Bills Digest no. 77 2015–16
PDF version [798KB]
WARNING: This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Kai Swoboda
Economics Section
3 February 2016
Contents
The
Bills Digest at a glance
Purpose and structure of the Bill
Background
Committee consideration
Policy position of non-government parties/independents
Financial implications
Statement of Compatibility with Human Rights
Schedule 1—Superannuation guarantee charge changes
Schedule 2—Lost members and unclaimed superannuation
changes
Schedule 3—Modify ‘in receivership’ rules
Schedule 4—Repeal of inoperative acts and provisions of
the taxation law
Date introduced: 12
November 2015
House: House of
Representatives
Portfolio: Treasury
Commencement:
Schedule 1 and Parts 1 and 2 of Schedule 2 commence on 1 July 2016. Part 3 of
Schedule 2 commences on a day fixed by proclamation but does not commence at
all if no such proclamation is made within six months of Royal Assent.
Schedules 3 and 4 commence the day after Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the ComLaw
website.
Overview of the Bill
- The
Treasury Legislation Amendment (Repeal Day 2015) Bill 2015 consists of four
Schedules, each of which deals with separate matters.
- The
main thrust of these changes is the Government’s broad strategy for a reduction
in business regulation and the repeal of redundant legislation and regulations.
- The
measures proposed by the Bill have a nil net financial impact.
Schedule 1—Changes to the calculation of the
superannuation guarantee charge
- The
superannuation guarantee charge is paid by employers who do not make the
appropriate superannuation contribution on behalf of their employees by the
required time.
- The
changes proposed by the Bill change the way the charge is calculated, reduce
the period over which a nominal interest charge is applied and remove an
additional penalty (which is to be replaced by general tax penalty provisions).
Schedule 2—Payment of superannuation for those with a
terminal medical condition and lost members reporting
- People
with a diagnosed terminal medical condition are generally able to access their
superannuation tax free. However, sometimes the payment of certain ATO
administrated superannuation monies can be delayed by requiring these monies to
be paid to the person indirectly through their superannuation fund. The changes
proposed by the Bill will allow the Commissioner of Taxation to make these
payments directly to the individual concerned.
- Superannuation
funds are required to report biannually to the Commissioner about ‘lost’
superannuation members—generally those members of a super fund who are inactive
or uncontactable—so that the Commissioner can maintain a register of such
members. This requirement is proposed to be repealed although this information
will still be available through other channels and such a register will
continue to be maintained.
Schedule 3—Modifying the notification and reporting
obligations for certain corporations that have property in receivership or
property in respect of which a controller is acting
- Schedule
3 proposes to modify the notification and reporting obligations for those
corporations that have property in receivership or a controller acting in
respect of that property.
- Under
the proposed amendments, corporations acting as responsible entities will only
have to notify that a either a receiver or a controller has been appointed on
the public documents and negotiable instruments of the registered scheme that
is subject to these actions, rather than on every public document and
negotiable instrument of the said corporation or other entities connected with
that corporation.
- Further,
where a controller has been appointed, the corporation only has to report to
that controller on the affairs of the entity that is itself in receivership,
and not the affairs of the entire corporation.
Schedule 4—Repeal of inoperative acts and provisions of
the taxation law
- Schedule
4 repeals a number of inoperative or spent taxation provisions.
The Treasury Legislation Amendment (Repeal Day 2015) Bill
2015 (the Bill) contains four separate Schedules. Each Schedule deals with
separate material and amends various taxation, superannuation and other laws.
Schedule 1 of the Bill amends several Acts to change
arrangements relating to the calculation and application of penalties on
employers who make a late or insufficient compulsory superannuation payment on
behalf of an employee:
Schedule 2 of the Bill amends the Income Tax Assessment
Act 1997, Superannuation
(Unclaimed Money and Lost Members) Act 1999, and other superannuation
laws to enable the Commissioner of Taxation to pay certain superannuation
amounts directly to individuals with a terminal medical condition and to remove
the requirement for superannuation funds to lodge a biannual lost members
statement with the Commissioner.
Schedule 3 of the Bill amends the Corporations Act 2001
to modify the notification and reporting obligations for certain corporations
that have property in receivership or a controller acting in respect of that
property.
Schedule 4 of the Bill repeals a number of inoperative or
spent taxation Acts as well as amending various tax laws to remove a number of
inoperative or spent provisions.
One of the major themes of the Government’s legislative
program is a reduction in business regulation and the repeal of redundant
legislation and regulations.[1]
Four separate packages of Bills have been introduced in the Parliament to date as
part of this program:
- 2015
Spring Repeal Day—Treasury Legislation Amendment (Repeal Day 2015) Bill 2015
(this Bill), Omnibus Repeal Day (Spring 2015) Bill 2015 and the Amending Acts
1990 to 1999 Repeal Bill 2015
- 2015
Autumn Repeal Day—Omnibus Repeal Day (Autumn 2015) Bill 2015, Amending Acts
1980 to 1989 Repeal Bill 2015 and the Competition and Consumer Amendment
(Deregulatory and Other Measures) Bill 2015
- 2014
Spring Repeal Day—Bills that were part of this package included the Omnibus
Repeal Day (Spring 2014) Bill 2014, Amending Acts 1970 to 1979 Repeal Bill 2014
and the Treasury Legislation Amendment (Repeal Day) Bill 2014
- 2014
Autumn Repeal Day—Bills that were part of this package included the Omnibus
Repeal Day (Autumn 2014) Bill 2014, Amending Acts 1901 to 1969 Repeal Bill
2014, and the Statute Law Revision Bill (No 1) 2014.[2]
In general, the measures included in the first three
repeal day packages have been non-controversial and have largely focussed on
removing redundant legislation and provisions. That said, there have been
elements of some of the repeal day Bills that have not received unanimous
support, including:
- the
2014 Autumn Repeal Day package included the Australian Charities and
Not–for–profit Commission (Repeal) (No. 1) Bill 2014. This Bill, which proposes
to abolish the Australian Charities and Not–for–profit Commission, was opposed
by the Australian Labor Party (ALP) and the Australian Greens.[3]
The Bill remains in the House of Representatives[4]
- the
2014 Spring Repeal Day package included the Treasury Legislation Amendment
(Repeal Day) Bill 2014. The Bill proposed to repeal not yet implemented
superannuation payslip reporting requirements.[5]
The part of the Bill that included this measure was opposed by the Australian
Greens in the Senate.[6]
However, the Bill as originally introduced (that is, including the repeal of
the payslip reporting requirements) was passed by the Senate on 10 February
2015.[7]
The Government claims that as a result of this repeal day
program, as at 12 November 2015, it has repealed over 10,000 legislative
instruments and introduced legislation to repeal around 3,600 Acts of
Parliament.[8]
Senate Selection of Bills Committee
On 26 November 2015, the Senate Selection of Bills
Committee recommended that the Bill not be referred to a committee for inquiry.[9]
Senate Standing Committee for the
Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills had
no comment on the Bill.[10]
During debate on the Bill in the House of Representatives,
the Shadow Minister for Financial Services and Superannuation indicated that
the ALP would support Schedules 2, 3 and 4, noting that these ‘contain what we
consider to be uncontroversial measures or measures that we support’.[11]
However, the ALP does not support Schedule 1 of the Bill, considering that
these amendments ‘will do so much damage to the superannuation balances of
Australian workers’.[12]
As at the date of writing, no other non-government parties
or independents had taken a position on the Bill.
The Explanatory Memorandum states that the proposed
changes in the Bill have a nil net financial impact.[13]
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[14]
Parliamentary Joint Committee on
Human Rights
The Parliamentary Joint Committee on Human Rights considers
that the Bill does not raise human rights concerns.[15]
Schedule 1 makes three main changes to the superannuation
guarantee charge (SGC) arrangements:
- it
amends the Superannuation Guarantee (Administration) Act 1992 and the Tax
and Superannuation Laws Amendment (Norfolk Island Reforms) Act 2015 to
align the earnings base for calculating the SGC with the earnings base for
calculating superannuation guarantee contributions.
- it
amends the Superannuation Guarantee (Administration) Act to provide that
the nominal interest on unpaid or late SGC contributions is only paid for the
period in which they are actually outstanding, and
- it
amends the Crimes (Taxation Offences) Act 1980, the Superannuation
Guarantee (Administration) Act and Taxation Administration Act 1953
to align the penalties imposed under the SGC regime with the administrative
penalties imposed by the Taxation Administration Act 1953.
Item 27 of Schedule 1 specifies that the amendments
apply to a quarter beginning on or after 1 July 2016.
