Referral and conduct of the inquiry
On 28 October 2020, pursuant to a resolution of the Senate on 7 October 2020, the provisions of the Treasury Laws Amendment (2020 Measures No. 4) Bill 2020 (the bill) were referred to the Senate Economics Legislation Committee (the committee) for inquiry and report by 26 November 2020.
The committee advertised the inquiry on its website and wrote to relevant stakeholders inviting written submissions by 10 November 2020. The committee received three submissions, listed at Appendix 1.
Given the straightforward nature of the bill, the committee resolved to report based only on the bill's explanatory materials and submissions received.
The committee thanks the organisations that contributed to the inquiry.
Provisions of the bill
The bill contains four schedules:
Schedule 1—Refund of large-scale generation shortfall charge;
Schedule 2—Transitional provisions relating to the repeal of the Superannuation (Resolution of Complaints) Act 1993;
Schedule 3—Industry code penalties under Part IVB of the Competition and Consumer Act 2010; and
Schedule 4—Extension of modification power.
The Renewable Energy Target is a legislated government scheme designed to reduce emissions of greenhouse gases in the electricity sector and encourage the additional generation of electricity from sustainable and renewable sources. The scheme, which operates under the Renewable Energy (Electricity) Act 2000 (REE Act), functions through the creation of tradable certificates which create an incentive for additional generation of electricity from renewable sources.
Accredited power stations may create, and claim for registration, large-scale generation certificates (LGCs) for eligible electricity generated. Essentially, a LGC can be created by an accredited power station for each whole megawatt hour of electricity generated from renewable energy sources where the amount generated exceeds their renewable power baseline.
Certain electricity purchasers, called liable entities, then buy registered LGCs in order to meet their legislated renewable energy obligations under the Renewable Energy Target. Liable entities are generally electricity retailers and large industrial users of electricity.
Liable entities are required to surrender a specified number of certificates they acquire during a year. Where a liable entity does not surrender sufficient certificates for a year, a large-scale generation shortfall charge is payable in respect of the shortfall. However, under certain circumstances, liable entities can apply to have the shortfall charge refunded if they surrender outstanding LGCs during the allowable refund period; broadly, within three years of paying the shortfall charge.
Overview of the amendments
The Explanatory Memorandum (EM) notes that, presently, some uncertainty exists as to whether a refund of a large-scale generation shortfall charge is assessable income for income tax purposes.
Schedule 1 seeks to clarify the operation of the law for affected stakeholders by amending the Income Tax Assessment Act 1997 to make refunds of large-scale generation shortfall charges non-assessable non-exempt (NANE) income for income tax purposes. Consequently, no income tax will be payable on refunds of large-scale generation shortfall charges.
However, the amendments in Schedule 1 also provide that deductions for expenses incurred in relation to large-scale generation certificates are not affected by making refunds of shortfall charges NANE income.
The amendments implement the measure 'Corporate Taxation—removing the tax on refunds of large-scale generation shortfall charges' announced in the 2019–20 Mid-Year Economic and Fiscal Outlook.
The EM makes no specific comment on consultation undertaken with regard to the amendments, but notes that the amendments 'were sought by affected stakeholders to clarify the operation of the law'.
Application and commencement
The amendments apply to refunds of large-scale generation shortfall charges made on or after 1 January 2019 and commence on the first day of the first quarterly period following the day the bill receives Royal Assent.
At the time of the 2019–20 Mid-Year Economic and Fiscal Outlook, the amendments in Schedule 1 were estimated to have a cost to revenue of
$70 million over the forward estimates.
Table 1.1: Schedule 1—Financial impact over the forward estimates ($m)
Source: Explanatory Memorandum, p. 3.
The Superannuation Complaints Tribunal (SCT) is a statutory tribunal established under the Superannuation (Resolution of Complaints) Act 1993 (Complaints Act). The SCT deals with complaints about superannuation.
On 1 November 2018, the Australian Financial Complaints Authority (AFCA) replaced the SCT—as well as the other ombudsman service bodies, the Financial Ombudsman Service and Credit and Investments Ombudsman—as the 'one stop shop' external dispute resolution scheme for financial services.
The establishment of AFCA as a single external dispute resolution scheme followed the findings of the Review of the financial system external dispute resolution and complaints framework (Ramsay Review):
In 2017, the Ramsay Review found that the existence of multiple financial services external dispute resolution schemes with overlapping jurisdictions means [sic] resulted in difficulties in achieving comparable outcomes for consumers with similar complaints. The Ramsay Review also found
long-standing problems with the arrangements for resolving superannuation complaints in the SCT.
