BILLS DIGEST NO. 24, 2018–19              13 September 2018

Treasury Laws Amendment (2018 Measures No. 4) Bill 2018

Phillip Hawkins
Economics Section 

Date introduced: 28 March 2018

House:  House of Representatives

Portfolio: Treasury

Commencement: Refer to pages 3 and 4 of this Digest for details.

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 2018.

Purpose of the Bill

The primary purpose of the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 (the Bill) is to amend laws relating to superannuation to improve the integrity of the Superannuation Guarantee (SG) system and to improve pay as you go (PAYG) withholding tax compliance. The Bill would also allow the Australian Taxation Office (ATO) to share Tax File Numbers (TFNs) with other government departments in certain circumstances, adds additional charities to the list of Deductible Gift Recipients (DGRs) and makes a number of other minor technical amendments to taxation laws.

Structure of the Bill

This Bill is divided into nine Schedules:

•       Schedule 1 is divided into three parts:

–      Part 1 amends the Taxation Administration Act 1953 (the TAA) to allow the Commissioner of Taxation (the Commissioner) to issue a direction to an employer to pay an unpaid superannuation guarantee charge (SGC) amount and introduces a new offence and penalties for failing to comply with such a direction.

–      Part 2 amends the TAA to allow the Commissioner to issue a direction to an employer to undertake a specified approved course of education about the employer’s superannuation obligations and introduces new offences and penalties for failing to comply with such a direction.

–      Part 3 makes consequential amendments to the TAA and the Administrative Decisions (Judicial Review) Act 1977.

Schedule 1 will commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent.

•       Schedule 2 amends the TAA to allow, in certain circumstances, for an officer of the ATO to disclose to an employee that their employer has failed to pay their superannuation obligations in respect of that employee. Schedule 2 will commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent.

•       Schedule 3 is divided into two parts:

–      Part 1 amends the TAA and the Income Tax Assessment Act 1997 (ITAA97) to expand the use of single touch payroll reporting to all businesses. This Part will commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent.

–      Part 2 amends the TAA to improve the reporting of salary sacrificed superannuation amounts to the ATO. This Part will commence on the later of the day after Royal Assent and immediately after the commencement of Schedule 2 to the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2018. However, the Part will not commence at all if that Bill is not enacted.[1]

•       Schedule 4 is divided into three parts:

–      Part 1 amends the TAA to allow the Commissioner to provide a grace period for superannuation providers who make false or misleading statements.

–      Part 2 removes a requirement for employers to disclose information on their employee SG contributions as the ATO can obtain this information directly from superannuation funds.

–      Part 3 amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA) to remove the requirement for superannuation funds to provide biannual reports to the ATO on lost superannuation amounts.

Schedule 4 will commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent.

•       Schedule 5 is divided into three parts:

–      Parts 1 and 2 amend the TAA to enhance the director penalty regime for directors who fail to meet their SG or PAYG withholding obligations.

–      Part 3 amends the TAA to allow the Commissioner to seek a court order to compel an entity to provide a security deposit in relation to a tax related liability.

•       Schedule 5 will commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent. Schedule 6 amends the Income Tax Assessment Act 1936 (ITAA36) and the TAA to allow a taxation officer to provide tax file number (TFN) and other information to an employer in order to streamline the process of new employee commencement. Schedule 6 will commence retrospectively on 1 July 2018.

•       Schedule 7 amends the https://www.legislation.gov.au/Series/C1936A00027ITAA36 to allow the Commissioner to share and verify TFN information with various Commonwealth agencies. Schedule 7 will commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent.

•       Schedule 8 makes a number of minor miscellaneous amendments to existing tax and superannuation laws. Part 1 of Schedule 8 will commence retrospectively on 28 November 2012. Part 2 will commence retrospectively on 1 January 2018. Parts 3 and 7 will commence on the day after Royal Assent. Parts 4 to 6 will commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent.

•       Schedule 9 amends the ITAA97 to specify three new DGRs, Australian Philanthropic Services Limited, Foundation 1901 Limited and Sydney Chevra Kadisha. Schedule 9 will commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent.

Background

Superannuation integrity measures

The Superannuation Guarantee (SG)

The SG is the amount that employers are required to contribute to the superannuation accounts of their employees.[2] It is currently set at 9.5 per cent of the employee’s ordinary time earnings (OTE) and is scheduled to progressively increase to 12 per cent by 2025-26.[3] SG amounts are payable to employees that earn more than $450 in a calendar month.[4] An employer is required to make payments of SG amounts to their employee’s superannuation fund at least quarterly.

Like salary and wages expenses, SG amounts paid by an employer are generally deductible expenses for income tax purposes.[5]

The Superannuation Guarantee Charge (SGC)

If an employer has failed to pay their SG liability for the quarter on time then the employer may have to lodge a Superannuation Guarantee Charge (SGC) statement, or following an audit, the ATO may raise an estimated SGC liability against that employer. The SGC amount is made up of:

•       the SG shortfall amount for the quarter, which is transferred by the ATO to the employee’s superannuation account

•       interest on the shortfall amount, currently charged at 10 per cent per annum, also paid to the employee’s superannuation account and

•       an administration fee of $20 (per employee, per quarter) paid to the ATO.[6]

Unlike SG amounts, SGC amounts are not deductible expenses for income tax purposes.[7]

In addition, penalties may apply to employers who do not meet their SG obligations. These penalties include:

•       the general interest charge, currently 8.96 per cent per annum, which is imposed if the SGC is not paid by the due date[8] and

•       administrative penalties under Part 7 of the Superannuation Guarantee Administration Act, of up to double the amount of SGC, including for failing to keep records and failing to lodge a SGC statement.[9]

Director penalties

A director of a company that fails to meet its pay as you go (PAYG) withholding tax obligations or to pay its SGC liabilities may also be held directly liable for director penalties equal to the unpaid tax or SGC amount. Personal liability for SGC amounts was introduced by the Tax Laws Amendment (2012 Measures No. 2) Act 2012.