Background
Current arrangements
Under the Superannuation Guarantee (Administration) Act
1992, employers are penalised if they do not pay a prescribed minimum level
of superannuation contributions each quarter—subject to certain exemptions—set
at a specific percentage of an employee’s ordinary time earnings (the
legislated percentage).[16]
This percentage is currently 9.5 per cent and is legislated to rise to 12 per
cent on 1 July 2025.[17]
To avoid penalties, employers must generally pay the
required superannuation contribution for each employee within 28 days of
the end of a quarter.[18]
The penalty arrangements for not making the appropriate level of contribution
for each employee (defined as the ‘superannuation guarantee shortfall’) comprises
of three separate components:
- the
total of the amounts that employees have been underpaid based on the ‘total
salary or wages paid by the employer to the employee for the quarter’, less any
contributions made, multiplied by the legislated percentage
- a
‘nominal interest component’—which is broadly a substitute for fund earnings
that would have accrued if the employer had provided the prescribed minimum
superannuation contributions during the quarter—calculated by multiplying the
total of the employer’s individual superannuation guarantee shortfalls for the
quarter by the interest rate of 10 per cent per annum.[19]
The interest is imposed from the beginning of the quarter in question until the
date on which superannuation guarantee charge in relation to the total would be
payable and
- an
‘administration component’ of $20 per quarter per employee for whom there
is a superannuation guarantee shortfall (this amount may be prescribed in
regulations).[20]
If the appropriate amount of superannuation contribution
is not paid for an employee for a given quarter, within 28 days after the
end of the quarter, the employer is required to lodge a superannuation
guarantee statement by the 28th day of the following month.[21]
For example, for the quarter 1 January to 30 March, superannuation
contributions are required to be paid by 28 April and if they are not paid
on time the superannuation guarantee statements are required to be lodged by
28 May.
Where an employer lodges a superannuation guarantee
statement for a quarter, and no previous statement for the quarter has been
lodged and no previous assessment raised, the Commissioner is taken to have
made an assessment of the employer’s superannuation guarantee shortfall and of
the superannuation guarantee charge payable on the shortfall as specified in
the statement.[22]
If an employer fails to lodge a superannuation guarantee
statement for a quarter and the Commissioner is of the opinion that the
employer is liable to pay superannuation guarantee charge, the Commissioner may
make a default assessment of the employer’s superannuation guarantee shortfall
and of the superannuation guarantee charge payable.[23]
If an employer fails to provide a superannuation guarantee
statement or information relevant to assessing their superannuation guarantee
charge liability, the employer is liable for an additional superannuation
guarantee charge penalty up to 200 per cent of the charge payable by the
employer for the quarter.[24]
Changes to penalty arrangements
Some elements of the penalty arrangements applying to
employers who have not made the appropriate level of superannuation payments on
behalf of an employee have undergone a number of changes since their inception
from 1 July 1992 and some have remained largely unchanged:
- The
assessment of whether superannuation had been underpaid changed from being
calculated on a ‘notional earnings base’ in many cases to being standardised on
an ‘ordinary time earnings’ basis from 1 July 2008.[25]
The superannuation guarantee charge however has continued to be imposed on
salary or wages since the inception of the superannuation guarantee.
- the
charge percentage remained at nine per cent between July 2002 and June 2012.
It increased to 9.25 per cent on 1 July 2013 and then to 9.5 per cent from
1 July 2014. It will remain at 9.5 per cent until July 2021, when it rises by
0.5 percentage points each year until it reaches 12 per cent in July 2025.[26]
- the
compliance arrangements were changed from an annual to quarterly approach from
1 July 2003[27]
- the
nominal interest component rate of 10 per cent has remained unchanged
since 1996[28]
and
- the
$20 amount has remained unchanged since 1 July 2003, when it was
reduced from $30 as part of the change from an annual compliance approach to a
quarterly compliance approach.[29]
Compliance superannuation guarantee
arrangements
In 2014–15, approximately 880,000 employers may have
been required to make superannuation guarantee contributions on behalf of their
employees.[30]
The total value of compulsory superannuation contributions paid by employers
under the superannuation guarantee to superannuation funds (excluding self
managed superannuation funds) in 2014–15 was around $53 billion.[31]
Research suggests that overall employers generally do not
have significant issues in complying with their superannuation obligations. A
2010 review commissioned by the ATO into employer attitudes on superannuation
found that 74 per cent of employers considered it ‘easy’ to manage their
superannuation obligations, with the smaller the business, the greater the
proportion that considered it easy to manage their superannuation obligations.[32]
That said, the same research revealed that:
- 34 per
cent of businesses have at some point been late making SG payments including 20 per
cent that had made late payments on multiple occasions
- the
incidence of making late payments is more prevalent among businesses with fewer
staff, with 39 per cent of micro businesses (up to five staff) having made
a late payment in the past compared to 11 per cent of large businesses
(100 or more staff). The most common reasons for being late with payments were
oversight (32 per cent) and cash flow problems (26 per cent).[33]
A 2013 review of small and medium business owner attitudes
to business tax affairs found that 98 per cent were ‘very confident or
reasonably confident’ in managing their superannuation guarantee obligations.[34]
Of those businesses which employed contractors, four in five were confident in
their understanding of superannuation obligations for contractors.[35]
Unpaid superannuation
There are several sources of the estimated value of unpaid
superannuation contributions. The first is based on compliance activity by the
ATO to enforce the superannuation guarantee arrangements. This work, much of
which is based on complaints received from employees, has identified almost
$3.2 billion in unpaid superannuation contributions over the five years to
2014–15 (Table 1). Of this amount identified, around half is ultimately paid by
employers and transferred into employees’ superannuation funds.
Table 1: Superannuation guarantee
charge and penalties 2010–11 to 2014–15
|
2010–11
|
2011–12
|
2012–13
|
2013–14
|
2014–15
|
Superannuation guarantee charge raised ($m)
|
517
|
553
|
646
|
743
|
735
|
Raised from risk-based work ($m)
|
na
|
157
|
207
|
237
|
156
|
Raised from employee complaints ($m)
|
329
|
306
|
331
|
417
|
474
|
Raised from voluntary lodgement ($m)
|
na
|
90
|
108
|
88.5
|
105
|
Superannuation guarantee charge collections ($m)
|
269
|
323
|
337
|
395
|
379
|
Transferred to employee funds
|
258
|
295
|
312
|
388
|
372
|
Transferred as a share of raised (%)
|
50%
|
53%
|
48%
|
52%
|
51%
|
Source: Australian Taxation Office, Annual
Report 2014–15, p. 56; Annual
Report 2012–13, p. 55; Annual
Report 2010–11, pp. 54 and 57, accessed 11 December 2015.
Another estimate of unpaid superannuation was commissioned
by industry superannuation fund Cbus. This study, which covers activities
outside of ATO superannuation guarantee compliance including the cash economy
and ‘sham contracting’, estimated that non-compliance cost employees around
$2.6 billion in 2013, with around 700,000 workers missing out on some
or all of their superannuation contributions (Figure 1).[36]
The report noted that the most affected industry as construction, with property
services, mining, hospitality and manufacturing industries also noted to have
‘elevated non-compliance’.[37]
Figure 1: Estimated value
of unpaid superannuation guarantee contributions, by source, 2010–2013 ($b)
Source: Tria Investment Partners, Superannuation
guarantee non-compliance, presentation slides prepared for Cbus Super, September
2015, p. 6, accessed 11 December 2015.
Policy development
There have been a number of recent reviews that have
examined aspects of superannuation guarantee compliance arrangements. These
have generally focused on different perspectives of compliance arrangements,
such as compliance costs on employers or ATO compliance processes, rather than
the system overall.
Australian National Audit Office
A 2015 performance audit by the Australian National Audit
Office (ANAO) focussed on how effectively the ATO performed its compliance
activities in relation to the superannuation guarantee.[38]
The ANAO made four recommendations, which covered obtaining further information
about non-compliance, increasing emphasis on the ATO’s role in enforcing
compliance in its communication and marketing activities, an alignment with
compliance activities in other business units and enabling a more reliable
assessment of the effectiveness of compliance strategies.[39]
Prior to this, the ANAO had examined the ATO’s
administration of the superannuation guarantee scheme in 1999.[40]
Board of Taxation
A 2014 review by the Board of Taxation of tax impediments
facing small business, which examined a range of superannuation guarantee
compliance issues including changing the monthly threshold of $450 over which
superannuation guarantee payments are required to be made to a quarterly
threshold of $1,350.[41]
Of relevance to the proposals included in the Bill are the Board’s
recommendations that:
- the
superannuation guarantee charge be calculated on the basis of ordinary time
earnings rather than salary and wages to align it with the way that
superannuation contributions are calculated
- the
calculation of the superannuation charge components be ‘redesigned by
legislation’
- the
superannuation guarantee charge and any employer contributions paid to a
superannuation fund that are used to offset the charge payable should be
deductible to the employer when the amounts are paid and
- the
automatic requirement on employers to lodge a superannuation guarantee charge
statement (and the associated documentation) with the ATO when they become
liable to the charge should be removed. The employer instead should be required
to pay the late superannuation contribution and the associated interest
directly to the superannuation fund.[42]
In relation to the superannuation charge components the Board
noted that:
[T]he operation of the [superannuation guarantee] Charge
regime is unnecessarily harsh, often with disproportionate outcomes, and very
limited discretion by the Commissioner to take into account factors surrounding
a late payment.