AFCA's enabling legislation is the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Act 2018 (AFCA Act), which gained Royal Assent on 5 March 2018. Schedule 3 to the AFCA Act provides for the repeal of the Complaints Act, and thereby the closure of the SCT.
Overview of the amendments
Schedule 2 amends the AFCA Act to facilitate the closure and any transitional arrangements associated with AFCA replacing the SCT.
The schedule also amends the AFCA Act to provide for the transfer of records and documents from the SCT to the Australian Securities and Investments Commission (ASIC), the remittal of matters on appeal by the Federal Court, and introduces a rule-making power to allow the Minister to prescribe other matters of a transitional nature.
Transfer of records and documents
Under proposed section 33 of Schedule 2, ASIC becomes the administrator of any record or document in possession of the SCT at the time of its closure.
Accordingly, ASIC will be required to respond to any freedom of information requests, as well as prepare and disclose relevant records and documents to AFCA or the Federal Court where such disclosure is necessary for the purposes of carrying out their functions.
To safeguard against unauthorised disclosure of sensitive and personal information contained in any record or document transferred from the SCT to ASIC, proposed section 33 also ensures that transferred records and documents will be considered 'protected information' for the purposes of section 127 of the Australian Securities and Investments Commission Act 2001 (ASIC Act).
This coverage by section 127 of the ASIC Act will not apply to a record or document that has already been made lawfully available to the public.
Federal Court power
Under the Complaints Act, a party may appeal to the Federal Court a determination made by the SCT. In hearing and determining such an appeal, the Federal Court may make an order it deems appropriate, including affirming or setting aside the SCT's determination, or remitting the matter back to the SCT.
Proposed section 34 of Schedule 2 provides for the Federal Court, following the repeal of the Complaints Act, to make an order to remit a matter back to AFCA for determination, where this would have ordinarily been remitted back to the SCT.
To provide flexibility for the government to address any additional issues that arise with regard to the SCT's closure, proposed section 35 of Schedule 2 provides that the Minister may, by legislative instrument, make rules of a transitional nature (including prescribing any saving or application provisions) relating to the amendments or repeals made by Schedule 3 to the AFCA Act.
The EM notes that the Ramsay Review, which found that superannuation disputes should be resolved by an ombudsman scheme rather than a statutory tribunal, has been certified as being informed by a process and analysis equivalent to a Regulation Impact Statement (RIS).
The transitional measures in Schedule 2 will be inserted into the AFCA Act on the day after the bill receives Royal Assent. The measures will come into effect on the commencement of Schedule 3 to the AFCA Act, being either following a proclamation by the Treasurer or the day after four years of the commencement of the AFCA Act. The date for the latter is 5 March 2022.
Schedule 2 is estimated to have nil financial impact.
As outlined in the EM, Part IVB of the Competition and Consumer Act 2010 (CCA) allows for industry codes to be prescribed in regulations. Industry codes may prescribe pecuniary penalties for breaches of civil penalty provisions of the industry code. The maximum penalty available for a breach of a civil penalty provision in an industry code is 300 penalty units (currently $66,600).
In March 2019, the Parliamentary Joint Committee on Corporations and Financial Services (PJC) tabled its report—Fairness in Franchising—into the operation and effectiveness of the Franchising Code of Conduct (Franchising Code). The PJC's report noted that 'where penalties are insufficient, franchisors are likely to factor the risk of a penalty into the cost of doing business'.
The PJC report recommended that consideration be given to amending the CCA and Franchising Code such that the quantum of penalties available is:
… significantly increased to ensure that penalties are a meaningful deterrent, such as to at least reflect the penalties currently available under the Australian Consumer Law ...
Presently, the maximum penalty for a breach of the Australian Consumer Law by a corporation is the greater of:
three times the value of the benefit obtained from the offence (where the court can determine this value); or
10 percent of the annual turnover of the business.
The government agreed to increase the quantum of penalties in the Franchising Code to 600 penalty units; that is, a doubling of the maximum pecuniary penalties available for a breach.
While of a lesser amount than recommended in the PJC's report, the EM reasons that, in line with the view set out in the Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers (the Guide) that serious penalties should be contained in Acts of Parliament rather than subordinate legislation, an increase to 600 penalty units balances the PJC's recommendation with the principles in the Guide.
