Legislation Amendment (Fees and Charges) Bill
introduced: 16 February 2006
House: House of
Schedule 1 Part 1, Schedule 2 and Schedule 3 commence on 1 July
2006. Commencement of Schedule 1 Part 2 is dependent on the
Bankruptcy Legislation Amendments (Anti-avoidance) Act
2006 commencing operation. Schedule 4 commences on Royal
This Bill amends the Bankruptcy Act 1966 and related
legislation to increase the cost recovery measures of the
Insolvency and Trustee Service Australia (ITSA).
The Insolvency and Trustee Service Australia is the government
agency responsible for the administration and regulation of the
personal insolvency system in Australia. During 2004-05 ITSA
completed a review of its cost recovery arrangements.
Cost recovery has been described by the Productivity Commission
in the following terms:
Cost recovery differs from general taxation which
raises revenue to fund a wide range of Government activities or
products. Cost recovery, on the other hand, recovers some or all of
the costs of a particular Government activity or product
The most direct forms of cost recovery are where
particular users are charged a fee based on the cost of providing
the Government product consumed. Less direct forms include special
levies or earmarked taxes to fund a specific Government activity.
The link between the revenue raised and the funding of a specific
activity distinguishes taxes imposed for cost recovery from general
taxation. The fact that cost recovery is usually not undertaken
with a view to generating a profit distinguishes it from the
pricing objectives of government business enterprises.
ITSA conducted a review of its cost recovery arrangements in
accordance with the Commonwealth Cost Recovery Guidelines for
Information and Regulatory Agencies, issued by the Department of
Finance and Administration.
The Productivity Commission (PC) inquired into cost recovery
arrangements within Government Agencies. Its report, Cost
Recovery by Government Agencies, was released in March
In its report the PC noted that notwithstanding its increased
significance, cost recovery currently lacks the attributes of good
policy namely, a clear rationale, accountability, transparency,
performance assessment and review .(2)
In response to the PC s report the Government, in December 2002,
announced that it would introduce a formal cost recovery policy for
Government agencies.(3) This cost recovery policy is
located on the Department of Finance website at
The cost recovery policy states that Commonwealth regulatory
agencies should apply these Guidelines when a review of cost
recovery arrangements is required.
In accordance with the cost recovery guidelines, ITSA reviewed
all its fees and charges in 2004 and identified which services
should be cost recovered, the type of charge to apply, who should
pay and which services would be more appropriately funded through
ITSA s portfolio budget statements for 2004-05 state that:
Applying cost recovery policy would result in
variations to existing fees and charges in Bankruptcy Act services
to ensure they reflect the full cost of the service, and
introduction of a new charge ie extension of the realisations
charge to apply to moneys recovered in debt agreements.
The review concluded that fees and charges should
be applied to all Bankruptcy Act services provided by ITSA, other
than the processing of debtor s petitions and debt agreement
proposals, policy and legislation reform and other support services
to the Minister and Parliament, which should be Budget funded.
In connection with ITSA s proceeds of crime
activities, costs of controlling and selling property are recovered
from the administration when sufficient assets are forfeited. When
assets under control are not forfeited, or if their value is
insufficient to cover costs, Budget funding of the Official trustee
s costs is appropriate.
These measures would increase the proportion of
ITSA s costs which are recovered in fees and charges from 58% to
72%. Implementation of cost recovery is estimated to reduce
annual net budget funding to ITSA by approximately $6m per year.
The portfolio budget statements go on to state that:
Implementation of the revised fees and charges
will generate an additional revenue of $6.9m per year once fully
implemented. This would be offset by $0.9m per year to meet the
cost of changes to existing systems and processes which would be
required to deal with new billing and time recording
The following table, drawn from the budget statement, sets out
the proposed schedule of fees and charges for ITSA at the time of
the review as well as the levels of fees and charges that were in
place at the time of the review.
Source: ITSA Cost
Recovery Impact Statement
As noted above, the proposed changes to fee and charge
arrangements will raise an additional $6.9 million for ITSA. As the
table indicates, many of ITSA s functions are currently paid for
through fees and charges. The review did not suggest that any new
fees and charges should be imposed on ITSA s functions. The review
has however recommended that there be an increase in current fees
Since the time of publishing this information in the budget
documents, ITSA has refined the proposed new fee and charge
arrangements. The revised fees and charges (current at December
2005) are set out in the appendix.
The cost recovery review had recommended that a general levy
should be imposed on debt agreements. Debt agreements first became
available to people in financial difficulties in 1996. As the table
below indicates, the use of debt agreements has steadily grown and
in the 2004-05 financial year made up 18.6% of all personal
insolvency administrations. This rise in the use of debt agreements
has taken place at the same time as the share of personal
insolvency agreements has fallen to 0.8% and bankruptcies to
Source: ITSA Annual
Currently the realisations from bankruptcies and personal
insolvency agreements are subject to an 8% levy. The revised fee
and charge arrangements proposed to reduce that levy to 6.5% but to
also impose a 6.5% levy on realisations from debt agreements.
Some groups were opposed to imposing such a levy on debt
agreements. The Law Council of Australia, for example, argued
The sub-committee opposes the implementation of
any realisation charges upon Debt Agreements as they would tend to
undermine the very purpose for which they were first introduced.