... Despite the intention of the regime, the Board is aware of
a number of examples where the application of the law gives rise to
disproportionate interest and administration elements. With no discretion by
the Commissioner, factors surrounding a late payment cannot be considered.[43]
On 20 January 2015, the then Minister for Small
Business and then Assistant Treasurer released the Board’s report.[44]
As part of the announcement releasing the report, the Government announced
changes to take effect from 1 July 2016 so that ‘penalties for employers who
inadvertently pay their superannuation guarantee late or short pay their
employees’ contributions by a small amount reflect the nature of the breach’.[45]
The Government’s broader response to the recommendations
of the Board’s review did not support the recommendation allowing employers to
assess superannuation obligations for employees against a quarterly threshold
of $1,350, nor did it support the recommendation that the superannuation
guarantee charge be deductible.[46]
Inspector-General of Taxation
A 2014 review by the Inspector-General of Taxation (IGT) of
the ATO’s administration of penalties examined how the ATO’s compliance
activities, and the current legislative arrangements, impacted on businesses.[47]
The review included a summary of the penalties raised by the ATO in enforcing
compliance with the superannuation guarantee. The review included a broad recommendation
to government about improving the penalties regime to foster voluntary compliance
as well as recommendations to the ATO about capability and practice in
administering penalties.[48]
A 2010 review by the IGT of the ATO’s administration of
the superannuation guarantee charge made recommendations to improve
administration and compliance.[49]
Recommendations included the ATO obtaining better information about
non-compliance risks and impacts, having employers provide information on
payslips about the amount and date of payments and expanding its proactive
audit work.[50]
The review noted that superannuation guarantee system ‘works well for the
majority of Australians’ but that ‘the people most at risk with the current [superannuation
guarantee] system are the employees who are the least empowered or incorrectly
classified as ‘independent contractors’’.[51]
In relation to the penalty arrangements, the review noted that:
The current penalty and prosecution regimes, and the ATO’s
administration of these regimes, do not have either a sufficient deterrence or
behavioural effect on those who do not lodge a [superannuation guarantee
charge] Statement or on employers that do not make [superannuation guarantee]
payments at all.[52]
Consultation
Draft legislation for the proposed measures was published
by the Treasury on 21 August 2015.[53]
The Bill incorporates some additional elements relating to apportioning
payments of shortfall amounts between employees but the key provisions remain
unchanged from that exposure draft.
Position of major interest groups
The Australian Chamber of Commerce and Industry (ACCI) is
supportive of the proposed changes.[54]
In relation to the proposed change to align the earnings base for calculating
the superannuation guarantee charge with the earnings base for calculating superannuation
guarantee contributions, the ACCI notes that:
It is simply good law that a delayed payment of the same
amount of contribution for two employees which is unpaid for the same amount of
time should give rise to the same amount of shortfall. Law producing some other
result is simply not good law.[55]
The Association of Superannuation Funds of Australia (ASFA)
considers that compliance with the superannuation guarantee by employers is a
significant problem.[56]
AFSA noted that:
[T]he proposed changes contained in the Superannuation
Guarantee Legislation Amendment (Simplification) Bill 2015 should only be made
if additional resources are provided to the Australian Taxation Office to
detect breaches of [superannuation guarantee] obligations and to pursue
associated required payments by employers.
The passing of this legislation should not be a signal to
employers that the obligation to make [superannuation guarantee] payments has
in some way diminished.
In this context we consider that it is essential that dealing
with [superannuation guarantee] non-compliance be more highly prioritised
within the ATO and that the relevant areas within the ATO be more appropriately
funded.[57]
The Australian Institute of Superannuation Trustees (AIST)
does not support the measures proposed by Schedule 1 of the Bill as it considers
that they reduce disincentives to employers to pay superannuation on time.[58]
The AIST considers that the changes should be ‘abandoned’.[59]
Key issues and provisions
Are changes to penalty arrangements
required?
The purpose of penalties in the tax system is to ‘promote
the smooth running of social and economic structures by shaping desired
behaviours and punishing undesirable behaviours’.[60]
Underpinning the design of tax penalty arrangements under a self-assessment
system are four general principles established in a 1989 United States tax
policy paper for evaluating whether penalties encourage voluntary compliance—namely
fairness, comprehensibility, effectiveness and ease of administration.[61]
The paper also noted that individual penalties and the penalty regime as a
whole must effectively balance these four principles.[62]
The Inspector-General of Taxation has summarised the two general
models of taxpayer compliance—a deterrence model and a norms model—to
understand what motivates taxpayers to comply with their tax obligations:
The deterrence model argues that taxpayers will comply with
their obligations where the expected benefits of compliance outweigh the
expected costs of non-compliance. As a result, this model implies that tax
penalties should be high in order to increase the expected costs of
non-compliance and thereby encourage taxpayer compliance.
... The norms model argues that a substantial number of
taxpayers comply with their obligations through adherence to social or personal
norms, such as reciprocal cooperation and trust. For example, a taxpayer who
values integrity, honesty and the benefits of citizenship may feel guilt, shame
or similar emotions if they do not meet their tax obligations.[63]
As noted previously, there have been a number of recent
reviews that have examined various aspects of employer compliance with the
superannuation guarantee arrangements. These reviews have identified a number
of policy issues including significant amounts of unpaid superannuation and
high compliance costs for employers. They have also included options for significant
policy change—including a recommendation by the Board of Taxation in 2014 that
the calculation of the superannuation charge components be ‘redesigned by
legislation’.[64]
While the formal tax penalty structure can influence compliance
by employers with superannuation guarantee arrangements, it is important to
note that much of the ATO’s identification of non-compliance relies on an employee
notifying the ATO about possible non-payment or underpayment. For example, over
the four years to 2014–15, almost 60 per cent of unpaid superannuation
identified by the ATO was based on employee complaints to the ATO about unpaid
superannuation.[65]
The ANAO noted that resourcing for the ATO’s superannuation
business line as at July 2014 was a budget of $103.4 million, with 917 full-time-equivalent
staff engaged in superannuation activities.[66]
Policy choices about the tax penalty regime arrangements for
the superannuation guarantee scheme will necessarily need to incorporate a
balance between creating incentives for employers to comply and the value of
foregone superannuation payments to employees, the latter of which has a
lasting impact on retirement incomes. However, also important are the administrative
resources and effectiveness of the ATO’s reactive and proactive compliance
activities.
Lessening of penalties and
simplifying the calculation of the superannuation guarantee charge—impact on
employees and employers
Under existing arrangements, the superannuation guarantee
charge includes a component that effectively compensates the employee for
non-payment of the appropriate level of superannuation contributions, but it also
includes a number of components that penalise an employer. From the employee’s
perspective, the amount paid by the employer to the ATO that is then forwarded
to the superannuation fund may be higher or lower than if the contribution had
been paid on time, depending on the extent to which salary or wages is higher
than ordinary time earnings and the investment returns made by the employee’s
superannuation fund relative to the 10 per cent interest component.
From the employer’s perspective, the penalty aspects of the
superannuation guarantee charge arrangements comprise:
- the
difference between using ‘salary and wages’ in the calculation of the
individual guarantee shortfall rather than the generally lower ordinary times
earnings[67]
- the
administration fee of $20 per employee
- the
10 per cent interest component being calculated from the start of the
relevant quarter rather than when the payment was due and
- the
superannuation guarantee charge not being deductible.
In addition, the employer may also be liable to penalties
for failure to keep records and to a 200 per cent penalty for the failure to
provide a superannuation guarantee statement.
Using ordinary times earnings to
work out superannuation guarantee shortfall
Item 4 of Schedule 1 amends the Superannuation
Guarantee (Administration) Act 1992 by repealing the existing formula in subsection
19(1) which is used to calculate an employer’s ‘individual superannuation
guarantee shortfall’ so that the charge amount is based on the employee’s
‘ordinary time earnings for the quarter’. Items 2 and 3 move the
definition of ‘ordinary time earnings’ from subsection 6(1) to new section
11A. The proposed definition is restructured, but retains the exclusions in
the current definition, including payments in lieu of sick leave and lump sums
on termination of employment. As noted in the Explanatory Memorandum, ‘it is
not intended that the calculation of ordinary time earnings be changed from the
current definition’.[68]
As noted above, the use of ordinary time earnings to
calculate the individual superannuation guarantee shortfall will be
administratively simpler for employers but may result in a lower amount being
calculated. This may therefore leave the employee ultimately receiving lower
superannuation payments than otherwise and also reduce the level of penalty for
employers.