Overview of the amendments
Schedule 3 amends the CCA by increasing the maximum amount of penalty units that can be included in regulations that prescribe an industry code from 300 penalty units to 600 penalty units.
A comprehensive RIS for the measure was prepared and certified by the Department of Industry, Science, Energy and Resources, and is included at Chapter 4 to the EM.
The RIS describes four policy options considered to address problems in franchising, and ultimately recommends that the government reform and refine the franchising sector with both regulatory and non-regulatory measures, including establishing a more effective enforcement regime by doubling maximum pecuniary penalties.
The RIS notes that measures such as doubling the pecuniary penalties for breaches of the Franchising Code 'will encourage greater compliance and deter misconduct in the sector, but will have little or no regulatory impact'.
The amendments in Schedule 3 will commence the day after the bill receives Royal Assent.
Schedule 3 is estimated to have nil financial impact.
Schedule 5 to the Coronavirus (Measures No. 2) Act, passed by the Parliament on 8 April 2020, provides a temporary mechanism that allows responsible Ministers to change arrangements for meeting information and documentary requirements under Commonwealth legislation, including requirements to give information and produce, witness and sign documents.
The temporary mechanism was implemented in response to the challenges posed by the Coronavirus, such as social distancing measures and the restrictions on movement and gathering introduced in Australia and overseas.
Presently, a determination made by a responsible Minister under Schedule 5 of the Coronavirus (Measures No. 2) Act has no operation after 31 December 2020.
Overview of the amendments
Schedule 4 to the bill seeks to extend the operation of Schedule 5 of the Coronavirus (Measures No. 2) Act to 31 March 2021, or at a later date determined by the designated Minister by legislative instrument.
The designated Minister is defined as the Minister responsible for administering the Electronic Transactions Act 1999.
The bill specifies that a determination to extend the temporary mechanism beyond 31 March 2021 must not be made unless the designated Minister is satisfied that the determination is in response to circumstances relating to the Coronavirus.
Schedule 4 is subject to the exemption previously granted by the Prime Minister from the need to complete regulatory impact analysis in the form of a RIS for measures made in response to COVID-19. The EM notes that this exemption applies on the basis that the proposal set out in Schedule 4 is simply to extend a measure originally implemented in response to the Coronavirus pandemic.
The amendments in Schedule 4 will commence the day after the bill receives Royal Assent.
Schedule 4 is estimated to have nil financial impact.
Compatibility with Human Rights
As required under the Human Rights (Parliamentary Scrutiny) Act 2011, 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.
With regard to Schedule 2, the government notes that the Schedule engages, or may engage, the right to protection from arbitrary or unlawful interference with privacy and reputation, as contained in Article 17 of the International Covenant on Civil and Political Rights (ICCPR). The EM notes that for an interference of the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable—that is, necessary and proportional to the end sought—in the particular circumstances.
Following the closure of the SCT, records and documents that are transferred to ASIC may contain personal or sensitive information relating to individuals who brought complaints to the SCT. In circumstances where ASIC discloses such information, either to AFCA or the Federal Court, ASIC must comply with the disclosure and retention principles contained in the Privacy Act 1988. Further, ASIC must comply with section 127 of the ASIC Act, under which disclosure to AFCA and the Federal Court for the purposes of their role and function is considered an 'authorised disclosure'.
On this basis, the EM reasons that any interference with the right to privacy presented by Schedule 2:
… is considered to be permissible as it is reasonable, proportionate and necessary to achieve the legitimate objective of maintaining consumer confidence in the financial services and consumer credit industry.
The government considers that Schedule 1, Schedule 3 and Schedule 4 do not engage any of the applicable human rights or freedoms.
In light of the above factors, the government concludes that each of the four schedules to the bill are compatible with human rights and do not raise any human rights issues.
Comments on the bill
The committee received three submissions. Comments were limited to Schedules 1 and 2, which are outlined below.
The Australian Energy Council Limited (Energy Council) expressed its support for the amendments in Schedule 1, noting that the proposed measure 'will reduce uncertainty as to the symmetry of the tax treatment of shortfall charges and refunds'.
The Energy Council continued that:
The energy industry welcomes the introduction of this long-awaited legislation that will simplify the process of meeting the renewable energy targets and reduce costs to consumers.
The Inspector-General of Taxation and Taxation Ombudsman (IGTO) reflected on Schedule 1 in terms of its alignment with the IGTO's model of the features of good tax administration.