Such Agreements are of a low order of magnitude of debts and are
intended as an efficient system for keeping bankruptcy numbers down
and avoiding the cost which would arise from the administration of
these estates as bankruptcies .(7)
Creditors and debt agreement administrators also argued that the
imposition of this levy would place a significant additional cost
on debt agreements and would deter people from using
At the time of the review, however, ITSA argued that debt
agreements do require regulatory and compliance work by ITSA and
hence should be subject to a levy.(9)
More recently, the Government has decided to continue with the
levy on personal administrations and bankruptcies but to not impose
it on debt agreements. In the Second Reading Speech to the Bill,
the Attorney-General stated that:
The government has decided not to apply the
realisations charge to money received in debt agreements. This will
ensure that debt agreements continue to be available as a viable
alternative to bankruptcy for many debtors.(10)
The rate of the levy has yet to be determined however the Bill
states that the rate must not be more than 15% of realisations.
The money from this levy will be used to fund ITSA functions
such as monitoring and investigating complaints against insolvency
practitioners,(11) providing an information
service(12), Inspector General reviews,(13)
and investigation of bankruptcy offences.(14)
Currently fees and charges are set either through legislation or
regulations. The Bill changes this arrangement so that all fees and
charges will now be set by way of legislative instrument made by
The explanatory memorandum to the Bill explains that this will
provide the responsiveness and flexibility required to enable
effective and fair cost recovery for services supplied to
The legislative instruments have not been exempted from the
Legislative Instruments Act 2003 and hence will be
disallowable instruments for the purposes of that Act.
Schedule 1, parts 1 and 2 amend the
Bankruptcy Act 1966 so that fees for different services
under the Act can be set by a legislative instrument by the
Minister. Currently these fees are set through regulations.
Schedule 2 amends the Bankruptcy (Estate
Charges) Act 1997 so that the Minister will set the percentage
amount of the levy on personal administrations and bankruptcies by
legislative instrument under that Act. Currently the amount of the
levy is set by way of regulation. Schedule 2 also removes the
minimum levy amount of 8% but retains the maximum amount of
Schedule 3 repeals the Bankruptcy
(Registration Charges) Act 1997. Fees that were set under this
act will now be set under the Bankruptcy Act 1966.
Schedule 4 makes some minor technical
amendments to the Bankruptcy Act 1966. In particular, the
amendments will help ITSA deliver their services
This Bill implements cost recovery measures for the Insolvency
and Trustee Service Australia. The Bill follows on from a review of
the current cost recovery arrangements of ITSA. It is proposed that
the new cost recovery arrangements will increase the proportion of
ITSA s costs which are recovered in fees and charges from 58% to
The Bill does not set out what the new fees and charges for ITSA
will be. Rather it creates a series of legislative instrument
making powers for the Minister to set the fees and charges. Any
legislative instruments made by the Minister under these powers
will be disallowable by Federal Parliament. The fees and charges
will be reviewed every two years in consultation with
Productivity Commission, Cost Recovery by Government
Agencies Inquiry Report, Report No. 15, 16 August 2001,
Ausinfo, Canberra, 2001, p. xxxii.
Commonwealth Cost Recovery Policy Media Release,
Senator Nick Minchin, Minister for Finance and Administration, 4
Insolvency and Trustee Service Australia, Budget Papers
2005-06, p. 384.
Insolvency and Trustee Service Australia, Annual Report
2004-2005, Canberra, 2005, p. 17.
Law Council of Australia, Submission to the Insolvency and
Trustee Service Australia Cost Recovery
Review , 24 January 2005.
Discussions with ITSA, March 2006.
Insolvency and Trustee Service Australia, Cost Recovery
Impact Statement, February 2005, p. 19.
Bankruptcy Legislation Amendment (Fees and Charges )
Bill 2005 Second Reading Speech.
ibid., p. 5 6.
Ibid., p. 5.
ibid., p. 6.
ibid., p. 9.
Bankruptcy Legislation Amendment (Fees and Charges)
Bill 2005 Explanatory Memorandum, p. 3.
1a. The Official Trustee's fees for the administration of
bankruptcies was initially proposed at a flag fall rate of $4,500 +
16% of realisations up to $100K and 12% of realisations thereafter.
Based on cost data that has now been collected, the $4,500 flag
fall rate appears to be excessive and not reflective of the costs
of undertaking preliminary enquiries in estates. It is proposed
that the flag fall be set at $3000 and a flat 20% fee (incl. GST)
be imposed on any realisations in that estate. This fee structure
is a better reflection of the cost of administering a typical
1b. There are occasions where an administration may be
transferred between the Official Trustee and a Registered Trustee.
In those instances, the Official Trustee's fees will continue to be
determined based on an agreement with the Registered Trustee. The
fees that the OT will be claiming in those instances will be the
value of the work performed up to the date of the transfer.
1c. If the administration of a bankrupt estate requires the
Official Trustee to manage an ongoing business, it is proposed that
an additional fee of $200/hr (plus GST) will apply for the time
that is spent in managing the business.
This paper has been prepared to support the work of the
Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Parliamentary Library, nor do they constitute professional
Published by the Parliamentary Library, 2006.