Bills Digest No.
29, 2019–20
PDF version [540KB]
Robert Anderson and Phillip
Hawkins
Economic Policy Section
12
September 2019
Contents
History of the Bill
Purpose of the Bill
Structure of the Bill
Committee consideration
Policy position of non-government
parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human
Rights
Schedule 1 – Superannuation: employees
with multiple employers
Schedule 2 – Non-arm’s length income
of complying superannuation entities
Schedule 3 – Limited recourse
borrowing arrangements
Date introduced: 24
July 2019
House: House of
Representatives
Portfolio: Treasury
Commencement: Schedule
1 commences on the day after Royal Assent.
Schedules 2 and 3 commence on the first 1 January,
1 April, 1 July or 1 October following 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 Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at September 2019.
History of
the Bill
The Treasury
Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 (the 2018
Bill) was introduced into Parliament on 24 May 2018. It passed the House of
Representatives and was introduced into the Senate, before lapsing at the
dissolution of the 45th Parliament on 1 July 2019.
The Treasury
Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 (the Bill) is
substantively different to the 2018 Bill. The 2018 Bill contained an additional
schedule (former Schedule 1) which proposed amendments to introduce an amnesty
from certain penalties for employers who inform the Australian Taxation Office
(ATO) that they had a historic Superannuation Guarantee (SG) shortfall. Former
Schedule 1 was discussed significantly in the Senate Standing Committee on
Economics inquiry into the 2018 Bill and there were differing views from
submitters to the inquiry on the need for the proposed amnesty.[1]
The Australian Labor Party (ALP) and the Australian Greens
did not support the proposed amnesty.[2]
The ALP introduced amendments into the House of Representatives to remove
Schedule 1 from the 2018 Bill.[3]
The ALP senators on the Senate Standing Committee on Economics inquiry issued a
dissenting report strongly disputing the need for the proposed amnesty and
recommended that Schedule 1 be removed from the Bill.[4]
The remaining schedules in the Bill are the same as
proposed in the 2018 Bill.
A Bills Digest was prepared for the 2018 Bill.[5]
Much of the material in this Bills Digest has been sourced from that earlier
one.
Purpose of
the Bill
The Bill makes amendments to superannuation and related
tax laws. The Bill complements measures contained in the Treasury Laws
Amendment (2018 Measures No. 4) Act 2019, which strengthened the
penalty regime for SG non-compliance.
Structure of
the Bill
The Bill consists of three Schedules:
Committee
consideration
Senate Selection of Bills Committee
The Senate Selection of Bills Committee recommended that
the Bill not be referred to committee.
The 2018 Bill was considered by the Senate Economics
Legislation Committee. Details of the inquiry are at the Committee
home page. The Committee’s Final Report recommended passage of the Bill.[6]
As discussed above, the ALP senators on the Committee objected to Schedule 1 of
the 2018 Bill.[7]
The provisions that were contained in Schedule 1 to the 2018 Bill do not appear
in the current Bill.
Senate Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
(the Scrutiny Committee) considered the Bill in its Scrutiny Digest of
31 July 2019. The Scrutiny Committee reiterated the comments that it made on
the 2018 Bill in its Scrutiny Digest of 20 June 2018.[8]
These comments related to the proposed amnesty in Schedule 1 of the 2018 Bill,
which has not been included in this Bill.
Policy
position of non-government parties/independents
In comments on the 2018 Bill, ALP senators on the Senate
Economics Legislation Committee supported the measures that are contained in
Schedules 1 and 2 of the current Bill.[9]
In relation to the measure proposed in Schedule 3 of the current Bill, the ALP
Senators stated that they were not opposed to the measure, but that ‘a Shorten
Labor Government will take the responsible decision and adopt the
recommendation of the Financial System Inquiry to restore the prohibition on
direct borrowing by superannuation funds on a prospective basis’.[10]
At the time of writing the position of other non-government
parties and independents is not known.
Position of
major interest groups
The Senate Standing Committee on Economics inquiry into
the 2018 Bill received submissions from a number of stakeholders. The majority
of these submissions pertained to the former Schedule 1 proposing the SG
amnesty, which is not included in this Bill.
