clear that a person who has been made redundant or whose working hours have been reduced by at least 20% is only entitled to receive a benefit if the redundancy or reduction occurred on or after 1 January 2020. However, if the basis of applying for the payment of a benefit is one of those specified in the first 4 dot points above, an application can be made even if the condition which is the foundation for the application commenced before 1 January 2020, such as unemployment having commenced before that date.
There is an anomaly between redundancy and unemployment being the basis for an application. Redundancy has to have occurred on or after 1 January 2020 whereas unemployment can have commenced before that date. The effect of the legislation is that if a person was made redundant before 1 January 2020 and has been unemployed since, the person can make an application on the basis of being unemployed.
When can an application for payment of a benefit be made?
Two applications by a member of a superannuation fund for the payment of a benefit can be made-one in the 2019-20 financial year and one in the 2020-21 financial year, but it has to be made by 25 September 2020-regulation 6.19B(2).
The procedure for obtaining payment
If the ATO, having considered the application, decides that the grounds for the release of a benefit have been satisfied, it must make a determination to that effect in writing and give a copy of it both to the applicant and to the relevant superannuation fund or funds- regulation 6.19B(3) and (6).
The trustee of the superannuation fund is required to pay the benefit to the member as soon as practicable after the trustee receives a copy of the determination from the ATO, without requiring any further application from the member, but the trustee is not required to make a payment from a defined benefit interest- regulation 6.19D(3) and (4).
A defined benefit interest is one where the member’s benefit is defined by reference to the member’s salary (such as a multiple of salary) or is a specified benefit amount or is an interest in an unfunded public sector fund-regulation 1.03AA.
The requirement to pay a benefit as soon as practicable is a standard with which a trustee of a superannuation fund must comply under section 31 of the Superannuation Industry (Supervision) Act 1993 (the SIS Act)-regulation 6.17D(1). A trustee must ensure that it complies with that standard and a reckless or intentional contravention of that obligation is an offence-section 34 of the SIS Act.
It is not prescribed what constitutes payment as soon as practicable but, if a trustee has to redeem investments to make the payments to a large number of members and there is an unavoidable delay in redeeming the investments, payments of benefits soon after the redemptions are made would constitute payment as soon as practicable.
A dilemma for a trustee may be if investments can only be redeemed quickly at a loss, should the trustee accept the loss in order to pay benefits quickly? A reasonable interpretation of the obligation to pay the benefits as soon as practicable is that the loss should be realised unless the trustee can be satisfied, on well founded grounds, that if the redemption is deferred for a short time the loss will be significantly less.
The effect of the payments
A payment of a benefit to a member is not assessable income of the member-section 303-15 of the Income Tax (Transitional Provisions) Act 1997. A member will not, therefore, have to declare the benefit received, as income.
Another effect is that withdrawals made by members with low account balances will result in some of them withdrawing the whole of their benefits. This will inevitably cause a reduction in the number of members in some funds.
It is possible that some members will not understand the long term impact on their retirement benefits of withdrawing benefits now. That may result in some members wanting to repay some or all of the benefits to their funds. Generally that will be able to be done by the repayments being accepted as member contributions.