Chapter 1 Introduction
Referral of the Bill
On 1 March 2012 the Selection Committee referred the Tax and
Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012 (the Bill) to
the committee for inquiry and report.
Contents and structure of the Bill
GST-free health supplies
Schedule 1 amends the A New Tax System (Goods and Services
Tax) Act 1999 (GST Act) to ensure that certain supplies made to insurers in
settling insurance claims under both private health insurance policies and
taxable insurance policies are GST-free to the extent that the underlying
supply to the insured is GST-free under Subdivision 38-B of the GST Act. The
amendments similarly apply to supplies made to a statutory compensation scheme
operator, compulsory third party scheme operator, and the Commonwealth, State
and Territory governments.
The amendments were triggered by the Full Federal Court in July 2010 in Commissioner
of Taxation v Secretary to the Department of Transport (Victoria).
There, the department had an arrangement with taxi drivers to pay them a
subsidy for providing taxi services to disabled passengers. The Commissioner
argued that there had been no taxable supply made by the taxi operators to the department,
and denied the department’s claim for input tax credits. The court found for
The court took a broad interpretation of the law. The decision could
potentially affect multi-party arrangements of supplies of GST-free health related
goods and services made in settlement of claims under GST-free private health
insurance and taxable insurance policies. This could also extend to statutory
compensation schemes and Compulsory Third Party (CTP) schemes, and in relation
to certain government health funding arrangements.
There will be no retrospective application of these amendments, which
would result in compliance costs to change the GST treatment of past supplies.
Organisations will be protected against paying underpaid GST if they have
relied on GST Ruling 2006/9 (GSTR) to treat supplies as non-taxable. No GST
will have been paid in acquiring the supplies, so insurers or other third party
acquirers will not be disadvantaged.
GST treatment of appropriations
Schedule 2 of the Bill amends the GST Act to restore the policy intent
that the non-commercial activities of government entities are not subject to
GST. Paragraph 9-15(3)(c) of the GST Act currently provides that payments
between government related entities are not treated as consideration if the
payments are specifically covered by an appropriation under Australian law.
This then excludes the payments from GST.
The Full Federal Court considered this provision in TT-Line Co Pty
Ltd v Commissioner of Taxation. The court decided that the
provision will only apply where the terms of the appropriation are such that
funds can only be paid to a government related entity. It will not apply where
the appropriation permits a payment to either a government related entity or
non-government related entity.
The amendments provide that, where the payment meets certain conditions,
it will not be treated as consideration and will not be subject to the basic
GST rules. The conditions are that the payment:
n is made between
government related entities for making a supply;
n is paid under a
government appropriation or pursuant to specified intergovernmental health
reform arrangements; and
n satisfies a
Superannuation general concessional contributions cap
Schedule 3 amends the Income Tax Assessment Act 1997 (ITAA) to
temporarily pause the indexation of the cap so that it will remain fixed at
$25,000 up to and including 2013-14. The pause will save $485 million over the
forward estimates, as detailed in the table below.
Table 1.1 Projected savings by pausing indexation of the
cap in 2013-14
and Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012, Explanatory
Memorandum, p. 4.
The general concessional cap is currently $25,000. It is indexed in line
with average weekly ordinary time earnings, rounded down to the nearest
multiple of $5,000. Treasury estimates that, without the amendments, the cap
will increase to $30,000 in 2013-14.
The cap is important because this is the amount of superannuation that
individuals can set aside annually at the concessional tax rate of 15 per cent
(paid by the super fund). Individuals can exceed the concessional cap, but pay
excess contributions tax of 31.5 per cent. These further amounts are
limited by the non-concessional contributions cap, which is currently set at
six times the general concessional contributions cap. Amounts above the
non-concessional contributions cap are subject to excess contributions tax of
46.5 per cent.
A transitional concessional cap of $50,000 applies to individuals aged
50 or over. This cap is not indexed and it is scheduled to expire on
1 July 2012. The Government has announced that the transitional cap will
be replaced by a $50,000 cap for individuals with super balances of less than
$500,000. The $50,000 threshold will be indirectly indexed by being set at
$25,000 above the general concessional cap.
