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Compliance and implementation
As mentioned in chapter 2, submitters to this inquiry were broadly
supportive of the measures in the bills. The two key concerns on governance and
transparency of costs for the SuperStream were discussed in chapter 2. In
addition, the following concerns were raised about the SuperStream measures,
these will be discussed in this chapter:
- compliance; and
- implementation, including the impact of the reforms on smaller
A number of other concerns were raised in brief — these are listed at
the end of the chapter.
A number of submitters raised concerns about various aspects of the
compliance regime for the SuperStream measures.
The Australian Chamber of Commerce and Industry (ACCI) outlined the
impact that non-compliance could have on employers, and suggested that a
'safe-harbour' provision be considered:
The transition to SuperStream will affect every employer and
most, if not all, superannuation entities. It will take place against the
background of imperfect understanding and imperfect records and data. The
regulators' approach must be directed towards encouraging and assisting funds
and employers to become SuperStream compliant with resort to penalty options as
a last resort. SuperStream will undoubtedly take time to bed down and early
resort to penalties would be unfair, and perceived to be unfair, which will not
assist implementation nor to bring confidence to the system...
A principle that must be enshrined in the enforcement policy
of the ATO is that it is not in the public interest for employers to be
threatened with fines or prosecuted before the courts when a valid contribution
has been made into a fund but in circumstances where there is a technical
failure to provide the requisite information in an electronic format, or where
there is a genuine bona fide reason for non-compliance.
ACCI believes that a "safe-harbour" provision for
employers needs to be considered.
The Financial Services Council (FSC) submitted that the proposed
compliance measures for SuperStream are 'overly severe' and suggested that the
penalty regime be reconsidered:
The FSC believes the penalties to be overly severe: a
three-pronged enforcement regime of strict liability offences, infringement
notices and administrative penalties under the Taxation Administration Act seem
excessive, especially when viewed in light of the severity of administrative
penalties that are established in Practice Statement 3550, which imposes such
penalties on a "per member" basis.
The result of these combined impacts is the potential for the
amounts to be paid on a possible single event or error, affecting a large
number of members, could amount to penalties exceeding the value of the fund.
We do not believe that this is the intention of the policy. We would seek to
have the extent of these penalties reconsidered.
Subsequently, the FSC suggested that the Australian Taxation Office
(ATO) 'should be provided with flexibility where employers have sought to do
the right thing (comply with the standards)':
...we believe that employer penalties are necessary to drive
good behaviour, but that penalties should neither be overly stringent nor
applied without administrative consideration (ATO discretion).
Accordingly, we believe the penalties in the Bill should
remain intact providing the ATO is provided with interpretative flexibility.
This recognises situations where an employer endeavours to comply with the law
but has not done so.
FSC recommended that the bill should include a section from the Taxation
Administration Act 1953 (Schedule 1 Section 298-20) which stipulates 'that
the ATO can waive or limit penalties for employers who are attempting to comply
with the data standards':
298-20 Remission of penalty
(1) The Commissioner may remit all
or a part of the penalty.
(2) If the Commissioner decides:
(a) not to remit the penalty; or
(b) to remit only part of the
penalty; the Commissioner must give written notice of the decision and the
reasons for the decision to the entity.
Note: Section 25D of the Acts
Interpretation Act 1901 sets out rules about the contents of a statement of
(a) the Commissioner refuses to
any extent to remit an amount of penalty; and
(b) the amount of penalty payable
after the refusal is more than 2 penalty units; and
Note: See section 4AA of the
Crimes Act 1914 for the current value of a penalty unit.
(c) the entity is dissatisfied
with the decision; the entity may object against the decision in the manner set
out in Part IVC.
The Association of Superannuation Funds of Australia (ASFA) requested
that further information be provided from the ATO on the range of circumstances
that will be considered when issuing directions and imposing penalties for
non-compliance with the standards.
The Australian Institute of Superannuation Trustees (AIST) suggested
that there should be a 'grace period of 18 months to two years' on compliance.
...you can send the right money to the right people at the
right time, but if you do not send it in the right format you can be guilty of
an offence. We think there should be an introductory period.
The AIST have also suggested that there should be a legislative
requirement for superannuation funds or employers to report on compliance with
the data and payment standards:
We had concerns with an earlier iteration of this legislation
about there being an overly harsh penalty regime. We were particularly
concerned about the impact of that harsh regime on employers. That has been
addressed. We think there is a much better penalty regime now within the
legislation that is before parliament. But now it is even more appropriate, in
terms of getting people on board, that there be a mechanism to ensure that—where
people do not receive data that is consistent with the data requirements or
payment standards—there be a mechanism, firstly, for people to talk amongst
themselves about getting the requirements right. But if it has not been
addressed within 21 days there needs to be a mechanism to contact the ATO or an
appropriate regulatory body.