Before pursuing a director penalty the ATO must issue the director with a Director Penalty Notice (DPN) outlining the unpaid amounts and options for remitting their liability.[10] The Commissioner may issue a DPN for an unpaid PAYG withholding or SGC amount based on:

•       an assessment (based on the company’s PAYG or SG reporting), or

•       an estimate by the ATO of the amount of unpaid PAYG withholding or SGC.

Remission of director penalties

Generally, a director of a company is not obliged to pay a director penalty if:

•       the company pays the outstanding amount or

•       an administrator is appointed or

•       the company commences being wound up.[11]

However, if three months have passed since the due date and the company has not reported the unpaid SGC or PAYG withholding amount to the ATO then the penalty becomes ‘locked down’ and can only be remitted if the amount of the underlying liability, or the director penalty is paid.[12] If the PAYG withholding or SGC amount is based on an estimate rather than a reported amount, then the director penalty becomes locked down after three months following the due date for payment of the underlying liability to which the estimate relates.[13]

The Explanatory Memorandum to the Bill notes that companies have been able to avoid director penalties by liquidating the company or placing it into administration before the penalty is locked down.[14]

The size and impact of unpaid SG in Australia

There has been considerable work in recent years to examine the size of unpaid SG amounts and the impact that this has had on Australian’s retirement savings.

•       On 1 December 2016 the Senate referred an inquiry into the impact of unpaid SG amounts to the Senate Economics References Committee (the References Committee).

•       Also in December 2016 a Superannuation Guarantee Cross-agency working group (the SG working group) was established to examine the operation, administration and extent of non-compliance in the Superannuation Guarantee system. The SG Working group comprised representatives from the ATO, the Treasury, the Department of Employment, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority.[15]

References committee report

The References Committee’s final report was released on 2 May 2017. The Final Report noted that the non-payment of SG has considerable impacts on both individual’s savings and Government finances:

Evidence received by the committee clearly indicates that a failure to adequately detect and address SG non-compliance causes long-term financial detriment to millions of Australian employees, significant competitive disadvantage to compliant employers, and an unnecessary impost to government finances through additional reliance on the age pension.[16]

However, the References Committee noted difficulties in obtaining a reliable estimate of the under and non-payment of SG (the ‘SG Gap’):

During the course of this inquiry it became apparent to the committee that due to various data gaps, it is difficult to precisely estimate the extent of non-payment of SG in Australia.[17]

The References Committee was critical of the ATO’s reluctance to provide an estimate of the SG Gap, and recommended that the ATO prepare an estimate as a matter of priority.[18]

In August 2017, the ATO estimated that in 2014-15 was $2.85 billion, representing 5.2 per cent of the total SG payments that employers were required to make.[19] The ATO also stated that around half of the SG gap relates to business insolvency.[20]

SG working group

The final report of the SG Working Group was provided to the Minister for Revenue and Financial Services, Kelly O’Dwyer on 31 March 2017 and publicly released on 14 July 2017.[21]

According to the final report, between 2011-12 and 2015-16 the ATO raised around $5.3 billion in SGC debts, of which just over 50 per cent were from insolvent businesses.[22] The ATO estimated that around $113.2 million of SGC debt was irrecoverable at law from insolvent businesses in 2015-16.[23]

In 2014-15, the year for which the ATO has estimated the SG Gap, the ATO raised $1,144.37 million in SGC debts of which $521.39 million was collectable.[24]

Table 1: trends in SGC debt

SGC

2011-12

2012-13

2013-14

2014-15

2015-16

$m

Cases

$m

Cases

$m

Cases

$m

Cases

$m

Cases

Collectable

340.14

11,231

403.35

12,879

461.59

17,389

521.39

25,281

622.62

25,665

Disputed

45.17

358

71.44

483

35.98

380

24.57

212

28.33

247

Insolvent

454.27

6,089

461.17

5,561

517.57

5,774

598.41

6,541

718.34

7,977

Total

839.58

17,678

935.96

18,923

1,015.14

23,543

1,144.37

32,034

1,369.29

33,889

Source: Superannuation Guarantee Cross–Agency Working Group, Final report, p. 34.

The industries where SGC debts are highest include the construction industry, accommodation and food services, manufacturing and administrative and support services.[25]

Recommendations of the SG working group

The Final Report of the SG Working Group included nine recommendations to address the issue of SG non-compliance.[26] On 28 March 2018 the Government committed to adopting five of these recommendations which are addressed by this Bill.[27]

Aligning penalties with employer culpability

The SG Working Group report argued that the current penalty regime for SG non-compliance is inflexible and recommended better aligning penalties with employer culpability (recommendation six).[28] The changes in Schedule 1 are intended to align with this recommendation by providing the Commissioner with powers to pursue stronger penalties for serious contraventions of employer SG obligations.[29]

The amendments proposed in Schedule 1 would provide the Commissioner with the power to direct an employer to pay any outstanding SGC amounts or any related SGC penalties. Further, it would also allow the ATO to seek court-ordered penalties in the event that an employer fails to comply with a direction given by the Commissioner within a specified time. The penalties may include monetary penalties and/or imprisonment for up to 12 months in serious cases.

