Chapter 2

Views on the bill

Schedule 1: Superannuation Guarantee amnesty

2.1        Most of the people and organisations who gave evidence to the inquiry supported the amnesty.

2.2        Organisations representing small businesses welcomed the amnesty as encouraging small businesses to come forward and do the right thing by their employees, and as a means of establishing a base of compliance for when the increased visibility, stronger enforcement and higher penalties in the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 come into operation.

2.3        Small business organisations also sought to emphasise that complying with the Superannuation Guarantee can be onerous. The Council of Small Business Australia (COSBOA), while recognising that the amnesty is 'a very obvious thing that needs to happen', argued that employers should be taken out of the process of collection of superannuation altogether, or at least paid for handling contributions.[1] Mr Strong of COSBOA emphasised the difficulty for an employer of dealing with several different funds, each of which demands that contributions made on their forms and in their way.[2]

2.4        Mr Dick Grozier of the Australian Council of Chamber and Industry, declared that the amnesty 'has a role to play in improving recovery of missed contributions', and noted that the new SuperStream arrangements had made continuing compliance easier, but suggested that setting up a new account is still a hurdle.[3] Ms Kate Carnell, the Australian Small Business and Family Ombudsman, also suggested that she was “very positive” about the amnesty, but observed that the complexity of the system and the lack of sophistication of many small businesses, some of which do not even use a computer, are barriers to compliance.[4]

2.5        Small business representatives argued that failure to comply was more often due to inadvertence due to other pressures on the business, or cash flow problems.[5] Several witnesses argued that the system made it difficult for a business to retrieve this situation. The associated charges mounted up so quickly that they became prohibitive.[6]

2.6        Several changes to the bill were suggested. ASFBEO suggested that the amnesty should take effect from the date the legislation was passed (rather than the date of introduction) to give businesses time to do the necessary preparation. Mr Grozier similarly emphasised the importance of speedy enactment.[7] ASFBEO also argued that the amnesty should last for the life of any payment plan negotiated with the ATO, recognising that many small businesses would not have the funds to make a single payment.[8]

2.7        The Tax Institute argued that the amnesty conditions should apply to all employers, including those whose shortfall is identified by the ATO and those who have come forward before the date of the amnesty.[9] Minter Ellison expressed concern that the amnesty does nothing for employers who did make SG payments but were later than the quarterly cut off points before the amnesty started. Such employers will be in a worse position than those who made no payments at all until the amnesty. Minter Ellison believes that the tax deductions allowed under the amnesty should be available retrospectively for employers who disclosed late payments.[10]

2.8        The Tax Institute raised concerns about the breadth of the term 'examination' by the ATO, and believes that employers may be uncertain as to whether they are entitled to the amnesty if they have had any contact with the ATO.[11] The Law Council of Australia expressed similar reservations about the term 'examine'.[12]

2.9        The importance of advertising the amnesty widely and through a variety of mediums was stressed by several submitters and witnesses.[13]

2.10      The amnesty was also welcomed by most superannuation organisations. The Association of Superannuation Funds of Australia believed that superannuation compliance was not particularly onerous, but that the amnesty might result in the recovery of some funds that would otherwise go unpaid.[14] The Financial Services Council believed that the amnesty would be taken up by employers who were inadvertently non-compliant or non-compliant for only a short period.[15]

2.11      Mr Matthew Linden of Industry Super Australia observed that amnesties are in fact rare in Australia. He noted that the evidence on tax amnesties is mixed, but that they work best in conjunction with sanctions, as this proposed amnesty is designed to. However, he believed that the existing penalty regime (that is, without the changed proposed in the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018) combined with the low probability of being detected meant that many employers would simply continue in non-compliance.[16]

2.12      Mr Linden also suggested that the introduction of Single Touch Payroll would have a much greater impact on compliance than the amnesty would. This point was also made by Mr Michael Potter of the Financial Services Council.[17]