The provisions in the Bill do not affect the indexing arrangements in
the long term. The indexation provisions in section 960-285 of the ITAA will
not be amended. Therefore, the provisions will allow the cap to increase by
$5,000 in 2014-15.
Refund of excess superannuation concessional contributions
Schedule 4 establishes a system whereby individuals, who exceed the
superannuation concessional cap in a given year by less than $10,000, can have
the amount refunded to them. This amount will then be subject to income tax,
rather than excess contributions tax.
The measure is expected to reduce revenue by $19.9 million over the
forward estimates, as outlined in the table below.
Table 1.2 Projected cost to revenue by refunding excess
and Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012, Explanatory
Memorandum, p. 5.
A number of conditions will apply, some of which relate to a taxpayer’s
n the Commissioner is
satisfied that the individual has excess concessional contributions for a
n the amount of excess
concessional contributions is $10,000 or less;
n the individual has
lodged an income tax return for the relevant income year within 12 months of
the end of that year, or within such longer period as the Commissioner allows;
n the individual does
not have excess concessional contributions for an earlier financial year
starting from 1 July 2011.
The last point has been criticised as a significant limitation on the
proposal. If a taxpayer exceeds the limit by a small amount, the Australian
Taxation Office (ATO) can offer that this sum be returned to them, increasing
their taxable income accordingly. However, if the taxpayer does not accept this
offer, then they will not be entitled to receive any offers if they exceed the
limit in future.
Disclosure of superannuation information
Schedule 5 includes a further exception to the secrecy provisions in the
Taxation Administration Act 1953. It allows the ATO to disclose
superannuation information to a regulated super fund or similar body about
their members’ superannuation interests. This will assist these entities in
finding and consolidating their members’ multiple and lost super accounts.
The provisions are not expected to affect current secrecy arrangements
around tax file numbers. The Explanatory Memorandum (EM) states:
... TFNs will continue to be protected by the existing
provisions in the taxation laws and through the legally binding guidelines on
the use, disclosure and storage of TFNs that are issued by the Office of the
Australian Information Commissioner.
The Office of the Australian Information Commissioner has been consulted
on the amendments.
Payslip reporting of superannuation
Schedule 6 will require employers to report on payslips any information
prescribed in the regulations about super contributions. The regulations will
be made once the Bill has come into force. They are expected to require the
employer to either state the amount paid, or the amount due and when it will be
paid. This will enable employees to check that the payments have been made at
the appropriate time.
Currently, employers are required to report on payslips either
entitlements to superannuation accrued during the pay-period, or actual
contributions. They are not required to report whether amounts have been paid.
The legal requirement on employers is to pay super guarantee contributions
within 28 days of the end of the relevant quarter. Employees may believe that
listing a superannuation amount on a payslip means that it has been paid, when
it may only mean that it has been accrued.
This measure is part of the Government’s Securing Super package.
The measure complements one of the other components of the package. In
particular, the Government plans to legislate to require regulated super funds
and retirement savings account providers to:
n notify members that
they have either received or not received contributions during the quarter; and
n maintain a web-based
portal for members to consult; or
n issue six-monthly
notices to members, showing contributions made.
Current payslip reporting requirements are in the Fair Work legislation,
which does not apply to public sector employers in some states and some
unincorporated private sector employers in Western Australia. Therefore, the
amendments in this schedule will be made to the Superannuation Industry
(Supervision) Act 1993.
The EM states that the compliance costs of this measure will be
‘minimal’ to ‘medium’. Payroll software producers will need to add a field for
the expected payment date, which employers will need to populate.
Schedule 7 amends the Tax Administration Act 1953 to provide the
Commissioner with discretion to delay paying a tax refund in order to verify
the accuracy of a taxpayer’s claim.
Until recently, the ATO’s administrative practice in relation to refunds
was to retain some amounts in exceptional circumstances pending verification
checks. This was done on the basis that it was within the Commissioner’s
general powers of administration and that it was implied by the tax law. It was
also seen as consistent with the requirements under the Financial Management
and Accountability Act 1997 and the requirements for the Commissioner to
pay interest on refunds if a certain period had expired under the Taxation
(Interest on Overpayments and Early Payments) Act 1983.