Items 6 to 9 make consequential amendments to
the Tax and Superannuation Laws Amendment (Norfolk Island Reforms) Act 2015—which
was part of broader changes to extend many mainland social security,
immigration, and health arrangements to Norfolk Island, as well as changes to
the tax system—so as to similarly apply ordinary times earnings to work out
superannuation guarantee shortfall for relevant employers on the island.[69]
Changing the start point for
calculating the nominal interest component
Item 11 repeals the existing definition of
‘nominal interest component’ in existing section 31 of the Superannuation
Guarantee (Administration) Act, which is calculated from the
beginning of the quarter to which it relates, and applies at the rate specified
in regulations (currently 10 per cent per annum).[70]
This is replaced with a new definition which specifies that the ‘notional
interest component’ is calculated at the rate specified in the regulations, but
with interest accruing over the period starting on the 29th day after the end
of the quarter (i.e. the day after which the superannuation contribution should
have been paid) and generally ending the day before either the employer lodges
the superannuation guarantee statement or the Commissioner makes a default
assessment. New section 31 also provides that if a late payment had been
made and the employer elects to offset the contribution against their
individual superannuation guarantee shortfall for a quarter, then interest
accrues up to the day after the employer makes the last late contribution
payment.
Impact on employees and employers
From the employee’s perspective, these two changes have the
effect of lowering the amount that will be paid to the individual’s
superannuation fund from the ATO. Using the worked examples under the proposed
arrangements included in the Explanatory Memorandum and comparing these examples
to existing arrangements, the employee ‘Mario’ would receive $29.30 less into
his superannuation account when the superannuation guarantee charge is paid to
the ATO and then ultimately included in his superannuation fund (Table 2).
From the employer’s perspective, the proposed arrangements
result in a further benefit because the reduction in penalty was not
deductible, which at a 30 per cent corporate tax rate amounts to around a
further $38.09 benefit ($309.36 plus 30 per cent) from the proposed
arrangements—taking the total the employer’s penalty in paying superannuation
contributions late in this example from $440.26 to $402.17—a reduction of nine per
cent.
Table 2: Comparison of proposed and existing provisions
on amounts paid by an employer based on examples 1.1 and 1.2 provided in the
Explanatory Memorandum
Component
|
Existing arrangements
|
Proposed arrangements
|
Difference (Proposed less existing)
|
Individual superannuation guarantee shortfall
|
$304.00
|
$285.00
|
-$19.00
|
Nominal interest
|
$14.66
|
$4.36
|
-$10.30
|
Administration
|
$20.00
|
$20.00
|
$0.00
|
Total
|
$338.66
|
$309.36
|
-$29.30
|
Employer payment plus non-deductibility of superannuation
guarantee charge payments at 30% company tax rate
|
$440.26
|
$402.17
|
-$38.09
|
Total paid to employee’s superannuation
fund (total less administration component)
|
$318.66
|
$289.36
|
-$29.30
|
Source: Explanatory
Memorandum, Treasury Legislation Amendment (Repeal Day 2015) Bill 2015, pp.
11–13; Parliamentary Library calculations using guidance material prepared by
the Australian Taxation Office.
Other penalties
Part 3 of Schedule 1 amends the Crimes (Taxation
Offences) Act 1980, the Superannuation Guarantee (Administration) Act
1992 and the Taxation Administration Act 1953 to essentially remove
the additional penalties that can be imposed by the Commission of Taxation
under existing section 59 of Part 7 of the Superannuation Guarantee
(Administration) Act and replaces them by providing that the employer is
subject to an administrative penalty under the Taxation Administration Act.
The substantive amendment in Part 3 that achieves this is item 22,
which repeals the existing Part 7 from the Superannuation Guarantee
(Administration) Act. The remaining items in Parts 3 are largely
consequential to the repeal of Part 7.
The imposition of administrative penalties by the
Commissioner of Taxation is permitted under existing section 284–75 in
Schedule 1 of the Taxation Administration Act, which provides for an
administrative penalty in certain circumstances. These circumstances include making
a statement that is false or misleading and failing to give the Commissioner a required
document by the due date.[71]
The value of administrative penalties depends on the type of entity and nature
of behaviour.[72]
Schedule 2 amends the Income Tax Assessment Act 1997,
Superannuation (Unclaimed Money and Lost Members) Act 1999, and other
superannuation laws to enable the Commissioner of Taxation to pay certain
superannuation amounts directly to individuals with a terminal medical
condition and to remove the requirement for superannuation funds to lodge a
biannual lost members statement with the Commissioner.
Background
Terminal medical condition payment
arrangements
Under regulations made to the Superannuation Industry
(Supervision) Act 1993, from 16 February 2008, a person has been able
to access their superannuation balances if they meet the requirements of having
a ‘terminal medical condition’.[73]
The criteria for such a condition existing are set out in the Superannuation
Industry (Supervision) Regulations 2004 and require:
(a) two registered medical practitioners have certified,
jointly or separately, that the person suffers from an illness, or has incurred
an injury, that is likely to result in the death of the person within a period
(the certification period) that ends not more than 24 months after the date of
the certification;
(b) at least one of the registered medical practitioners is a
specialist practicing in an area related to the illness or injury suffered by
the person;
(c) for each of the certificates, the certification period
has not ended.[74]
One of these conditions was revised only recently and took
effect from 1 July 2015. The change allowed members to access their
superannuation if two medical practitioners have certified they have a terminal
medical condition that is likely to result in their death within 24 months of
certification. Previously the life expectancy period from date of certification
was 12 months.[75]
Amounts released under these arrangements are generally tax
free to the person with a terminal medical condition.[76]
Applications for early release of superannuation balances
can be made by individuals directly to their superannuation fund(s). However, other
superannuation amounts may be held by, or be payable to, the affected
individual in the superannuation system through co-contributions,
superannuation guarantee payments, or unclaimed superannuation amounts.[77]
As noted in the Explanatory Memorandum, it is these amounts
held elsewhere in the superannuation system that can have payment arrangements
that do not allow for the Commissioner of Taxation to make payments directly to
the individual concerned, but require payments to be made first to the relevant
superannuation fund(s).[78]
Schedule 2 of the Bill proposes to allow the Commissioner to
make direct payments to affected individuals from these other areas of the
superannuation system, rather than having them made indirectly through
superannuation funds.
Lost member statements
A lost member is a member of a super fund who is inactive,
uncontactable, or transferred from another super provider as a lost member.[79]
A member is not a lost member if their address has been confirmed in the past
two years, or they have indicated that they want to remain a member.[80]
As at 30 June 2015, there were almost 1.4 million lost
accounts, with a combined total balance of $13.6 billion.[81]
Superannuation funds have several reporting requirements in
relation to lost members under the Superannuation (Unclaimed Money and Lost
Members) Act 1999 but also under the Taxation Administration Act 1953.
Part 4 of the Superannuation (Unclaimed Money and Lost
Members) Act 1999 requires (in association with the Superannuation
(Unclaimed Money and Lost Members) Regulations 1999) the Commissioner of
Taxation to keep a register of lost members containing information for the
purpose of reuniting individuals with their lost superannuation money.[82]
This information is to be provided by superannuation funds on a biannual basis.
This statement is referred to as a ‘lost members statement’.[83]
The relevant reporting dates are specified as 31 October for the period
1 January to 30 June of the same year and 30 April for the
period 1 July to 31 December of the previous year.[84]
There is also a requirement to prepare an annual ‘member
contributions statement’ under Division 390 of the Taxation Administration
Act 1953 for all members of the fund.[85]
Information required in the statement includes contributions and account
balances, but also information about the status of an account. The member
contribution statement is required to be lodged with the ATO on or before 31
October following the end of the relevant financial year.[86]
The Bill proposes to repeal the existing provisions of
Part 4 of the Superannuation (Unclaimed Money and Lost Members) Act, but
there will continue to be a requirement for the Commissioner of Taxation to
keep a register of lost members. The information for the register will be
collected using the Commissioner’s existing administrative powers under the Taxation
Administration Act 1953.[87]
Policy development
The 2015–16 Budget included an announcement of unspecified
measures ‘that will reduce red tape for superannuation funds and individuals by
removing redundant reporting obligations and by streamlining lost and unclaimed
superannuation administrative arrangements’.[88]
These measures were to come into effect from 1 July 2016.