Financial
implications
According to the Explanatory Memorandum to the Bill these
measures are expected to increase revenue by $33 million over the 2018–19
Budget forward estimates period.[11]
Statement of Compatibility with Human Rights
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.[12]
Parliamentary Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights
considers that the Bill does not raise any human rights concerns.[13]
Schedule 1 –
Superannuation: employees with multiple employers
Background
The effect of the amendments in Schedule 1 would be to
allow an individual with multiple employers to apply to the ATO to have an
employer’s legal requirement to pay the SG amount waived if payment of the SG
amount would put the individual above their annual concessional contributions
cap, so long as at least one of their employers is contributing an SG amount.
Concessional contributions cap
The concessional contribution cap limits the amount of
pre-tax contributions that can be made into an individual’s superannuation
account that are taxable at a concessional tax rate of 15 per cent (whether
they are compulsory SG contributions or pre-tax voluntary contributions). Amounts
above the cap are treated as assessable income of the individual and are taxed
at the individual’s marginal tax rate. The concessional contribution cap for
2019–20 is $25,000 per annum.[14]
Maximum superannuation earnings base
A person’s employer is obliged to make SG contributions to
their employee’s superannuation account equal to 9.5 per cent of ordinary time
earnings (OTE).[15]
However, the SG only obliges the employer to pay superannuation on income of up
to $55,270 per quarter (roughly $221,080 per annum)[16]
in 2019–20.[17]
This is known as the ‘maximum superannuation contributions base’. This
means that the amount of SG contributions an employer is obliged to make per
quarter is capped at around $5,251 per quarter ($21,002 per annum). The maximum
superannuation contributions base is indexed in line with Average Weekly
Ordinary Time Earnings (AWOTE) each year.[18]
Key
provisions
The purpose of the amendments in Schedule 1 is to allow a
person to opt out of having a proportion of their income paid into their superannuation
account for their second (or subsequent) employer if those contributions would
put them over their concessional contributions cap for the financial year.
The proposed amendments would allow an individual to apply
to the Commissioner for a shortfall exemption certificate in relation to a
specified employer and for a specified quarter (proposed subsection 19AB(1)
of the SGAA, at item 2 of Schedule 1).
An employer that has been issued with a shortfall
exemption certificate has a maximum superannuation contribution base for that
employee of zero. In other words, the employer is not required to make SG
payments to that employee’s superannuation account and will not incur a SG
shortfall (proposed section 19AA of the SGAA, at item 2 of
Schedule 1).
The Commissioner may issue an employer shortfall exemption
certificate if he or she is satisfied that:
- if
the certificate were not issued then the employee would be likely to exceed
their concessional contributions cap for the financial year (proposed
paragraph 19AB(3)(a) of the SGAA)
- if
the certificate is issued then the person has at least one other employer that
would have a SG shortfall if they did not make superannuation contributions for
the benefit of the employee (proposed paragraph 19AB(3)(b) of the SGAA)
and
- it
is appropriate, in the circumstances, to issue the certificate (proposed
paragraph 19AB(3)(c) of the SGAA). In considering whether it is
appropriate, the Commissioner must have regard to the effect that issuing the
certificate would have on the individual’s concessional contributions for the
year and any other matter they deem relevant (proposed subsection 19AB(6)
of the SGAA).
The Commissioner must notify the person and their employer
in writing of their decision to issue an employer shortfall exemption
certificate (proposed subsection 19AC(1) of the SGAA). If the
Commissioner decides not to issue the certificate then they must notify the
applicant in writing (proposed subsection 19AC(3) of the SGAA).
If the Commissioner does not give notice of their decision within 60 days, the
application is taken to have been denied (proposed subsection 19AC(4) of
the SGAA).
Item 3 of Schedule 1 provides that the
amendments in Schedule 1 only apply in relation to quarters on or after 1 July
2018.