The proposed directions power would require the Commissioner to consider, among other things, the employer’s history of compliance and the size of the unpaid liability.[30] It is intended that the Commissioner would only issue directions:

in relation to serious contraventions of the obligations to pay superannuation guarantee related liabilities by employers whose actions are consistent with an ongoing and intentional disregard of those obligations.[31]

ATO to inform employees of under-payment or non-payment of SG

The SG Working Group recommended that the ATO should be able to advise employees (or ex-employees) that it has detected potential non-payment of SG entitlements by their employer (or former employer) and to disclose information on any compliance or recovery actions the ATO is or has taken (recommendation three).[32] This recommendation is implemented in Schedule 2 to the Bill.[33]

Expansion of single touch payroll reporting

Single touch payroll (STP) reporting, which commenced on 1 July 2018 for employers with 20 or more employees, requires employers to report payroll and superannuation information to the ATO at each pay cycle through STP capable accounting and payroll software.[34] The SG Working Group report states that:

[Single touch payroll] has the potential to significantly improve the visibility of superannuation guarantee obligations. It brings with it the potential for substantially improved data analysis to identify patterns of non-compliance and continue to reduce red tape for employers and build on natural business processes.[35]

The SG working group recommended that STP reporting be extended to all businesses regardless of the number of employees (recommendation one).[36] The proposed changes in Schedule 3 of the Bill would extend STP reporting to all employers from 1 July 2019.

More frequent reporting of superannuation fund information

Superannuation fund providers are required to provide certain information about their members’ accounts to the ATO through member information statements, including contribution amounts, account balances and transfers.

The SG working group recommended that superannuation funds report more frequently (recommendation two).[37] Following this recommendation, the ATO is increasing the frequency in which superannuation funds need to provide member information statements from annual reporting to ‘events based’ reporting.[38] A key requirement of ‘events based’ reporting is that superannuation funds are required to report all superannuation contributions to the ATO when they are received.[39]

The changes in Schedule 4 make several amendments which are related to these reporting changes, including:

•       allowing the Commissioner to provide a grace period to superannuation providers to correct false or misleading information in relation to member information statements without applying penalties

•       removing the requirement for employers to report employee contributions, as they will now be provided more regularly from superannuation funds themselves and

•       removing a requirement for superannuation funds to lodge bi-annual statements for lost members.[40]

Enhancements to the Director Penalty Notice Regime

The SG Working Group recommended that enhancements should be made to the DPN regime to improve SG compliance and collection of SGC debts (recommendation four).[41] The SG working group identified a number of limitations of the DPN regime, including that directors can avoid personal liability by liquidating the company before the penalty is locked down.[42]

The SG Working group recommended that director penalties be locked down as soon as they are incurred in order to prevent this behaviour. This would reduce the amount of SGC that is irrecoverable due to corporate insolvency.[43] The proposed amendments in Schedule 5 of the Bill seek to implement this recommendation.

The SG Working Group also recommended changes to improve the recovery of SGC debts by enhancing the Commissioner’s power to require a security deposit to cover an unpaid tax liability (recommendation four).[44] The Commissioner has the power under Division 255 of Schedule 1 of the TAA to require an entity to provide security (by way of bond or deposit) to cover the payment of an existing or future tax related liability where the Commissioner has reason to believe that an entity will be carrying on a business for a limited time only.[45]

The SG Working Group noted that compliance with security deposit directions is low because the maximum penalty is often small compared to the potential unpaid SGC amount that the ATO is seeking to secure.[46] Currently the maximum penalty for failing to provide a security deposit is 100 penalty units.[47]

The changes proposed in Schedule 5 will provide the Commissioner with the ability to seek a court order to compel an entity to provide a security deposit.

Committee consideration

Senate Economics Legislation Committee

The Bill was referred to the Senate Economics Legislation Committee (the Economics Committee) for inquiry and report by 13 June 2018. Details of the inquiry are at the Inquiry homepage. The Economics Committee final report recommended passage of the Bill.[48] The Australian Labor Party (ALP) senators on the Economics Committee indicated their support for the Bill but stated in their additional comments that the measures do not do enough to address the SG Gap:

Labor Senators note the general support for these schedules but note that they will not close the entire superannuation guarantee (SG) gap.[49]

Senator Peter Whish-Wilson of the Australian Greens (the Greens) also indicated support for the passage of the Bill but argued that the minimum income threshold of $450 for the SG should be removed and SG payments should be moved from the current quarterly timing to either monthly or in line with regular pay cycles, whichever is more frequent.[50]

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 Report of 9 May 2018.[51] Most notably, the Scrutiny Committee raised concerns that the Bill creates a number of new strict and absolute liability offences:

•       proposed subsection 265-95(1) of the TAA at item 1 of Schedule 1 of the Bill creates a strict liability offence for failing to comply with a direction of the Commissioner to pay an amount of SGC[52]

•       proposed section 255-120 of the TAA at item 1 of Schedule 5 of the Bill creates a strict liability offence for failing to comply with a Federal Court order to provide security under section 255-100 of the TAA[53]

•       item 3 of Schedule 1 of the Bill amends section 8C of the TAA to make failure to comply with an education direction under proposed section 384-15 an absolute liability offence.[54]