On 28 August 2015, the Treasury released draft legislation
that included ‘lost and unclaimed superannuation reforms’.[89]
These proposed changes are largely identical to those included in Schedule 2 of
the Bill and make reference to the 2015–16 Budget announcement.[90]
Position of major interest groups
The Australian Institute of Superannuation Trustees (AIST) supports
the proposed changes that allow the Commissioner to directly pay persons with a
terminal medical condition, and the eventual removal of the lost member statement.[91]
However, the AIST proposes that the lost member statement removal should be
delayed by one year ‘in order to avoid a gap in lost member reporting and
improve the quality of reporting’.[92]
Key issues and provisions
Withdrawals in relation to a
terminal medical condition
Small Superannuation Accounts Act
1995 amendments
The Small Superannuation Accounts Act 1995 provided a
mechanism for employers to make deposits to a collection mechanism to meet
their superannuation guarantee obligations from 1 July 1995 to 30 June
2006 with payments received into the Superannuation Holding Accounts Special
Account (SHASA), which is administered by the ATO.[93]
Since 1 July 2006, the SHASA has acted as a facility to accept payments of superannuation
guarantee charge amounts, government co-contributions or the low income
superannuation contributions.[94]
The Small Superannuation Accounts Act provides a
number of circumstances in which direct withdrawals by individuals are
permitted, including if the balance is less than $200 and the individual has
ceased to be employed by all depositors; the individual is in receipt of
Commonwealth income support payments for a sufficient period; or the individual
has retired because of permanent disability.[95]
Alternatively, individuals can make a request to the Commissioner of Taxation
to transfer moneys from the SHASA to a superannuation account.[96]
Item 8 of Schedule 2 is the substantive amendment to
the Small Superannuation Accounts Act and inserts new section 65A
to require requested amounts be paid directly to people and for their SHASA
account to be debited by the amount of the payment, where those people satisfy
the terminal medical condition criteria and after they have made a written withdrawal
request to the Commissioner of Taxation. These arrangements broadly replicate
the provisions applying to withdrawals relating to other circumstances.
Superannuation Guarantee
(Administration) Act 1992 amendments
Section 65 of the Superannuation Guarantee
(Administration) Act 1992 provides for the Commissioner of Taxation to make
payments of the superannuation guarantee charge shortfall component to the
SHASA if the employee has not nominated an appropriate account.[97]
Item 10 amends the Superannuation Guarantee
(Administration) Act to insert new section 66A to provide for the
payment of shortfall amounts, after a request has been made by an individual
who satisfies the terminal medical condition requirements, directly to the
individual. This broadly replicates the existing arrangements that apply to
payments to employees who retire due to permanent incapacity or invalidity.
Other amendments in Part 1 of
Schedule 2
Items 1 to 3, which amend section 307–5 of the
Income Tax Assessment Act 1997 are consequential to the amendments to
the Small Superannuation Accounts Act and the Superannuation
Guarantee (Administration) Act and provide for the payments made by the
Commissioner of Taxation after application by an individual who satisfies the
terminal medical condition requirements to be classified as a ‘superannuation
benefit’—thereby allowing them to be tax free.
Section 24G of the Superannuation (Unclaimed Money and
Lost Members) Act 1999 provides that the Commissioner of Taxation must pay
amounts of ‘lost’ member superannuation balances transferred to the
Commissioner from a superannuation fund directly to a person in certain
circumstances.[98]
The circumstances are: the person has not directed the Commissioner to pay the
amount to a nominated complying superannuation plan; the person has reached the
eligibility age or the amount is less than $200; and the person has not died.[99]
The Commissioner is able to make such a payment on application or on his or her
own initiative.[100]
Items 11 and 12 amend the Superannuation
(Unclaimed Money and Lost Members) Act by repealing the existing paragraph
24G(2)(d), substituting a new paragraph 24G(2)(d) and inserting a new
subsection 24G(2A). Together these new provisions allow money to be
paid directly to a person if: the person is alive; the person has not directed
the Commissioner to pay the amount to a nominated complying superannuation
plan; and the person has reached the eligibility age, the amount is less than
$200 or the person satisfies the terminal medical condition requirements.
Concluding comments
Providing terminally ill persons with earlier access to
their superannuation benefits is a significant practical change. However,
further complementary legislative change may be required for terminally ill persons
to properly realise the benefits of their superannuation scheme. The change
made to the regulations in 2015 and this amendment apply to superannuation
only. Associated changes have not been made to life insurance policies included
with most superannuation fund memberships. Most policies allow a prepayment of
insurance if someone has a life expectancy of less than one year. The new law
does not change this timeframe, creating a gap year when insurance cover can
lapse and is not available for withdrawal once the superannuation is withdrawn
and the account is closed. While insurance funds may change their prepayment
conditions, it may be useful to have certainty and consistency through legislative
change. Simply providing notice on the websites of some superannuation funds
about the year gap and the need to retain money in the fund may not be
sufficient. This voluntary solution by industry does not deal with the issue of
need for access to those monies, especially where the person’s superannuation
entitlement may be insufficient relative to the economic demands they face, or
where circumstances do not favour their actually having an opportunity to read
that notice on some of the superannuation funds’ websites.
Lost members statements
Item 15 of Part 2 of Schedule 2 repeals
the existing Part 4 of the Superannuation (Unclaimed Money and Lost Members)
Act 1999 which requires funds to submit biannual lost member statements to
the Commissioner of Taxation. This is to be replaced by a new Part 4 which will
require the Commissioner to keep a register of lost members and provide (as is
currently the case) that the Commission may give information contained in the
register to a state or territory authority subject to certain conditions.[101]
This Schedule amends sections 428 and 429 of the Corporations
Act to modify the notification and reporting obligations for certain types
of corporations that have property in receivership or a controller acting in
respect of that property.
Should these amendments pass through Parliament,
corporations acting as responsible entities will only have to notify that a
receiver or a controller has been appointed on the public documents and
negotiable instruments of the registered scheme that is subject to these
actions, instead on every public document and negotiable instrument of the said
corporation or other entities connected with that corporation.
Further, where a controller has been appointed, the
corporation only has to report to that controller on the affairs of the entity
that is itself in receivership, and not the affairs of the entire corporation.
Background
Responsible entities and registered
schemes
The amendments in this Schedule are mainly concerned with
‘responsible entities’ of ‘registered schemes’.
In section 9 of the Corporations Act a ‘registered
scheme’ means a managed investment scheme that is registered under section
601EB. In turn, a ‘managed investment scheme’ means a scheme that has the
following features:
-
people contribute money or money’s
worth as consideration to acquire rights (interests) to benefits produced by
the scheme (whether the rights are actual, prospective or contingent and
whether they are enforceable or not)
-
any of the contributions are to be
pooled, or used in a common enterprise, to produce financial benefits, or
benefits consisting of rights or interests in property, for the people (the
members) who hold interests in the scheme (whether as contributors to the
scheme or as people who have acquired interests from holders)
-
the members do not have day‑to‑day
control over the operation of the scheme (whether or not they have the right to
be consulted or to give directions) or
-
a time-sharing scheme.[102]
Managed investment schemes may invest in a wide variety of
assets including shares, property, fixed interest or relatively unconventional
assets such as rural land and enterprises.[103]
In section 9 of the Corporations Act a ‘responsible
entity’ of a registered scheme means the company named in the Australian
Securities and Investments Commission’s (ASIC) record of the scheme’s
registration as the responsible entity or temporary responsible entity of the
scheme.
A responsible entity has the dual role of trustee and
manager of an investment scheme, and must be appointed if an investment scheme
needs to be registered.[104]The
responsible entity must be an Australian public company, with certain levels of
net tangible assets, depending on the value of the scheme’s assets.[105]
The responsible entity must hold an Australian Financial Services Licence.[106]
When acting on behalf of an investment scheme, the responsible entity must,
amongst other things, hold the scheme property.[107]
They may appoint a custodian to hold this property on their behalf. A
corporation may be a responsible entity for a number of registered schemes.
Current situation
Under existing law, where a receiver has been appointed to
any property controlled by a corporation acting as a responsible entity, that
corporation must state in every public document and in every negotiable instrument
that a receiver, a receiver/manager or a controller (other than a receiver), as
the case may be, has been appointed.[108]
This is called the notification obligation.[109]
Further, where a controller etc. has been appointed to the
property of a corporation, including the property controlled by the corporation
(such as the property of a registered scheme), that latter entity must give to
the controller/receiver a report on all of its affairs within 14 days of
receiving a notice to do so.[110]
This is the reporting obligation.[111]
What problems are being addressed?
The notification obligation applies even where the
corporation’s affairs are on a sound financial footing, but the affairs of a
registered scheme, for which it is responsible (but for whom it does not bear any
financial liability) are unsound. The receiver, receiver/manager or controller
(as the case may be) has been appointed in respect of this other entity, not in
respect of the corporation itself.