Part 2 of Schedule 1 amends the Administrative
Decisions (Judicial Review) Act 1977 (ADJR Act) to provide that
decisions by the Commissioner on applications for the grant of a shortfall
exemption certificate are not reviewable under the ADJR Act. The
Explanatory Memorandum to the Bill states:
This amendment would align the judicial review processes
available for a decision to issue or refuse to issue an employer shortfall
exemption certificate with those available for other taxation decisions by the
Commissioner. Taxpayers are provided with full review rights under Part IVC of
the TAA 1953 which is a well-established and comprehensive review scheme for
taxation decisions. Part IVC of the TAA 1953 review is equally as accessible
and effective as review under the Administrative Decisions (Judicial Review)
Act 1977.[19]
Schedule 2 – Non-arm’s length income of complying
superannuation entities
Background
Non-arm’s length income
The non-arm’s length income (NALI) provisions are an
existing anti-avoidance measure that seeks to prevent superannuation funds from
entering into schemes which utilise non-commercial transactions to inflate the
earnings of a superannuation fund in order to:
- obtain
a concessional tax rate of 15 per cent on those earnings, rather than the
individual’s marginal tax rate or
- in
effect, make contributions to a superannuation fund that do not count towards
the individual’s concessional and non-concessional contributions caps.[20]
Non-arm’s length income is defined at section 295-550 of
the ITAA97. It is essentially income that is more than would have been
derived had a transaction been conducted at arm’s length. An example of
non-arm’s length income could include an inflated dividend paid to the
superannuation fund by a private company that the superannuation fund holds
shares in.
Key
provisions
Item 1 of Schedule 2 repeals and replaces
the existing definition of NALI at subsection 295-550(1) of the ITAA97
to ensure that there is no ambiguity that expenditures incurred by
superannuation funds can also be NALI. The definition of NALI is extended to
schemes that are entered into that result in a loss, outgoing or expenditure
(incurred in producing assessable income) that is lower than would have been
expected had a transaction been conducted at an arm’s length basis (proposed
paragraph 295-550(1)(b) of the ITAA97). It also includes
transactions where no loss, outgoing or expenditure has been incurred at all but
would be expected to have been incurred if the transaction were conducted on an
arm’s length basis (proposed paragraph 295-550(1)(c) of the ITAA97).
Item 2 of Schedule 2 repeals and replaces
subsection 295-550(5) of the ITAA97 which applies NALI provisions to
income derived by a superannuation fund as a beneficiary of a trust to which it
has a fixed entitlement. The changes include non-arm’s length losses, outgoings
and expenditures incurred in producing assessable income as NALI.
Item 3 of Schedule 2 adds proposed
subsection 296-550(7) to the ITAA97 to clarify that the new
provisions apply to losses, outgoings and expenditures whether they are of a
capital nature or not.
Item 4 of Schedule 2 provides that the
proposed amendments made in Schedule 2 apply to the 2018–19 income year and
later income years.
Schedule 3 –
Limited recourse borrowing arrangements
Background
Limited recourse borrowing arrangements
Generally speaking, superannuation
funds cannot borrow money to purchase investments.[21]
However, regulated superannuation funds can borrow by entering into Limited
Recourse Borrowing Arrangements (LRBA) with a third party.[22]
LRBAs limit the lender’s rights to recover the funds under the LRBA to the
assets purchased using those funds. The lender has no recourse to the other
assets of the superannuation fund.[23]
Total superannuation balance
‘Total superannuation balance’ is defined in subsection
307-230(1) of the ITAA97 as, generally, the sum of:
- the
value of all superannuation benefits in the accumulation phase
- the
amount in the transfer balance account and
- the
amount of any ‘roll-over’ benefit which is not reflected in the person’s
accumulation or transfer balance account.
A person’s total superannuation account balance is taken
into account in determining, for example, the amount of an individual’s
non-concessional contributions cap, the amount of unused concessional cap that
individuals can carry-forward from prior financial years and in determining
eligibility for the spouse tax offset.[24]
The proposed changes in Schedule 3 of the Bill change the
definition of total superannuation balance so that in some circumstances LRBAs
are taken into account when calculating the total superannuation balance for
SMSFs. The measures are intended to ensure that LRBAs are not used to
circumvent contributions caps.[25]
Key
provisions
Item 1 of Schedule 3 amends the definition
of total superannuation balance at section 307-230 of the ITAA97 to
include an ‘LRBA amount’ in certain circumstances.