In November 2011, the Full Federal Court handed down its decision in Commissioner
of Taxation v Multiflex Pty Ltd. The court found that the
Commissioner is required to pay a GST refund within the time required to
undertake the necessary administrative steps and to process the payment. There
is no provision in the law that allows the Commissioner to delay the payment to
undertake additional verification, even if the ATO has reservations about the
The new system will apply to all running balance account surpluses and
other entitlements to credits under the tax law. Broadly, the Commissioner will
be able to retain an amount if it would be reasonable to require verification
of the taxpayer’s claim. The ATO must seek to balance the interests of both
taxpayers and the integrity of the revenue. Factors to be considered include:
n the likelihood of
fraud or evasion;
n the impact of
retaining the amount on the entity’s financial position;
n whether retaining the
amount is necessary for protecting the revenue; and
n the time for which
the Commissioner has already retained the revenue.
The ATO must inform the taxpayer that an amount has been retained under
this provision. It may retain the amount until it would no longer be reasonable
to require verification of the taxpayer’s claim. The taxpayer may object to the
Commissioner’s decision to retain an amount under the normal complaints
processes in Part IVC of the Taxation Administration Act 1953.
The EM does not list any financial effects of the measure.
Although difficult to quantify, it would be expected that the measure would
improve the Government’s financial position, by protecting the revenue, reducing
the ATO’s costs, and allowing the ATO to shift resources to other high-risk
parts of its operations.
Background to the schedules examined in the inquiry
The committee received submissions on Schedules 3 to 7 and so focussed
on these schedules during the inquiry. The background to these schedules is
Indexation of the superannuation concessional contributions cap
The tax treatment of superannuation was substantially amended in 2007
with the Tax Laws Amendment (Simplified Superannuation) Act 2007. The
then Treasurer stated in his second reading speech that the legislation would
‘cut the number of pages of superannuation law in the income tax assessment
acts by over a third’. These changes introduced
a general concessional cap of $50,000, to be indexed annually. Indexation was
based on average weekly ordinary time earnings, with a base period of the final
quarter of 2006. The then Treasurer
stated that the superannuation tax concessions would be appropriately targeted
through a number of transitional caps. This included a limit of $450,000 per
person over three years on contributions from post-tax income.
The review, Australia’s future tax system, considered retirement
incomes. In one of its consultation papers, the review panel stated that the
superannuation caps and concessional arrangements favoured higher income
earners with higher marginal tax rates. It also noted that, in 2005-06, 5 per
cent of individuals accounted for 37 per cent of concessional superannuation
The general concessional cap was changed in 2009 to the system applying
today. It was reduced to $25,000 and the base period for indexation was set to
the final quarter of 2008. The original $50,000 cap only applied to the 2007-08
and 2008-09 financial years. In his second reading speech, the Treasurer noted
the opportunity to more fairly distribute government assistance in this area.
The budget savings from this measure were directed to increasing the base rate
for the pension.
The final reports for the Australia’s future tax system review
were completed in December 2009 and released in May 2010. They stated that,
‘The structure of the existing tax concessions is inequitable because high
income earners benefit much more from the superannuation tax concessions than
low-income earners’. The review made some fundamental reform recommendations,
in particular that super contributions in the fund should no longer be taxed
and employer contributions treated as individuals’ income. However, it also
recommended that an offset should be applied to all super contributions, capped
at an indexed amount of $25,000.
Refund of excess superannuation concessional contributions
Excess contributions tax for superannuation was introduced as part of
the 2007 reforms as a way of enforcing the caps that were introduced. However,
press and industry reports suggest that many taxpayers breach these limits
inadvertently and can be subject to excessive penalties for doing so.
In response to a question on notice asked in the Senate, the Government
gave the following reasons why taxpayers’ contributions can exceed the caps:
n taxpayers failing to
take into account available information when planning their contributions for a
superannuation fund reporting
n taxpayers not completing
their income tax return correctly
n taxpayers not
providing superannuation funds sufficient contribution information.