The notification obligation may inappropriately give the impression
that the corporation, acting as a scheme’s responsible entity, is financially
unsound and has a receiver etc. appointed to it. Such an impression can
significantly affect a corporation’s business and create problems for which no
basis exists. An example of such problems may be that a supplier may refuse to
provide goods or services to a corporation that it believes is in receivership,
through fear of not getting paid.
Amendments in this Schedule seek to avoid such problems by
only requiring the public documents and the negotiable instruments of the
actual entity to which a receiver etc. has been appointed to meet the
notification obligation.
The reporting obligation has two problems:
- under
this requirement a controller receives a report that contains information on
all of the affairs of the corporation and related entities. Most of this
information is irreverent to the affairs of the entity in respect of which they
have been appointed and
- the
corporation is required to provide a costly comprehensive report to the
controller, most of which is completely unnecessary and unusable by the
controller.
The proposed amendments deal with these problems by
requiring the corporation providing the report to only provide information
relevant to the entity to which a controller has been appointed.
The reporting obligation has an additional difficulty
where a custodian, rather than a responsible entity, holds the property. In
these circumstances, under the current provisions, a controller/receiver has to
obtain a report from the custodian; but the responsible entity is the most
appropriate sources of this report as they usually have the necessary
information.[112]
The proposed amendments empower the controller/receiver to
serve a reporting obligation notice directly on the corporation which acts as
the registered scheme’s responsible entity where a custodian holds the
property. The custodian does not have to provide such reports.
Policy development
Problems with the notification obligation were raised and
discussed by the Corporations and Markets Advisory Committee in its March 2014
discussion paper entitled ‘The establishment and operation of managed
investment schemes’. It noted:
the notification requirements do not provide any means for
indicating:
-
how much of the property of the
company is affected by the appointment of a receiver (the partial appointment
issue), or
-
the capacity in which the company
holds the property to which a receiver has been appointed (the capacity issue).[113]
This report further observed that the notification
requirements do not enable a distinction to be drawn between:
-
an appointment [of a
receiver/controller] to scheme property of a scheme that the [responsible
entity] RE operates, and
-
an appointment to the RE’s personal
assets due to financial difficulties that the RE is experiencing in relation to
its own affairs.[114]
The paper further observed that this lack of detail in the
notification requirement mainly affected REs that exercise that function in
respect to several registered schemes.[115]
Possible reforms in this area were also mentioned in ASIC’s
‘Deregulatory Initiatives Report’ of May 2014, where it suggested that the
government:
Modify the s428 and 429 [Corporations Act]
requirements for responsible entities or custodial or depository service providers
to use ‘in receivership’ in public documents and for officers to report when
only the assets of a particular scheme or client are affected.
In the case of reporting to the controller, the affairs that
are the subject of the reporting obligation should be affairs that relate to
the relevant scheme or assets held in providing a custodial or depository
service.[116]
The Financial Services Council agreed with the first of the
above proposals and did not comment on the second.[117]
On 28 August 2015 Treasury released an exposure draft of
this Bill entitled ‘Treasury Legislation Amendment (Spring Repeal Day) Bill
2015’.[118]
The relevant provisions of this exposure draft are exactly the same as the
provisions of Schedule 3 of this Bill. Submissions on this exposure draft
closed on 28 September 2015.
Position of major interest groups
As at the time of writing there has been little comment on
the provisions of this particular Schedule. Not all the submissions on the
exposure draft have been made public. As noted above, the Financial Services
Council was generally supportive of a similar proposal to modify the
notification obligation.[119]
Key issues and provisions
Notification Obligations
As already discussed, under subsections 428(1) and (2) of
the Corporations Act where a receiver or controller is appointed in
respect of the property of a corporation, that latter entity must set out in
every public document and in every negotiable instrument of that corporation a
statement that these actions have been taken. This requirement applies to
situations where a receiver/controller is appointed to the property of a scheme
for which a corporation is a responsible entity.
Item 6 of Schedule 3 inserts proposed
subsections 428(2A), (2B) and (2C) into the Corporations
Act, which modify the above requirement. Proposed subsection 428(2A)
provides that subsections 428(1) and (2) apply only to documents or instruments
that relate to relevant registered schemes and trusts where the only property
of the corporation to which a receiver or ‘controller’ has been appointed is:
- ‘scheme
property’ of any registered scheme of which the corporation is a responsible
entity or
- property
the corporation holds in trust if it is a ‘licensed trustee company’ or holds
an ‘Australian financial services licence’ that covers the provision of
‘custodial or depository services’.
Definitions
A number of terms used in both the existing section 428
and proposed amendments are defined in other areas of the Corporations Act.
In section 9 a ‘controller’, in relation to property of a corporation, means:
- a
receiver, or receiver and manager of that property; or
- anyone
else who (whether or not as agent for the corporation) is in possession, or has
control, of that property for the purpose of enforcing a security interest.
Section 9 of the same Act states that a receiver and
manager has a meaning affected by section 90, which in turn specifies that ‘a
receiver of property of a body corporate is also a manager if the receiver
manages, or has under the terms of the receiver's appointment power to manage,
affairs of the body.’[120]
Also in section 9 of the Corporations Act ‘scheme
property’ of a registered scheme means:
(a) contributions of money or money’s worth to the scheme
(b) money
that forms part of the scheme property under provisions of this Act or the Australian
Securities and Investments Commission Act 2001 (including regulations made
under that Act)
(c) money borrowed or raised by the responsible entity for
the purposes of the scheme
(d) property
acquired, directly or indirectly, with, or with the proceeds of, contributions
or money referred to in paragraph (a), (b) or (c) above and
(e) income
and property derived, directly or indirectly, from contributions, money or
property referred to in paragraph (a), (b), (c) or (d) above.[121]
This definition covers both contributions of money and
money’s worth, referring to in-specie contributions (contributions in kind as
well as in cash).
In section 601RAA of the Corporations Act a ‘licensed
trustee company’ means a trustee company that holds an Australian financial
services licence (see below) covering the provision of one or more traditional
trustee company services. Traditional trustee company services has the meaning
given by subsection 601RAC(1), which includes performing estate management
functions; preparing a will, a trust instrument, a power of attorney or an
agency arrangement; applying for probate of a will, applying for grant of
letters of administration, or electing to administer a deceased estate; or
establishing and operating common funds.
Section 766E of the Corporations Act explains that
a person (the provider) provides a ‘custodial or depository service’:
if under an arrangement between the provider and the client,
or between the provider and another person with whom the client has an
arrangement, (whether or not there are also other parties to any such
arrangement), a financial product, or a beneficial interest in a financial
product, is held by the provider in trust for, or on behalf of, the client or
another person nominated by the client.[122]
Finally, in section 9 an ‘Australian financial services
licence’, when used in a provision outside Chapter 7 (as it is with the
proposed amendments in this Schedule), has the same meaning as it has in
Chapter 7 of the Corporations Act. In section 761A (in Chapter 7) an Australian
financial services licence means:
a licence under section 913B that authorises a person who
carries on a financial services business to provide financial services.
‘Financial services’ includes the provision of financial
product advice, dealing in a financial product, making a market for a financial
product, operating a registered scheme or providing a custodial or depository
service.[123]
Many of these definitions are also important for
understanding the operation of other amendments in this Schedule.
Proposed subsections 428(2B) and (2C) impose
a positive duty on a corporation to set out in every public document and
negotiable instrument of a registered scheme that a receiver, receiver and
manager or controller (as the case may be) has been appointed if:
- the
corporation is the responsible entity of a registered scheme
- a
receiver, receiver and manager or controller has been appointed (as
appropriate) and
- the
scheme property is not the property of the corporation.
There is no requirement for the corporation to provide
this information on its own statements or instruments in these circumstances.
Reporting obligations
Subsection 429(2) of the Corporations Act requires that
when a person becomes a controller of the property of a corporation, amongst
other things:
- that
person must serve on the corporation as soon as practicable a notice that they
are the controller of the property of the corporation (paragraph 429(2)(a)) and
- within
14 days of receiving that notice the reporting officers of that corporation
(defined in subsection 429(1)) must report to the controller about the
affairs of that corporation.
Item 8 inserts proposed subsection 429(2A)
into the Corporations Act to allow the corporation to provide the
controller with a report only on the affairs of the relevant registered
scheme(s) or trust(s) where:
- the
corporation is a licensed trustee company or
- the
corporation holds an Australian Financial Services Licence that covers the
provision of custodial or depository services and
- the
only property of the corporation to which a controller has been appointed is
held on trust.