Item 2 adds proposed subsection 307-231
which details the LRBA arrangements that count towards an individual’s total
superannuation amount. Proposed subsection 307-231(1) states that an
individual has an ‘LRBA amount’ if:
- the
superannuation provider has entered into a limited recourse borrowing
arrangement
- the
amount of the LRBA has not been repaid at the time of working out the
individual’s total superannuation balance
- the
assets that secure the LRBA support a superannuation interest of the individual
- the
fund meets the criteria specified at proposed subsection 307-231(4),
namely, it is a SMSF with less than five members and
- either:
- the
person has satisfied a condition of release for their superannuation fund with
a nil cashing restriction (either they have reached retirement or they are aged
65 or over) or
- the
lender under the LRBA is an associate of the superannuation provider.
Proposed subsections 307-231(2) and (3) provide
that the amount by which a personal total superannuation balance can be
increased by a LRBA is limited to the individual’s share of the interest in the
assets that secure the LRBA.[26]
Part 2 of Schedule 1 amends the Income
Tax (Transitional Provisions) Act 1997 to provide that the amendments in Schedule
3 only apply to new borrowings entered into on or after 1 July 2018. The
amendments also do not apply to an amount of an LRBA that is refinanced after 1
July 2018 if it is secured by the same assets as the old borrowing and is not
greater than the balance of the old borrowing.
[1]. Senate
Economics Legislation Committee, Treasury Laws
Amendment (2018 Superannuation Measures No. 1) Bill 2018 [Provisions],
The Senate, Canberra, 18 June 2018, pp. 9–12; 17–23.
[2]. C
Bowen (Shadow Treasurer), Liberal
Party gives 26 year penalty holiday including ... tax deduction for
superannuation theft!, media release, 29 May 2018; A Bandt, ‘Second
reading speech: Treasury Laws Amendment (2018 Superannuation Measures No. 1)
Bill 2018’, House of Representatives, Debates, 20 June 2018, p. 27.
[3]. C
Bowen, Treasury
Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 - amendments to
be moved by the Opposition, House of Representatives, 20 June 2018.
[4]. Senate
Economics Legislation Committee, Treasury Laws Amendment
(2018 Superannuation Measures No. 1) Bill 2018 [Provisions], The Senate,
Canberra, June 2018, pp. 17–24.
[5]. P
Hawkins, Treasury
Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018, Bills
Digest, 128, 2017–18, Parliamentary Library, Canberra, 21 June 2018.
[6]. Senate
Economics Legislation Committee, Treasury Laws
Amendment (2018 Superannuation Measures No. 1) Bill 2018 [Provisions],
op. cit., p. 13.
[7]. Ibid.,
p. 24.
[8]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 4, 2019, the Senate, 31 July 2019, p. 37.
[9]. Senate
Economics Legislation Committee, Treasury Laws
Amendment (2018 Superannuation Measures No. 1) Bill 2018 [Provisions],
op. cit., p. 23.
[10]. Ibid.,
p. 24.
[11]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Superannuation Measures No. 1)
Bill 2019, pp. 3–5.
[12]. The
Statement of Compatibility with Human Rights can be found at page 37 of the
Explanatory Memorandum to the Bill.
[13]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, 3, 2019, 30 July 2019, p. 19.
[14]. ATO,
‘Concessional
contributions cap’, ATO website, last modified 17 July 2019.
[15]. Section
19 of the Superannuation
Guarantee (Administration) Act 1992 (SGAA).
[16]. Assuming
a consistent spread of income throughout the year.
[17]. ATO,
‘Maximum
super contribution base’, ATO website, last modified 17 July 2019.
[18]. Ibid.
[19]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Superannuation Measures No. 1)
Bill 2019, p. 16.
[20]. Ibid.,
p. 17.
[21]. Superannuation
Industry (Supervision) Act 1993, section 67.
[22]. Ibid.,
section 67A.
[23]. K
Swoboda and L Nielson, Tax
and Superannuation Laws Amendment (2015 Measures No. 2) Bill 2015,
Bills Digest, 19, 2015–16, 7 September 2015, p. 8.
[24]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Superannuation Measures No. 1)
Bill 2019, p. 32.
[25]. K
O’Dwyer (Minister for Revenue and Financial Services), Consultation
on superannuation taxation integrity measures, media release, 11
January 2018.
[26]. Explanatory
Memorandum, Treasury Laws Amendment (2018 Superannuation Measures No. 1)
Bill 2019, p. 33.
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