These offences may result in a term of imprisonment of up to 12 months. The Scrutiny Committee reiterated its long standing view that is inappropriate to apply strict and absolute liability to offences if a period of imprisonment may be imposed[55] and noted that it is inconsistent with principles in the Guide to Framing Commonwealth Offences, which states that application of strict or absolute liability to all physical elements of an offence is generally only considered appropriate in circumstances where the offence is not punishable by imprisonment.[56] The Scrutiny Committee sought further justification from the Minister for creating both strict and absolute liability offences.[57]

Minister’s response

Minister O’Dwyer’s response published on 20 June 2017, addressed these issues by further elaborating on the intent of the provisions in question.[58]

In respect of proposed subsection 265-95(1) the Minister stated that a strict liability offence is justified because directions to pay the SGC will only apply to:

…a narrow subset of employers with serious contraventions of their obligations to pay superannuation guarantee liabilities as required by law and whose actions are consistent with an ongoing and intentional disregard of those obligations.[59]

Further the potential penalty of up to 12 months imprisonment would only apply to an employer that has continuously failed to pay their superannuation guarantee liability.[60] The Minister also stated that the penalty is specifically defined to provide a strong deterrent to repeat offenders.[61]

In respect of proposed section 255-120 the Minister’s response stated that the strict liability offence is appropriate because a court order can only be issued to a person who has already committed an offence by failing to comply with a Tax Commissioner’s direction to provide a security deposit.[62] The Minister also noted the intended deterrence effect of the strong penalty.[63]

In respect of the expansion of the absolute liability offence at section 8C of the TAA to cover failure to comply with an education direction under proposed section 384-15, the Minister’s response states that a penalty of imprisonment can only be applied to third or subsequent offences.[64]

Policy position of non-government parties/independents

The ALP supports the Bill. In his second reading speech the Shadow Assistant Treasurer, Dr Andrew Leigh, stated:

Labor supports the measures in this bill. They will go part of the way towards addressing the significant problem of unpaid superannuation in this country.[65]

Senator Whish-Wilson of the Greens indicated in his additional comments to the Economics Committee report that the Greens support the Bill, but sought additional amendments to SG legislation to remove the minimum income threshold for payment of SG and require superannuation payments by employers to be made more frequently.[66]

Position of major interest groups

A number of stakeholders made submissions to the Economics Committee’s inquiry into the Bill. These submissions are summarised on pages 19 to 33 of the Economic Committee’s final report.[67] Generally stakeholders were supportive of the measures in the Bill, however, some employer representatives considered that the penalties in the Bill are too harsh.

The National Retailers’ Association (NRA), for example, argues that some of the penalties (particularly imprisonment) in the Bill are excessive and their application constitutes an inappropriate reversal of the burden of proof:

NRA has concerns that the creation of additional avenues by which penalties may be imposed on employers is excessive and, in the terms contemplated, contrary to sound legislative and legal principles.[68]

…

It is irrelevant to a prosecution under section 265-95 [the proposed directions power] if a person is in fact innocent at law from any liability to pay the amount to which the direction relates, but for the direction itself. As such, the offence created in subsection 265-95(1) offends the presumption of innocence.[69]

Financial implications

Schedules 1 to 6 of the Bill which implement the proposed SG integrity measures are expected to reduce the fiscal balance by $0.5 million over the 2018-19 Budget forward estimates period.[70]

Schedules 7 and 8 are expected to have nil financial impact.[71]

Schedule 9 is expected to reduce the fiscal balance by $1.1 million over the Budget forward estimates period.[72]

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.[73]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights (the PJCHR) considered the Bill in its Scrutiny Report of 8 May 2018.  The PJCHR raised similar concerns as the Scrutiny Committee about the suitability of strict and absolute liability offences created by the Bill, arguing that they engage and limit the presumption of innocence.[74] After considering the Minister’s response to its concerns, the Committee considered that the offences were likely to be compatible with the presumption of innocence.[75]

Key issues and provisions

Schedule 1 – Direction powers

Part 1 – Direction to pay superannuation guarantee charge

Item 1 inserts proposed Subdivision 265-C to Schedule 1 to the TAA which:

•       introduces a new power for the Commissioner to give a direction to an employer to pay an amount of SGC and

•       introduces penalties for failing to comply with such a direction within the required timeframe.

Directions

Proposed subsection 265-90 introduces the new directions power. The directions power allows the Commissioner to give a written direction to an employer to pay an amount of SGC for a particular quarter.

In deciding whether to give a direction the Commissioner must have regard to the matters at proposed subsection 265-90(2), namely:

•       the employer’s history of compliance with the requirement to pay the SGC and compliance with any other tax laws

•       whether the amount of unpaid SGC is substantial having regard to the size and nature of the business

•       any steps the employer has made to pay the unpaid SG amount and

•       any other matter the Commissioner considers relevant.

Although not explicit in the provisions of the Bill, the Explanatory Memorandum to the Bill states that the reason that the Commissioner must have regard to these matters is:

It is intended that the Commissioner only issue directions in relation to serious contraventions [emphasis added] of the obligations to pay superannuation guarantee related liabilities by employers whose actions are consistent with an ongoing and intentional disregard of those obligations.[76]

The direction must include certain information, including the amount of SGC to be paid and the due date for the payment. The direction must give the employer at least 21 days to pay the SGC liability (proposed subsection 265-90(3)), however the Commissioner may specify a longer timeframe.[77]

Proposed section 265-100 provides that the Commissioner may vary or revoke a direction. The Commissioner may vary a direction by reducing the amount that the employer is required to pay or by extending the period for payment. The direction may only be varied in a way that is beneficial to the employer.[78] A decision by the Commissioner to vary or revoke a decision does not affect the employer’s SGC liability (subsection 265-100(2)).