Specific to the concessional contribution cap:
n salary sacrifice
arrangements, particularly caused by the timing of contributions made by
employers. For example, contributions made in respect of one financial year not
being received by the fund until the next year.
Specific to the non-concessional contribution cap:
n taxpayers not
understanding the tax treatment of contributions
n taxpayers acting on
n superannuation funds
not returning contributions which the fund was unable to accept at law as
In July 2011, the ATO published statistics on excess contributions tax,
valid as at May 2011. Including the transitional period from 10 May 2006 to 30
June 2007, and thereafter, the ATO had issued 43,000 assessments for a total of
$400 million in liabilities. Excess contributions
tax, which was designed to encourage enforcement with the superannuation caps,
has been criticised for becoming, in effect, a revenue collecting measure.
The ATO has also received a number of applications to disregard or
reallocate contributions. These are set out in the table below. They
demonstrate that the ATO is exercising its discretion in approximately
20 per cent of cases.
Table 1.3 Applications to disregard or reallocate
contributions at 4 May 2011
‘Excess contributions tax statistical report’ viewed on 13 March 2012 at
In its annual report for 2010-11, the ATO reported an increased workload
due to superannuation excess contributions tax. In particular, it provided 7
per cent more guidance products and the number of objections, disputes and
reviews it received increased by 12 per cent. The ATO attributed both of these
figures to excess contributions tax. It is possible that the
reduction in the limits in 2009, commencing in July 2010, had the practical
effect of putting a higher number of people at risk of breaching the limits.
The Institute of Chartered Accountants in Australia (ICAA) and the Self
Managed Super Fund Professionals’ Association of Australia (SPAA) have called
for super fund regulations to be amended to allow funds to return members’
Disclosure of superannuation information
A number of systems already exist to help reunite super fund members
with their superannuation interests. The Superannuation (Unclaimed Money and
Lost Members) Act 1999 provides for the administration of a lost members
register. The aim of the register is to reunite members with their accounts
before the funds become unclaimed. A number of conditions must be met for funds
to become unclaimed, one of which is that the individual turns 65.
At 30 June 2010, the funds in the register totalled $18.8 billion. This
comprised 5.8 million member accounts. The amounts are treated like normal
superannuation balances. The ATO keeps information on each account that is
provided to it by super funds. If an individual provides their tax file number
to the super fund, then the fund passes this on to the ATO. Matching of tax
file numbers of lost super accounts with information in other ATO systems is a
key method by which the ATO can reunite members with their super.
The ATO has a number of tools and strategies by which it aims to reunite
individuals with their super accounts. SuperSeeker is a web-based search tool
that allows individuals to enter their details, which are then matched against
the lost members register. Individuals must first complete a proof of identity
check by entering details such as their tax file number.
If an individual makes a successful SuperSeeker search, they receive a
copy of a portability form with their personal details pre-filled. The
individual then manually fills in the remainder of the form, such as the
details of the fund to which their amounts should be consolidated, and sends it
to the relevant super fund. Blank portability forms are also separately
available. The value of the portability form to date is unclear. Amendments
through the Tax Laws Amendment (2011 Measures No. 9) Act 2012 have been
made to allow this process to be more streamlined and for the ATO to do more of
the work on behalf of the individual.
SuperMatch is an electronic commerce interface search tool which allows
super funds to conduct bulk searches of their members’ details against data on
the register, the superannuation guarantee system and the superannuation
holding account. Funds must sign an agreement with the ATO and have a digital
certificate and ATO authorisation to access SuperMatch. Funds regard SuperMatch
as a useful tool for finding lost accounts.
The ATO also conducts marketing and telephone and letter campaigns to
increase individuals’ awareness of lost superannuation and how it can be
Payslip reporting of superannuation
In December 2009, the review panel completed its final report of the
review, Australia’s future tax system. The panel found that there was a
need to improve people’s awareness of the retirement income system to improve
the outcomes they get from it. The report recommended that employers should
report when super contributions are made to employees.
In March 2010 the Inspector-General of Taxation (IGT) published a
report, The Review into the ATO’s administration of the Superannuation
Guarantee Charge. In this report he found that insolvent employers were
responsible for approximately $600.8 million owed to the ATO under the
superannuation guarantee charge (SGC) and that most of this debt had been written-off
as lost employee retirement savings.