In these circumstances a notice served by the controller
under paragraph 429(2)(a) only has to refer to the relevant registered
scheme(s) or trust(s); that is the schemes or trusts whose property is under
the controller’s authority. As a result, the corporation only needs to report
on those schemes or trusts
The Explanatory Memorandum notes that where the custodian
is unlicensed, they have to report to the controller on all of their affairs,
not just the affairs of the controlled property.[124]
This may be useful for continued supervision of an unlicensed custodian (see
Concluding Comments for further discussion).
The amendments in item 8 do not cover the reporting
obligation in relation to scheme property, only property held on trust by the
corporation. Item 13 inserts proposed section 429A into the Corporations
Act covering these situations. This proposed section specifies when the standard
reporting obligation in subsection 429(2) applies. Where it does not apply the
proposed section sets out an alternative reporting obligation, as follows:
- where
a controller is appointed and the only property of the corporation controlled
is scheme property of a registered scheme, in relation to which the
corporation is the responsible entity, then the reporting obligations in
subsection 429(2) apply, but only in respect of the relevant registered schemes
and trusts and not the whole affairs of the corporation in question (proposed
subsection 429A(1)) but
- where
all of the above conditions apply, save where the corporation in question is
not the responsible entity of the registered scheme but holds an Australian
Financial Services License that covers the provision of custodial or depository
services then the reporting obligations of subsection 429(2) do not apply
(proposed subsection 429A(2)).
Instead, in these circumstances the controller must serve
the notice seeking information on the responsible entity of the scheme, rather
than the licensed custodian (proposed paragraphs 429A(3)(a) to (e)) and
alternative reporting obligations to those in subsection 429(2) apply. The
major differences between the reporting obligations are:
• subparagraphs
429(2)(c)(i) and (ii) require the controller to lodge with ASIC a copy of a
report from the reporting officers of the relevant corporation and notice
setting out any comments the controller sees fit to make, and to send the
corporation a copy of that notice. Proposed subparagraph 429A(3)(g)(i)
does not require the corporation in question to be sent a copy of any such
notice sent to ASIC if the only property of the corporation that is controlled
is scheme property of a registered scheme and
• the
reports received by the controller have to be compiled by the corporation’s
responsible officers, which in subsection 429(1) are a director or secretary of
a company or an Australian registrable body or in the case of a foreign company,
a local agent of the same. In proposed subparagraph 429A(3)(g)(ii) such
responsible offices are restricted to those mentioned in proposed paragraph
429A(3)(f) – directors or the secretary of the responsible entity in
question.
The first dot point above does reduce (however slightly)
the administrative action that a controller has to take in some circumstances.
The Explanatory Memorandum states that all the amendments in Schedule 3 apply from
the day after Royal Assent.[125]
Concluding comments
Clearly, the proposed amendments in Schedule 3 do
reduce the administrative requirements applying to a receiver, a receiver and
manager or a controller appointed to the property of certain corporations.
Further they also deal with the notification obligation problem of unduly
giving the impression that all the affairs of a corporation are subject to the
receivership provision of the Corporations Act, when in fact it may only
be the affairs of a registered scheme or trust for which the corporation is a
responsible entity.
However, it may also be argued that the appointment of
receiver or controller to the property of a particular registered scheme for
which the corporation is a responsible entity may indicate that wider problems
exist. So the above amendments may also be seen as reducing investor protection
and removing a potential red flag for those entering into commercial
arrangements with the corporation in question.
This Schedule repeals a number of inoperative or spent
taxation provisions, for which no good reason exists for their continued
presence on the statute books. The Explanatory Memorandum contains an adequate
commentary on the proposed amendments and repeals.[126]
Position of major interest groups
As at the date of writing interest groups have not
expressed an opinion on the provisions of Schedule 4.
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. Liberal
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2013; T Abbott, ‘Speech:
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[2]. Department
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[3]. M
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[4]. Parliament
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[5]. K
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[6]. J
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[7]. Parliament
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[8]. PM&C,
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[9]. Senate
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[10]. Senate
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[11]. J
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[12]. Ibid.
[13]. Explanatory
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[14]. The
Statement of Compatibility with Human Rights can be found at pages 17–18, 24,
36 and 41–42 of the Explanatory Memorandum to the Bill.
[15]. Parliamentary
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p. 2, accessed 28 January 2016.
[16]. Superannuation
Guarantee (Administration) Act 1992, sections 19, 27–29, accessed
20 January 2016.
[17]. Ibid.,
section 19.
[18]. Ibid.,
section 23.
[19]. Regulation 7A, Superannuation Guarantee
(Administration) Regulations 1993, accessed 20 January 2016.
[20]. Superannuation
Guarantee (Administration) Act 1992, op. cit., sections 17, 19, 22, 23,
31 and 32.
[21]. Ibid.,
section 33.
[22]. Ibid.,
section 35.
[23]. Ibid.,
section 36.
[24]. Ibid.,
section 59.
[25]. Superannuation Laws
Amendment (2004 Measures No. 2) Act 2004, Schedule 1, accessed
10 December 2015.
[26]. Superannuation
Guarantee (Administration) Act 1992 (as made), subsection 20(3); Minerals Resource Rent
Tax Repeal and Other Measures Act 2014, Schedule 6, both accessed
10 December 2015.
[27]. Taxation Laws Amendment
(Superannuation) Act (No. 2) 2002, Schedule 1, accessed 20 January
2016.
[28]. Superannuation Guarantee
(Administration) Regulations (Amendment), item 2, accessed 10 December
2015.
[29]. Taxation Laws Amendment
(Superannuation) Act (No. 2) 2002, Schedule 1.
[30]. Australian
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report 2014–15, ATO, Canberra, 2015, p. 8, accessed
20 January 2016.
[31]. Australian
Prudential Regulation Authority (APRA), Statistics:
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19 November 2015, p. 10, accessed 11 December 2015.
[32]. Colmar
Brunton, Investigating
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2010, p. 14, accessed 11 December 2015.
[33]. Ibid.,
p. 9.
[34]. C
Young, Small
and medium enterprise perceptions survey (SMEPS) report, report
prepared for the ATO, ORC International, Sydney, September 2013, p. 20,
accessed 11 December 2015.
[35]. Ibid.,
p. 21.
[36]. Tria
Investment Partners, Superannuation
guarantee non-compliance, presentation slides prepared for Cbus Super,
September 2015, p. 5, accessed 11 December 2015.
[37]. Ibid.
[38]. Australian
National Audit Office (ANAO), Promoting
compliance with superannuation guarantee obligations, ANAO report, 39,
2014–15, 3 June 2015, accessed 11 December 2015.
[39]. Ibid.,
pp. 29–30.
[40]. ANAO,
Superannuation
guarantee: Australian Taxation Office, Audit report, 16, 1999–2000,
15 November 1999, accessed 16 December 2015.
[41]. Board
of Taxation, Review
of tax impediments facing small business: A report to the Government,
August 2014, p. 46, accessed 16 December 2015.
[42]. Ibid.,
pp. 47 and 50.
[43]. Ibid.,
p. 50.
[44]. B
Billson (Minister for Small Business) and J Frydenberg (Assistant Treasurer), Board
of Tax report on tax and small business, media release, 20 January
2015, accessed 16 December 2015.
[45]. Ibid.
[46]. Australian
Government, Government
response to the Board of Taxation’s review into tax impediments facing small
business, 20 January 2015, accessed 16 December 2015.
[47]. Inspector-General
of Taxation (IGT), Review
into the Australian Taxation Office’s administration of penalties: A report to
the Assistant Treasurer, IGT, Sydney, February 2014, accessed
11 December 2015.
[48]. Ibid.,
pp. vii to viii.
[49]. IGT,
Review
into the ATO’s administration of the Superannuation Guarantee Charge: A report
to the Assistant Treasurer, IGT, Sydney, March 2010, accessed
16 December 2015.
[50]. Ibid.,
pp. 8–15.
[51]. Ibid.,
p. 3.
[52]. Ibid.,
p.7.
[53]. Treasury,
Superannuation Guarantee
Legislation Amendment (Simplification) Bill 2015: Exposure
Draft, Treasury website, [21 August 2015], accessed 16 December 2015.
[54]. Australian
Chamber of Commerce and Industry, Submission
to Treasury, Superannuation Guarantee
Legislation Amendment (Simplification) Bill 2015: Exposure Draft,
22 September 2015, p. 6, accessed 17 December 2015.
[55]. Ibid.,
p. 8.
[56]. Association
of Superannuation Funds of Australia, Submission
to Treasury, Superannuation Guarantee
Legislation Amendment (Simplification) Bill 2015: Exposure Draft,
18 September 2015, p. 2, accessed 17 December 2015.
[57]. Ibid.
[58]. Australian
Institute of Superannuation Trustees, Submission
to Treasury, Superannuation Guarantee
Legislation Amendment (Simplification) Bill 2015: Exposure Draft,
15 September 2015, p. 1, accessed 17 December 2015.
[59]. Ibid.