Treasury officials outlined that the bill allows for a scaled approach for
non-compliance with the SuperStream measures:
Mr Murray: The approach we have taken to the enforcement
provisions is to have a strict liability provision which could be used in
certain circumstances, but it is not the intent that that provision be used as
the starting point and, by having the infringement notice and administrative
penalty regime, a lower type of penalty can be applied for breaches. It is also
probably of note—and the tax office might want to add something to this—that
the ATO's approach to compliance, certainly in the introductory stages to any
new measure, is to take an educative approach in the first instance, but we do
have these penalty provisions in there, so, in the circumstance where there may
be some significant breaches and noncompliance, appropriate action can be taken
Mr Denney: Having a strict liability offence
ultimately means that the court can make a decision on the penalty. As my
colleague Nigel Murray mentioned, the intent really when we developed the
framework was that, in those most severe instances where there has been
noncompliance, there was a final component to the penalty that could be
pursued, but really it was designed to have some flexibility and some
scalability designed into the system...
The committee explored this point further with Treasury and ATO
Mr FLETCHER: I am thinking of the situation of the
small butcher discharging his obligation to pay superannuation for, say, two or
three employees. He or she could pay the amount that is required, pay it when
it is required but, if the butcher fails to include all of the items of data
that are required under the standards, it is open to the regulator to prosecute
him and then it is not open to him as a defence to say, 'I thought I was doing
all that I was required to do.'
Mr Olesen: In a strict sense, the answer is yes. The
assumption you are making is that we would investigate that and in fact then go
to the trouble to prosecute a situation like that, and they are two very big
steps that we are perhaps very unlikely to go to in the vast majority of cases.
As you would be aware, the tax office administers a whole range of penalties,
and we seek to do that in a manner that has regard to the significance of the
behaviour that you are coming upon. What we would primarily be trying to do,
particularly with the first couple of years of this new regime, is encourage
people to understand and help them to comply with the requirements that the
laws are placing upon them.
Mr Murray: It is worth noting that the use of strict
liability offences is not at all uncommon. In many parts of the superannuation
industry, supervision legislation which regulates the superannuation industry
has these types of offences. That does not mean, of course, that there is
regularly action taken to enforce them. As Mr Olesen has mentioned, the Taxation
Office has an approach to compliance that will generally take an educative
approach first. These provisions are in the legislation, as they are in many
other pieces of legislation, to provide that last step approach if that is ever
necessary but that is certainly not the approach that governments or regulators
would normally take in the first instance. I am also aware that the Taxation
Office does publish, for example, its approach to compliance measures and would
be doing similar types of things in relation to these provisions as well.
The ATO further highlighted to the committee the educative role it would
take in the first instance, particularly in the first couple of years of
operation of the proposed system:
Our intention for the first couple of years would be to focus
on helping people understand and meet their obligations, much the same as we
did with the GST when it was introduced, much the same as we have done with
other non-shortfall penalties that were introduced a couple of years ago. We have
not thought to use those at all in the last two years. The focus will be very
much on trying to get people to understand and meet their obligations. Then as
we move into a more mature system, the framework as Mr Murray has set out gives
us a range of flexible approaches. The administrative penalties would be our
starting point and they allow us to impose a lower penalty that has regard to
the actual behaviour that we are seeing. So people are trying to do their best
and investing in the technology they need to meet these standards.
We would not be seeking to impose a penalty. But you can
imagine that after a few years with a regime we might start to see funds and
employers who really ought to be able to comply with the obligations not
complying to the extent that becomes a serious issue. Then we have the
flexibility to start using the administrative penalties in the most egregious
cases. I imagine this would be several years down the track. You might
contemplate prosecution action against a large employer or a large fund that
has persistently, consistently and recklessly not had regard to their
obligations under the standards. That would be an extraordinary case.
The committee asserts that the compliance measures for SuperStream are
necessary to protect the integrity of the standard data and payment system. It
notes that strict liability provisions have been a feature of superannuation
legislation for over ten years and that the scalability built into the current
penalty regime, along with the educative approach of the ATO on the reforms,
will provide a sound balance for instances of non-compliance.