The report also found that the groups most affected by the problem were employees
of micro businesses, contracted and casual employees, younger employees and
employees in particular sectors — the arts and recreation services; the
transport, postal and warehousing sectors; accommodation and food services; and
the agriculture, forestry and fishing sector. The mean salary and wages across
each of these high risk sectors is less than $30,000 a year, which indicated
that those most at risk of having insufficient superannuation contributed on
their behalf by employers were low-income employees.
The IGT stated that he had received many submissions on the growing
practice of employers misclassifying workers as subcontractors, rather than
employees, to avoid paying superannuation. In addition, over
70 per cent of complaints concerning superannuation guarantee obligations
come from ex-employees. There was also anecdotal evidence to suggest that many
employees are concerned that, if they query their employer about their
superannuation guarantee entitlement or lodge a complaint with the ATO, they
could either lose their job or no longer be given work.
Finally, the IGT noted that:
A delay in triggering ATO audit activity significantly
increases the likelihood of non-payment of SGC debt (requiring more costly debt
recovery action) and irrecoverability through insolvency. It also hampers the
ATO’s and government’s efforts to maintain a level playing field amongst employers
and ensure that compliant employers do not face a financial disadvantage
against non-compliant competitors.
In June 2010, the review panel of the Super System Review
finalised its reports. It endorsed the work of the Australia’s future tax
system review. The panel recommended that employees’ payslips should detail
the superannuation amounts to be paid. In the 2010 election
campaign, the Government endorsed this recommendation of the Super System
Review in its Securing Super package.
In February this year, Treasury conducted consultations on an exposure
draft of Schedule 6. Some comments provided by the Institute of Certified
Bookkeepers (ICB) and the Association for Payroll Specialists included:
n a start date of July
2012 would be too early for businesses and payroll software developers to make
the necessary changes;
n compliance costs are
excessive, given the large proportion of businesses who do the right thing;
n mostly, employers are
only required to pay super for employees who earn over $450 a month. For
mid-month payslips for some employees, their employer will not know if they
will be paying them superannuation and so cannot provide an expected payment
n businesses may choose
to simplify the process and use the default approach of reporting the last day
of the required super payment obligation, i.e. the 28th day of the
first month following each quarter; and
n it may be more
practical to require employers to provide employees with proof of payment of
superannuation at least once a quarter (this is similar to one of the proposals
in the Government’s Securing Super package).
Treasury responded to some of these points in its summary of the
consultations. In relation to the start date, Treasury stated that this would
depend on when the regulations are made, and it will be considered during this
process. In relation to the $450 cutoff, this will also be considered in the
regulations, but the solution is likely to be that the employer should report
the contribution in the later pay period.
Treasury also noted that previous consultations had considered whether
employers should report on payslips when super contributions had actually been
paid during a pay period. However, this was rejected because of high cost
software changes and possible confusion for employees, who would be receiving
information on both accrued and actual contributions. The Government has
announced that, provided payroll system costs are not significant, payslips
will report actual contributions paid from 1 July 2013.
The ATO has for at least a decade retained some tax refunds if
significant risks were raised about the integrity of a taxpayer’s claims. The
idea that this practice may not be supported in the law is a recent issue. For
example, the IGT conducted a comprehensive review into GST refunds in 2004 and
2005 and did not consider the legality of this practice.
The Australian National Audit Office (ANAO) considered the administration of
high risk income tax refunds for individuals and micro enterprises in 2007 and
also made no comment about the legality of the ATO’s approach.
Committee objectives and scope
The objective of the inquiry is to investigate the adequacy of the Bill
in achieving its various policy objectives and, where possible, identify any
Conduct of the inquiry
Details of the inquiry were placed on the committee’s website. A media
release announcing the inquiry and seeking submissions was issued on Monday 5
Nine submissions and eight exhibits were received. These are listed at
Public hearings were held in Canberra on Friday 16 March 2012. A list of
the witnesses who appeared at the hearing is available at Appendix B. The
submissions and transcript of evidence were placed on the committee’s website