Offence and Penalties

Proposed section 265-95 creates a new offence for not complying with a Commissioner’s direction to pay a SGC amount before the specified due date. The maximum penalty for the offence is 50 penalty units ($10,500) or 12 month imprisonment, or both.

The offence is an offence of strict liability (proposed subsection 265-95(2)). This means that fault does not need to be established, it is sufficient that the employer failed to pay the outstanding amount within the timeframe required by the direction.[79]

An offence is not committed if the employer can demonstrate that they took all reasonable steps to comply with the direction and to discharge the liability before the direction was given (proposed subsection 265-95(3)).

The Explanatory Memorandum to the Bill explains that the purpose of this defence is to ensure that employers are not subject to criminal charges if they are genuinely unable to meet their SG liabilities. The employer has the evidential burden of proof to show that this defence is available to them.[80]

Objections

Proposed section 265-110 allows the employer to lodge an objection to the Commissioner’s decision to give a direction. Objections are dealt with under Part IVC of the TAA. The objection must be made within the time period specified by the direction.

Proposed section 265-115 provides that if an objection is made, the period for complying with the direction is automatically extended. In effect the determination period is frozen for the time that it takes for the objection to be considered.[81] So for example, if the direction period was 21 days and the employer lodged an objection on day 10, the period would be frozen while the matter was being considered and the employer would still have 11 days to comply with the direction in the event the objection was denied.

Part 2 – Education directions

Item 4 inserts proposed Division 384 into Schedule 1 to the TAA, which introduces a new power for the Commissioner to direct an employer who has failed to comply with their SG obligations to undertake a specified course of education.

Directions

Proposed section 384-10 details the circumstances under which the Commissioner can issue an education direction in relation to a SGC liability. These include:

•       failure to pay an amount of SG-related liability

•       failure to comply with an obligation to give a statement or information to the Commissioner under the Superannuation Guarantee (Administration) Act 1992 (SGAA)

•       failure to keep necessary records under the SGAA and

•       failure to comply with an obligation under the TAA that relates to the SGAA.

Proposed section 384-15 states that Commissioner can give an education direction to an employer that requires the employer (if they are an individual) or any individual who makes decisions that affect the whole or a substantial part of the employer’s business to undertake a specified approved course of education.

It is generally expected that an education direction would be issued to an employer where a lack of knowledge of their SG obligations has contributed to their failure to comply with those obligations.[82]

The Commissioner can revoke or vary a direction on their own initiative (proposed section 384-30) or following the written request of the employer. If the Commissioner does not make a determination on the request within 28 days the request will be taken to have been refused (proposed section 384-35).

Offence and Penalties

Section 8C of the TAA provides that non-compliance with specified obligations and provisions of the taxation law is an absolute liability offence.[83] Item 3 of Schedule 1 amends section 8C to add a failure to comply with an education direction in accordance with proposed subsection 384-15(3) to the list of specified provisions. This means that failure to comply with an education direction will be an absolute liability offence. The maximum penalty for a first offence under section 8C is 20 penalty units ($4,200). The penalties increase for second and subsequent offences. For a second offence a monetary penalty of up to 40 penalty units ($8,400) applies, for third or subsequent offence the penalty can be up to 50 penalty units ($10,500) or up to 12 months imprisonment.[84]

Course of education

Proposed section 384-20 provides that the Commissioner can approve one or more courses for the purposes of complying with an education direction. An entity providing an education course can charge fees for the course but not so much as to amount to taxation (that is, the fees should reflect the costs of providing the course) (proposed section 384-25).

Objections

Proposed section 384-40 allows the employer to lodge an objection under Part IVC of the TAA to the Commissioner’s decision to give an education direction. The objection must be made within the time period specified by the direction.

Schedule 2 – Disclosure of information about non-compliance

Section 355-25 of Schedule 1 of the TAA makes it an offence for an officer of the ATO to make a record of protected information or to disclose protected information to another entity, except in certain prescribed circumstances. One set of prescribed circumstances, set out at section 355-65, deals with disclosures for other government purposes.

Schedule 2 of the Bill amends the TAA to permit an officer of the ATO to disclose certain information to an employee where it relates to a failure, or suspected failure, of their employer to pay their superannuation guarantee entitlement.

Item 2 amends the prescribed circumstances at subsection 355-65(3) of Schedule 1 of the TAA to allow protected information that relates to the following matters to be disclosed to an employee:

•       the failure or suspected failure of their employer or former employer to comply with their superannuation guarantee obligations in relation to the employee

•       any actions that the Commissioner has taken in relation to such a failure or suspected failure.

This does not include information about the general financial affairs of the employer.

The amendments are intended to supplement the existing law that allows the Commissioner to disclose certain protected information if it is the employee who initiates the complaint to the Commissioner about their employer’s failure to comply with their SG obligations (rather than the ATO).[85]

Schedule 3 –Single touch payroll reporting

Part 1 of Schedule 3 extends single touch payroll (STP) reporting to all employers, including those with 19 or fewer employees. Currently under subsection 389-5(1) of Schedule 1 to the TAA only ‘substantial employers’ are required to report through STP.

‘Substantial employer’ is defined at subsection 389-5(6) of Schedule 1 to the TAA as an employer that had 20 or more employees as at 1 April 2018 or an employer that is part of a wholly owned group that had 20 or more employees as at 1 April 2018.

Item 6 amends subsection 389-5(1) of Schedule 1 to the TAA to remove the reference to substantial employers, so that STP applies to all employers regardless of how many employees they have.

Item 7 repeals the definition of substantial employer at subsection 389-5(6).