The committee acknowledges the requests from ASFA that further
information be provided from the ATO on the range of circumstances that will be
considered when issuing directions and imposing penalties for non-compliance
with the standards. The committee encourages the ATO to respond to these
Given the complexity of the legislation and the nature of the strict
liability penalty provisions, the committee notes that the ATO has advised that
it has some administrative flexibility to waive or limit penalties where
employers are attempting to comply with the data standards but commit
inadvertent technical breaches. The committee urges the ATO to use its
discretion to waive or limit penalties in appropriate circumstances.
The committee received some comments on implementation of the
SuperStream measures. The Australian Administration Services (AAS) expressed
concern at the pace of the reforms and the FSC made a proposal on how the levy
should be administered. There was also some discussion on the impact on small
The AAS, a superannuation administration provider, raised concerns about
the pace of, and uncertainty surrounding, implementation of the MySuper
component of the Stronger Super reforms:
The pace of the reform agenda is aggressive, and as such
organisations are gearing up and spending money now to meet tight deadlines.
Given the lack of certainty and clarity of detail, including upcoming
legislation and regulations, there is a high risk of large amounts of Members'
superannuation money being spent without a result.
Uncertainty around the MySuper component of the Stronger
Super reforms is putting at risk the entire program. This largely stems from
inconsistent messages from Treasury and APRA around the design of MySuper.
...Once a unified approach to MySuper has been determined, we
then suggest Treasury and APRA clarify the detail of MySuper with the Industry,
in particular the implications of legislation on Fund operations. This summit
should occur no later than July 2012.
Consistency with other government
The FSC highlighted certain aspects of the Australian Government Cost
Recovery Guidelines that require cost recovery measures to 'occur in a cost
effective, efficient and consistent way'. It emphasised that the guidelines
require that cost recovery measures are consistent with other Australian
In light of this requirement, the FSC outlined the current mechanical process
for determination and allocation of the supervisory levy imposed on
- For superannuation funds other than small APRA funds (SAFs), the
restricted levy component on the value of assets for 2011/12 was 0.01264% to
0.00965%- subject to a minimum of $570 and a maximum of $260,000. The
unrestricted rate for 2011/12 is 0.001534% of assets ;
- SAFs were levied a flat amount of $500;
- The levies are used to fund the operational costs of APRA, and certain market
integrity and consumer protection functions undertaken by ASIC and the ATO in
relation to APRA-regulated institutions;
- A separate determination sets out the amounts allocated to activities
undertaken by ASIC and the ATO under each of the financial sector levy
imposition Acts. The total amount allocated for the 2011/12 financial year to
ASIC was $20.7m and the total amount allocated to the ATO was $7.2m (see
Legislative Instrument F2011L01329).
FSC argued that the levy for the SuperStream costs should be
administered in a similar way to the current levy as outlined above.
Impact on small businesses
Members of the industry highlighted to the committee that the Medicare
clearing house will benefit small employers in the roll out of SuperStream. Ms
Pauline Vamos of ASFA and Mr David Haynes of AIST commented on the
Ms Vamos: The industry using the standards is really
not a big thing here with the clearing houses we have at the moment. The
clearing houses are interposed between the employers and the funds, so whatever
the data format is it goes through the clearing house and then it is given to
the funds in the format they require. The big change, and this is where the
on-boarding costs come in for the employers, will be for both large and small
employers and for their payroll houses. That is where a lot of that will be,
and we really have not started that process yet. That is the big one; that is
the big gap.
It is a different impact [between large and small employers] because
the payrolls and contributions of your larger employers and your medium-sized
employers are usually paid by payroll houses. There has been a lot of
discussion already with payroll houses, so MYOB and all of the other payroll
houses are part of this group so that they can make their system changes...
Mr Haynes: I agree with everything that Pauline has
said, but the counterpoint to that will be the efficiencies that result from
the implementation of SuperStream: medium sized employers who at the moment sit
down and perhaps write out cheques to 18 different superannuation funds will
have a streamlined approach to their superannuation and its administration
where they can just send the same minimum information in one job lot, which
will then go to each of the superannuation funds in question. There will be
massive savings and a lot fewer headaches for employers as a result of that.
ACCI expressed strong support for the measures taken to assist small
business with compliance for the SuperStream measures:
ACCI strongly supports the continuation of the Superannuation
Small Business Clearing House (administered by Medicare Australia). This will
be essential for small business, particularly where they are currently using
non-electronic means to make contributions and a review should be conducted to
ascertain whether it should be extended to medium sized firms in the near
The departmental officials provided assurances that attention has been
given to the needs of small business in the development of SuperStream and
The tax office will be undertaking a range of communication
and education activities in the lead-up to 2015 and beyond to make sure that
small and other employers have a full understanding of their obligations under
The officials gave an overview of the two key elements that are part of
the reforms to support small businesses:
the Medicare clearing house; and
- discussions with payroll suppliers.