By clarifying that refunds of large-scale generation shortfall charges will be treated as NANE income for income tax purposes, the IGTO observed that the proposed measure aligns with the principle that the administration of the tax system should aim for simplicity and to minimise costs through minimising compliance burdens, errors and mistakes, and red tape, and avoiding duplication.
The IGTO also assessed the proposed measure in light of the principle that taxation administration laws should 'be administered fairly, and in a way that provides certainty and consistency of taxation outcomes and that the tax collected and paid is correct'. In this regard, the IGTO highlighted the retrospective nature of the proposed measure (applying to refunds paid on or after 1 January 2019), noting that:
There may be circumstances where taxpayers who self-assessed their tax liabilities [for the 2019–20 financial year] under the existing law are placed in a different tax position or are treated differently to those who
self-assessed under the proposed law.
The IGTO further submitted:
Given the nature of the electricity industry in Australia, we consider that there will be a small but nonetheless significant number of industry participants who will be affected by the proposed measure … Furthermore, given the revenue impact projections, it is likely that the amounts involved may be significant.
However, the IGTO also pointed to the preliminary guidance first published by the Australian Taxation Office (ATO) in December 2019 on how it would administer the proposed measure. In that guidance, the ATO advises affected taxpayers that they 'should self-assess under the existing law', but also outlines the avenues for rectification should a taxpayer either understate or overstate their tax liability.
Specifically, the ATO's guidance states:
If you choose to self-assess by anticipating the proposed law, it is not enacted and you understate your liability, you may be liable to GIC or SIC at the base interest rate.
However, if the law is enacted and you overstate your liability, you would generally be entitled to a credit amendment and interest on overpayment.
The Association of Superannuation Funds of Australia (ASFA) expressed its strong support for the amendments proposed in Schedule 2. Indeed, ASFA characterised the measures as being 'of vital importance', arguing that:
It is critical that all necessary arrangements are made to ensure the closure of the SCT, and its replacement by AFCA, occurs smoothly and that any disruption to consumers and superannuation trustees is minimised.
ASFA noted the protracted wait for a resolution already faced by consumers with complaints still remaining before the SCT or before the Federal Court on appeal, and asserted that 'any further delays must be avoided to any extent possible'.
Elaborating on this point, ASFA commented:
It is vital that AFCA is able to utilise the SCT's 'case files' on transferred complaints, so it does not need to begin its consideration from a blank slate. Similarly, it is critical that the Federal Court is able access any records necessary to complete its consideration of matters appealed from determinations of the SCT. A lack of access to the SCT's case files or other documents or records would involve unacceptable delays for consumers and additional cost for trustees.
The bill implements a number of important streamlining and integrity measures.
By clarifying the operation of the income tax law for affected taxpayers, the proposed measure in Schedule 1 will ensure that the market for large-scale generation certificate works as intended, meeting targets for clean energy while minimising costs for consumers.
The committee acknowledges that, due to the retrospective application of Schedule 1, the tax position of liable entities may differ dependent on whether those entities elected to self-assess under the existing or proposed law.
However, as outlined by the ATO in its preliminary guidance regarding the measure, there are avenues for rectification should an affected taxpayer have understated or overstated their tax liability. The committee considers that if such a circumstance arises, affected taxpayers (being for the most part large energy retailers) will be capable of determining how to appropriately apply the relevant tax provisions.
The proposed amendments in Schedule 2 will facilitate the closure of the SCT, thereby delivering on the government's promise to wind up the Tribunal and allowing for all superannuation related complaints to be dealt with by AFCA. The measures will enable AFCA to continue to achieve its purpose of improving outcomes for consumers in the financial system.
Widespread evidence has shown that, despite the existing mechanisms of enforcement, franchisors continue to engage in poor conduct that is
non-compliant with the Franchising Code.
By doubling pecuniary penalties, Schedule 3 of the bill will enable the government to establish a more effective enforcement regime to encourage greater compliance with the Franchising Code. The committee is confident that this measure, coupled with existing protections under the CCA and Australian Consumer Law, will enhance compliance and provide an improved deterrent against breaches of the Franchising Code across the franchising sector.
While Australia is currently in a good position with regard to its containment of the Coronavirus, uncertainty surrounding restrictions in response to the pandemic is expected to continue for some time. In recognition of the importance of continued business transactions and government service delivery, the committee considers that the temporary mechanism provided for in Schedule 4 is prudent to allow for flexibility in responding to unforeseen challenges that could arise.
The committee recommends that the bill be passed.
Senator Slade Brockman