[60]. Inspector-General
of Taxation, Review into the Australian Taxation Office’s administration of
penalties: A report to the Assistant Treasurer, op. cit., p. 2.
[61]. Ibid.,
p. 3.
[62]. Ibid.,
p. 4.
[63]. Ibid.,
p. 5.
[64]. Board
of Taxation, op. cit.; IGT, Review into the Australian Taxation Office’s
administration of penalties: A report to the Assistant Treasurer, op. cit.;
ANAO, Promoting compliance with superannuation guarantee obligations,
op. cit.
[65]. ATO,
Annual report 2014–15, op. cit., p. 56.
[66]. ANAO,
Promoting Compliance with Superannuation Guarantee Obligations, op.
cit., p. 41.
[67]. Ordinary
times earnings can exclude a number of payments that will generally be part of
salary and wages, such as overtime hours and bonuses in respect of overtime
only (Australian Taxation Office (ATO), ‘Payments
included in salary or wages and payments included in OTE’ ATO website,
accessed 3 February 2016).
[68]. Explanatory
Memorandum, op. cit., p. 11.
[69]. Under
the Tax and
Superannuation Laws Amendment (Norfolk Island Reforms) Act 2015, the
superannuation guarantee system will apply on Norfolk Island for certain
employees from 1 July 2016. For more information see B Pulle and K
Swoboda, Tax
and Superannuation Laws Amendment (Norfolk Island Reforms) Bill 2015 [and] A
New Tax System (Medicare Levy Surcharge—Fringe Benefits) Amendment Bill 2015,
Bills digest, 99, 2014–15, Parliamentary Library, Canberra, 11 May 2015,
accessed 29 January 2016.
[70]. The
relevant regulations are the Superannuation Guarantee
(Administration) Regulations 1993, Regulation 7A, accessed 15 December
2015.
[71]. The
charges and penalties regime is included in Part 4–25 of the Taxation Administration
Act 1953, accessed 16 December 2015.
[72]. Ibid.
[73]. Conditions
of release are specified in Schedule 1 of the Superannuation Industry
(Supervision) Regulations 1994, accessed 6 January 2016.
[74]. Superannuation Industry
(Supervision) Regulations 1994, Regulation
6.01A, accessed 6 January 2016.
[75]. Tax and Superannuation
Laws Amendment (Terminal Medical Conditions) Regulation 2015, accessed
6 January 2016.
[76]. Income Tax Assessment
Act 1997, section 303–10, accessed 6 January 2016. Such payments
are defined to be non-assessable non-exempt income.
[77]. ATO,
‘Access
to super for members with a terminal medical condition: Condition of release’,
ATO website, accessed 6 January 2016.
[78]. Explanatory
Memorandum, op. cit., pp. 20–21.
[79]. Section
22 of the Superannuation
(Unclaimed Money and Lost Members) Act 1999 provides for the definition
of a lost member to be specified in regulations. The definition is included in
Regulation 1.03A of the Superannuation
Industry (Supervision) Regulations 1994 and Regulation 1.06 of the Retirement Savings
Accounts Regulations 1997 (accessed 18 January 2016).
[80]. Ibid.
[81]. Australian
Taxation Office, Annual report 2014–15, op. cit., pp. 53–54.
[82]. Superannuation
(Unclaimed Money and Lost Members) Act 1999; Superannuation (Unclaimed
Money and Lost Members) Regulations 1999, Part 4, both accessed
18 January 2016.
[83]. Australian
Taxation Office (ATO), ‘Lost
members’, ATO website, accessed 18 January 2016.
[84]. Regulation
6 of the Superannuation
(Unclaimed Money and Lost Members) Regulations 1999; (ATO, ‘Lost
members: When to lodge, records to keep’, ATO website, accessed
18 January 2016).
[85]. Taxation Administration
Act 1953, Division 390, accessed 18 January 2016.
[86]. Australian
Taxation Office (ATO), ‘Member
contributions’, ATO website, accessed 20 January 2016.
[87]. Explanatory
Memorandum, op. cit., p. 22.
[88]. Australian
Government, Budget
measures: budget paper no. 2, 2015–16, p. 173, accessed 6 January
2016.
[89]. Treasury,
Treasury Legislation Amendment (Spring Repeal Day 2015) Bill 2015: Exposure
Draft, [28 August 2015], accessed 6 January 2016.
[90]. Treasury,
Treasury Legislation Amendment (Spring Repeal Day 2015) Bill 2015: Exposure
Draft: explanatory
material, [28 August 2015], p. 17, accessed 6 January 2016.
[91]. Australian
Institute of Superannuation Trustees (AIST), Submission
to Treasury, Treasury Legislation Amendment (Spring Repeal Day 2015) Bill 2015:
Exposure Draft, 28 September 2015, p. 1, accessed 6 January 2016.
[92]. Ibid.
[93]. L
Nielsen, Superannuation
Legislation Amendment (Choice of Superannuation Funds) Bill 2005, Bills
digest, 171, 2004–05, Parliamentary Library, Canberra, May 2005, p. 4, accessed
3 February 2016.
[94]. Small Superannuation
Accounts Act 1995, section 3, accessed 6 January 2016.
[95]. Ibid.,
section 62. Sections 63 to 67A provide the specific requirements of each
circumstance.
[96]. Ibid,
sections 61 and 61A.
[97]. Superannuation Guarantee
(Administration) Act 1992, paragraph 65(1)(c) and subsection 65(5),
accessed 6 January 2016.
[98]. Superannuation
(Unclaimed Money and Lost Members) Act 1999, paragraph 24G(2)(d),
accessed 6 January 2016.
[99]. Ibid.
The term ‘eligibility age’ is defined in section 10 of the Act to be
65 years for a man and 60 years for a woman unless another age is
prescribed by regulation. The relevant regulations, the Superannuation (Unclaimed
Money and Lost Members) Regulations 1999, prescribe a uniform eligibility
age for men and women be the greater of 65 years or if the governing rules
of the fund specify that a benefit is payable to a member only at a specified
age that is greater than 65 years—that age (Regulation 4A, accessed
6 January 2016).
[100]. Ibid.,
paragraph 24G(1)(b).
[101]. These
conditions broadly relate to a State or Territory Authority that may be a
trustee of a superannuation scheme (section 18, Superannuation
(Unclaimed Money and Lost Members) Act 1999, accessed 18 January
2016.
[102]. Corporations Act 2001
(Cth), section 9, accessed 20 January 2016.
[103]. There
are a number of schemes that are excluded from the definition of a managed
investment scheme in section 9 of the Corporations Act. For example, a partnership
that has more than 20 members but does not need to be incorporated, a body
corporate (except a time sharing scheme), a franchise, a statutory fund
maintained under the Life Insurance Act 1995, a barter scheme or a
retirement village scheme are not managed investments for the purposes of the Corporations
Act.
[104]. Corporations
Act 2001 (Cth), section 601EA.
[105]. Australian
Securities and Investments Commission, Financial requirements
for responsible entities and operators of investor directed portfolio services,
Class Order 13/760, 28 August 2014, accessed 23 November 2015.
[106]. Corporations
Act 2001(Cth), section 601FA.
[107]. Ibid.,
section 601FC.
[108]. Corporations Act 2001
(Cth), section 428, accessed 23 November 2015.
[109]. Explanatory
Memorandum, op. cit., p. 25.
[110]. Corporations
Act 2001 (Cth), section 429.
[111]. Explanatory
Memorandum, op. cit., p. 26 and following.
[112]. Ibid.,
p. 27.
[113]. Australian
Government, Corporations and Markets Advisory Committee, The
establishment and operation of managed investment schemes, discussion
paper, March 2014, p. 196, accessed 23 November 2015.
[114]. Ibid.,
p. 197.
[115]. Ibid.,
p. 197. This paper called such REs ‘multi-function REs.’
[116]. ASIC,
ASIC’s
deregulatory initiatives, report, 391, ASIC, May 2014, p. 22, accessed
23 November 2015.
[117]. Financial
Services Council, Submission
to ASIC, ASIC’s deregulatory initiatives, 23 June 2014, p. 23, accessed
23 November 2015.
[118]. Treasury,
Treasury Legislation Amendment (Spring Repeal Day) Bill 2015: Exposure
Draft, [28 August 2015], accessed 23 November 2015.
[119]. Financial
Services Council, op. cit., p.23.
[120]. Corporations
Act 2001 (Cth), section 90.
[121]. Ibid.,
section 9.
[122]. Ibid.,
subsection 766E(1).
[123]. Ibid.,
section 766A.
[124]. Explanatory
Memorandum, op. cit., p. 33.
[125]. Ibid.,
p. 36.
[126]. Explanatory
Memorandum, op. cit., p. 37.
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