The Explanatory Memorandum states that the reason for expanding STP to all employers is to:

improve the Commissioner’s ability to monitor superannuation guarantee compliance by increasing the visibility of non-payments by all employers.[86]

Item 10 provides that employers with 20 or more employees still need to comply with STP from 1 July 2018 (as currently provided) and employers with fewer employees will need to comply from 1 July 2019.

Part 2 of Schedule 3 further extends STP by requiring that in addition to reporting salary, wage and ordinary time earnings amounts to the ATO, employers must also report information on employee payments that have been salary-sacrificed into a superannuation account.

This is intended to complement the measures contained in the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 to provide that amounts salary sacrificed into a superannuation fund cannot be counted towards an employer’s mandatory SG contributions.[87]

The amounts that are required to be reported to the Commissioner are specified at the table in subsection 389-5(1) of Schedule 1 to the TAA. Item 14 repeals the existing requirement to report the salary, wages and ordinary time earnings of an employee and replaces it with a requirement to report an employee’s:

•       ordinary time earnings

•       salary and wages and

•       an amount that would have been paid to the employee as either ordinary time earnings or salary and wages had it not been salary sacrificed into superannuation.

Item 16 provides that the requirement to report salary sacrificed amounts commences from the quarter after Part 2 of Schedule 3 commences.

Schedule 4 – Fund Reporting

Part 1 – Grace periods for superannuation funds

Part 1 of Schedule 4 amends the TAA to allow the Commissioner to provide a grace period to superannuation fund providers to correct false or misleading statements in relation to member information statements.

Various penalty provisions currently exist in the TAA for making false or misleading statements including:

•       Subsection 8K(1) of the TAA makes it an offence to make false or misleading statements to an officer of the ATO. Subsection 8K(1B) of the TAA makes it offence to make a statement that is misleading because of a material omission.

–      The potential penalty for an offence under subsections 8K(1) and (1B) is a fine of up to 20 penalty units ($4,200) for a first offence and up to 40 penalty units ($8,400) if the offender has previously been convicted of another relevant offence.[88]

•       Subsection 8N(1) of the TAA makes it an offence to make a false or misleading statement due to recklessness.

–      The potential penalty for an offence under subsection 8N(1) is a fine of up to 30 penalty units ($6,300) for a first offence and up to 50 penalty units ($10,500) or imprisonment for up to 12 months (or both) if the offender has previously been convicted of another relevant offence.[89]

•       Subsection 284-75(1) of Schedule 1 to the TAA applies an administrative penalty if an entity makes a false or misleading statement (including by omission) to the Commissioner or to another entity that is exercising power or performing functions under a taxation law . Various penalties are provided depending on whether the statement resulted in a shortfall in the amount of tax payable. Penalties range from 20 penalty units to 75 per cent of the shortfall amount.[90]

Item 5 inserts section 390-7 into Schedule 1 to the TAA which allows the Commissioner to provide a grace period in which a superannuation fund can correct a misleading statement and not be subject to one of the penalties outlined above. The Commissioner may determine the length of the grace period that applies to a particular superannuation provider or, by legislative instrument, the length of a grace period that applies to a class of superannuation providers.

Part 2 – employer reporting of superannuation contributions

Part 2 of Schedule 4 amends the TAA to remove the requirement for employers to report member contributions. Under events based reporting superannuation funds are now required to disclose superannuation fund contributions.

Part 3 – Statements for lost members

Part 3 of Schedule 4 amends the SUMLMA to remove the requirement for superannuation funds to report twice annually on lost superannuation of members to the ATO for the purposes of the Commissioner maintaining a register of lost members. Instead the Commissioner will be able to request such information using their power under 390-5 of Schedule 1 of the TAA.[91] The changes do not apply in relation to information that superannuation funds were required to provide from any six month period prior to 1 January 2018 (item 16).

Schedule 5 – Compliance Measures

Schedule 5 of the Bill makes proposed amendments to penalties that apply to Directors who fail to meet their SG obligations and provides for the Commissioner to seek a court order requiring an employer to provide a security deposit over an unpaid tax or superannuation liability.

Part 1 – Penalties relating to estimates

Division 268 of Schedule 1 of the TAA provides that the Commissioner can make an estimate of unpaid PAYG withholding amounts or unpaid SGC amounts. The company to which the estimate relates is under an obligation to pay the estimated liability from the date that the estimate is issued. This may be long after the underlying SGC or PAYG withholding amount was due.

Division 269 imposes an obligation on directors to either ensure that the company pays amounts due for the SGC or unpaid PAYG withholding amounts, or for estimates of these amounts under Division 268, or goes promptly into voluntary administration or liquidation. A failure by a director to comply with this duty is punishable by a penalty.

However, under section 269-10 the time at which the director’s obligation to ensure the company pays the unpaid SGC or PAYG withholding amounts arises differs from the time at which the director’s obligation to ensure the company pays the Division 268 estimate arises. The timing difference can be exploited by company directors to avoid paying the liability.

Item 3 of Part 1 of Schedule 5 amends section 269-10 to change the date at which a director commences being under an obligation to ensure that the company complies with its obligations in respect of an estimate under Division 268 (the ‘initial day’) to back date it to the day that the underlying SGC or PAYG amount was due, this is regardless of when the Commissioner issues the estimate of the unpaid amount.

Proposed subparagraph 269-10 (5)(b) amends the initial day for an estimated SGC amount. The initial day is the end of the quarter to which the SGC liability relates.