Mr Murray of the Treasury and Mr Hind of the ATO gave an overview of the
workings of the Medicare clearing house and how it applies to the SuperStream
requirements for small employers:
Mr Murray: The Medicare clearing house is a facility
that is already available for a small business and provides a simplified
electronic process for employers to use the clearing house to pass on
contributions to different funds, so removing that obligation on employers. It
has been quite successful and certainly the feedback that Medicare have
received from employers who have used the service is that it has been very
highly regarded by those small employers who have been using it. That service
will continue to be available into the future.
Mr Hind: The small business clearing house will be
converting its electronic files over to what is called the data standard format
or the XBRL format, which is the technical term to describe that, within the
next six to 12 months roughly and make all that available in the normal
way that it transmits contributions on behalf of employers into funds. So, from
an employer's perspective, if they have already signed up for the small
business clearing house and are using it today or if they join at any stage
during the next 12 months or so, they will find that they are able to comply
with the standard with virtually no perceived change in their current business
processes or operations. The small business clearing house will effectively
shield them from the impact of any of that change.
There are about 23,000 small employers registered with the
clearing house and making regular payments through the clearing house...I think
it is a pretty small percentage at this stage. There is a large number of small
employers in Australia, several hundreds of thousands, so 23,000 of those is a
very good start but we have got a way to go and part of our effort will be
trying to encourage people to understand and sign on for that service if it
suits their business.
Mr Hind, National Program Manager of Data Standards and E-Commerce at
the ATO, also provided an overview of developments with payroll suppliers and
outlined that suppliers were prepared for the implementation of SuperStream:
We have been talking extensively with payroll suppliers over
the last 12 months about the nature of the data standard and how it is
designed. One of the key design principles that we have followed is that the
contributions information that is required from an employer should be able to
be produced natively from a payroll system and involve the least data required
to meet the obligation. In those consultations with payroll suppliers—and we
have been dealing with not only the top 10 but also many of the smaller ones as
well—it is clear that all of them will be able to embrace this standard and
utilise that within their systems and therefore provide employers progressively
over the coming years the capability to produce contributions in the new data
standard format as effectively part of their normal payroll and contribution
Other comments from submitters
The following comments were highlighted in brief to the committee:
- ASFA recommended that the capacity for regulations to be made
delaying the implementation date for small employers be removed (Item 30,
- ASFA also recommended that the amendment to allow the Minister to
make more than one determination per year be limited to 2012–13 in line with
the explanation in the EM that this amendment is to 'provide flexibility for
the Treasurer in the event that amendments to the APRA Act...are delayed beyond
30 June 2012'.
- Subsection 34K(2) stipulates that regulations may prescribe
different requirements for different classes of superannuation entities. The
AIST recommended that a time limit be placed on this provision to avoid
compromising the 'very narrow bounds' required for standardisation of the
- AIST suggested that the initial focus of the SuperStream measures
was on contributions, rollovers and reporting to government. It argued that
there should be capacity in the bills to accommodate 'wide ranging efficiencies
throughout the superannuation system...on a wider basis over time'. It proposed
a number of amendments to allow for future changes to the superannuation system
to be accommodated through regulations.
- ACCI questioned whether a casual employee would count towards the
determination of the size of an employer. It argued that regular casuals, or
having casuals "on the books", may skew the size determination of an
employer and therefore, the date that the provisions of the bill would apply to
The committee is encouraged by the efforts already undertaken by
industry to adopt the SuperStream measures and improve efficiencies in the
administration of superannuation for the benefit of all employers and superannuation
The committee highlights the staged implementation of the SuperStream reforms
(see paragraphs 1.19–1.20), and asserts that this approach provides ample
consideration to the needs of the full spectrum in scale of funds and
The committee commends the extensive consultation and collaboration
between industry and government officials that has been undertaken on the
SuperStream measures. The committee applauds the open dialogue between industry
and government officials and the measures currently underway to:
- consult on the costs of the SuperStream levy through the current
consultation paper (as discussed in chapter 2); and
- establish a governance framework through the SuperStream Advisory
Council to allows users of the data standards to monitor, review and advise
government on the SuperStream measures.
The committee recommends that the bills be passed.
Ms Deborah O'Neill, MP
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