Proposed subparagraph 269-10(5)(a) amends the initial day for an estimated unpaid PAYG withholding liability to reflect the due date for remitting PAYG withholding amounts to the ATO. The due date for PAYG withholding amounts varies based on whether the company is a large, medium or small withholder as defined by subsections 16-95, 16-100 and 16-105 of the TAA respectively. Typically smaller withholders have longer to remit PAYG withholding amounts to the ATO.

Item 4 inserts proposed subparagraph 269-15(2A)(a) to make certain that a liability to pay a director penalty which is based on an estimate applies even if the underlying liability never existed or has been discharged in full. Proposed subparagraph 269-15(2A)(b) makes certain that a director penalty applies even if it is larger than the underlying liability.

Part 2 – Director Penalties

A director of a company will stop being under the obligation under Division 269 if the company pays the relevant due amount, an administrator is appointed or the company is wound up.[92] Subsection 269-30(1) provides that a director penalty under Division 269 is remitted if a director stops being under a relevant obligation either before the director penalty notice is given to them, or within 21 days of being given the notice. However, the table at subsection 269-30(2) outlines the circumstances in which appointing an administrator or winding up a company will not result in remission of a director penalty. Currently director penalties relating to unpaid PAYG withholding amounts or SGC amounts are not eligible to be remitted if three months has passed since the due date for those amounts.

The changes proposed at Part 2 of Schedule 5 of the Bill remove the current three month period before a director penalty is ‘locked down’, removing the ability for a director penalty to be remitted by putting the company into voluntary administration or insolvency in this period.

The current due date for SGC amounts is one month and 28 days after the end of the quarter to which the underlying SG amount relates. The three month period applies in addition to this, providing a total period of four months and 28 days in which the director penalty amount is not locked down.[93]

The changes in Schedule 2 remove this three month period for unpaid SGC amounts and estimated unpaid SG amounts, so that director penalties are locked down on the day that the unpaid SGC amount is due (one month and 28 days after the end of the quarter). The three month period would still apply to unpaid or estimated unpaid PAYG withholding amounts.

Transitional provisions

Subitem 13(a) provides that the changes only apply to SGC amounts that first become payable on or after 1 July 2018. Subitem 13(b) provides that the changes only apply to estimated SGC amounts where the estimate was made after 1 July 2018 regardless of when the underlying SG liability arose.

Part 3 – Orders to provide security

Currently, the Commissioner can require an enterprise to provide security in respect of an existing or future tax liability if the Commissioner believes that the entity will be carrying on a business in Australia for a limited period of time.[94] Security may be provided by way of a bond, deposit or any other means the Commissioner considers appropriate.[95] It is offence to fail to comply with a direction to provide security, subject to a penalty of 100 penalty units.[96]

The changes proposed at Part 3 of Schedule 5 would allow the Commissioner to apply to the Federal Court to order a company to provide security in support of an unpaid tax liability.

Item 14 adds proposed subsection 255-115(1) to Schedule 1 of the TAA to provide that the Federal Court may order an individual to provide security.

Item 14 also adds proposed section 255-120 which makes it an offence to fail to comply with a court order to provide security. The offence would be subject to a maximum penalty of 50 penalty units, 12 months’ imprisonment or both.

Schedule 6 – Amendments relating to employee commencement

Schedule 6 contains amendments to provide for the pre-filling of an employee’s tax file number (TFN), withholding and superannuation fund choice information when an individual commences with a new employer.

Item 1 amends section 202CG of the ITAA36 to allow a taxation officer to disclose TFN information to an employer if the employee made a TFN declaration in relation to that employer.

Item 2 provides that the amendment applies to a TFN declaration made on or after 1 July 2018.

Item 3 amends subsection 355-50(2) of the TAA to allow a taxation officer to provide certain protected information to an employer for the purposes of arranging income tax withholding for an employee.

Item 4 amends subsection 355-65(3) of the TAA to allow a taxation officer to provide information to an employer for the purposes of assisting an employee to choose whether to maintain their existing superannuation fund or create a new superannuation account.

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[1].              At the time of writing, the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2018 has passed the House of Representatives and is before the Senate.

[2].              Australian Taxation Office (ATO), ‘Super for employers’, ATO website.

[3].              Section 19 of the Superannuation Guarantee (Administration) Act 1992.

[4].              ATO, ‘Working out if you have to pay super’, ATO website.

[5].              ATO, ‘Super for employers -claiming a tax deduction’, ATO website.

[6].              ATO, ‘The super guarantee charge (SGC)’, ATO website.

[7].              Explanatory Memorandum, Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018, p. 8. 

[8].              ATO, ‘Penalties, amendments and objections’, ATO website; ATO, ‘General interest charge (GIC) rates’, ATO website.

[9].              Part 7 of the Superannuation Guarantee (Administration) Act 1992.

[10].              ATO, ‘Recovering Director Penalties,’ ATO website.

[11].              Explanatory Memorandum, op. cit., p. 73.

[12].              Ibid.

[13].              Ibid. Subsection 269-30(2) of Schedule 1 to the TAA.

[14].              Ibid.

[15].              Superannuation Guarantee Cross Agency Working Group, Superannuation Guarantee Non-compliance, Final Report, 14 July 2017.

[16].              Senate Economics References Committee, ‘Superbad – Wage theft and non-compliance of the Superannuation Guarantee’ The Senate, Canberra, 2 May 2017, p. ix.

[17].              Ibid., p. x.

[18].              Ibid., p. xi.

[19].              ATO, ‘ATO releases Super Guarantee gap estimate’, media release, 29 August 2017.

[20].              Ibid.

[21].              Superannuation Guarantee Cross Agency Working Group, op. cit.

[22].              Ibid., p. 34.

[23].              Ibid., p. 35.

[24].              Ibid., p. 34.

[25].              Ibid., p. 35.

[26].              Ibid., pp. 8-11.

[27].              K O’Dwyer (Minister for Revenue and Financial Services), Protecting workers’ superannuation, media release, 28 March 2018.

[28].              Superannuation Guarantee Cross Agency Working Group, op. cit., p. 44.

[29].              Explanatory Memorandum, op. cit., p. 7.

[30].              Ibid., p. 13.

[31].              Ibid.

[32].              Superannuation Guarantee Cross Agency Working Group, op. cit. p. 25.

[33].              Explanatory Memorandum, op. cit., p. 32.

[34].              ATO, Single Touch Payroll Fact Sheet, March 2018, pp. 1-2.

[35].              Superannuation Guarantee Cross Agency Working Group, op. cit., p. 17.

[36].              Ibid., pp. 22-23.

[37].              Ibid., p. 22.

[38].              Explanatory Memorandum, op. cit., p. 64.

[39].              Superannuation Guarantee Cross Agency Working Group, op. cit., p. 24.

[40].              Explanatory Memorandum, op. cit., p. 63.

[41].              Superannuation Guarantee Cross Agency Working Group, op. cit., p. 34.

[42].              Ibid., p. 37.

[43].              Ibid., p. 38.

[44].              Superannuation Guarantee Cross Agency Working Group, op. cit., p. 34.

[45].              Ibid., p. 38.

[46].              Ibid.

[47].              Section 255-110 of the TAA. Section 4AA of the Crimes Act 1914 provides that a penalty unit is currently equal to $210. As a result the maximum pecuniary penalty is currently $21,000.

[48].              Senate Standing Committee on Economics, Inquiry into the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 [Provisions], The Senate, Canberra, 13 June 2018, p. 34.

[49].              Ibid., p. 35.

[50].              Ibid., p. 51.

[51].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest, 5, 2018, the Senate, 9 May 2018, pp. 56-63.

[52].              Ibid., p. 57. If strict liability applies to an offence there are no fault elements for any physical element of the offence, but the defence of mistake of fact is available: sections 6.1 and 9.2 of the Criminal Code Act 1995.

[53].              Ibid.

[54].              Ibid., pp. 58-60. If absolute liability applies to an offence there are no fault elements for any physical element of the offence and the defence of mistake of fact is not available: section 6.1 of the Criminal Code Act 1995.

[55].              Ibid., pp. 57-58.

[56].              Attorney-General's Department, 'A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers', September 2011, p. 23.

[57].              Senate Standing Committee for the Scrutiny of Bills, op. cit., p. 58.

[58].              Senate Standing Committee for the Scrutiny of Bills, Minister’s response, Scrutiny Digest, 5, 2018, 20 June 2018, p. 10.

[59].              Ibid., p. 10.

[60].              Ibid., p. 11.

[61].              Ibid.

[62].              Ibid., p. 12.

[63].              Ibid.

[64].              Ibid., p. 16. See subsection 8E(3) of the TAA.

[65].              A Leigh, ‘Second reading speech: Treasury Laws Amendment (2018 Measures No. 4) Bill 2018’, House of Representatives, Debates, 25 June 2018, p. 31.

[66].              Senate Standing Committee on Economics, Inquiry into the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 [Provisions], op. cit., p. 51.

[67].              Ibid., pp. 19-33.

[68].              National Retailers Association, Submission to the Senate Economics Legislation Committee, Inquiry into the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018, [submission no. 3], 25 May 2018, p. 3.

[69].              Ibid., p. 5.

[70].              Explanatory Memorandum, op. cit., p. 3.

[71].              Ibid., pp. 4-5.

[72].              Ibid., p. 5-6.

[73].              The Statement of Compatibility with Human Rights can be found at pages 119 to 130 of the Explanatory Memorandum to the Bill.

[74].              Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 4, 2018, 8 May 2018, pp. 30-31.

[75].              Parliamentary Joint Committee on Human Rights, Scrutiny report, 6, 2018, 26 June 2018, pp. 91–96.

[76].              Explanatory Memorandum, op. cit., p. 13.

[77].              Ibid., p. 11.

[78].              Ibid., p. 17.

[79].              Ibid., p. 12.

[80].              Ibid., p. 14.

[81].              Ibid., p. 20.

[82].              Ibid., p. 22.

[83].              As discussed above, there are no fault elements for any physical element of an absolute liability offence and the defence of mistake of fact is not available: section 6.1 of the Criminal Code Act 1995.

[84].              Section 8E of the Taxation Administration Act 1953.

[85].              Explanatory Memorandum, p. 33.

[86].              Explanatory Memorandum, op. cit., p. 39.

[87].              Ibid., p. 40. At the time of writing, the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 is before the Senate. Further information on this Bill is available from: P Pyburne, Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017, Bills Digest,51, 2017-18, 12 November 2017.

[88].              Section 8M of the TAA.

[89].              Section 8R of the TAA.

[90].              Section 284-85 of Schedule 1 to the TAA.

[91].              Explanatory Memorandum, op. cit., p. 64.

[92].              Subsection 269-15(2) of Schedule 1 to the TAA.

[93].              Explanatory Memorandum, op. cit., p. 81.

[94].              Taxation Administration Act 1953, Schedule 1, subsection 255-100(1).

[95].              Ibid., subsection 255-100(2).

[96].              Ibid., section 255-110.