2.13      The Australian Council of Trade Unions (ACTU) deplored the amnesty as sanctioning theft of workers' wages, suggesting that the bill would do nothing to help workers whose employers were insolvent.[18] Despite decrying the benefits accruing to employers who voluntarily rectify historical shortfalls under the terms of the amnesty, the ACTU also simultaneously asserted that the amnesty did not create an incentive for employers to pay unpaid superannuation. Take up would be low because there is so little risk of non-payment being detected.[19]

2.14       ACTU believed the amnesty should be scrapped in favour of more active enforcement and recovery. In particular, the ACTU suggests that unions should have more power to inspect payment records and to take action against employers who default and that superannuation should be included in the National Employment Standards in the Fair Work Act.[20]

2.15      Representatives of the Treasury and the ATO, alongside a number of other witnesses, emphasised the complementarity between the amnesty in this bill and the measures to improve visibility of superannuation payments and increase penalties for non- payment in the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018. It is intended that in combination the two sets of measures would result in behavioural change and a higher rate of compliance in the future.[21]

2.16      Treasury noted that amnesties in Australia are so rare that it is unlikely that the bill will create any expectation of future lenient treatment. This possibility had been discussed by Mr McCrea of the Association of Superannuation Funds of Australia and Mr Linden of Industry Super Australia.[22]

Committee view

2.17      The committee has heard evidence that the amnesty proposed in Schedule 1 will leave no workers worse off and will result in repayments of superannuation that would otherwise not be paid. It notes that the amount that will be collected, estimated at $230 million, whilst no doubt valuable for those employees who would otherwise miss out, does represent  a small part of the estimated total superannuation gap of almost $3 billion a year.

2.18      The committee believes that changes to the way superannuation is collected and remitted to date have simplified and improved the system, with further proposed changes set to continue this trend.

2.19      The committee is concerned that the ramping up of penalties may create a big disincentive for employers to disclose relatively minor shortfalls, with the result that they fall further into arrears. It suggests that it be made easier to correct shortfalls early, and more generally to come forward and rectify underpayments and non-payment.

2.20      Finally, the committee heard from a number of witnesses about the need to ensure that considerable effort is made in developing and implementing an extensive communication strategy to ensure all employers are aware of the amnesty and engage early.

Schedule 2: Multiple employers and the concessional contributions cap

2.21             Only a few submitters and witnesses addressed Schedule 2 of the bill. The SMSF Association supported the measure, noting that it will reduce a compliance burden on individuals who may exceed the cap.[23] The Financial Services Council also supports the measure.[24]

2.22      ACCI supported the measure. It pointed out that unavoidable breaches of the concessional contributions cap became more common with the reduction of the cap to $25 000 in 2017–18.[25] It welcomes the provision that the issuing of a certificate does not prevent an employer from making contributions, because some Single Touch Payroll will make it difficult for some payroll systems to make exceptions.[26] 

2.23      Some organisations representing superannuation funds expressed caution, warning that there should be no replication of the provision for opting out. The essence of the superannuation system is that it is compulsory.[27]

2.24      Dixon Advisory suggested that, in deciding whether to issue a certificate, the Commissioner should consider whether the employee will receive an offset for the superannuation that will not be paid if the employee opts out of SG payments. There should also be a mechanism for ensuring that the agreement is honoured. However, Dixon Advisory also noted that the employees involved will generally be in a good bargaining position.[28]

2.25      It was pointed out that this was a minor issue and that there was already provision for remedying a breach of the cap.[29] However, Mr Jeremenko of the Treasury argued that it was anomalous for a law to cause someone to breach another law, and this should be fixed.[30]

Schedule 3: Non-arm's length income rules

2.26      Few submitters and witnesses offered a view on Schedule 3 of the bill. It was supported, along with Schedule 4, as an integrity measure applying to SMSFs by Industry Super Australia.[31] Dixon Advisory welcomed the clarification of treatment of non-arm's length borrowing, suggesting that it would reduce disputes.[32]

2.27      However, the Tax Institute argued that the contributions rules are sufficient to deal with transactions that are not at arm's length, and values should be adjusted at the time an asset is acquired. It would be inappropriate to tax subsequent income and gains from the assets. Even if some action is required, the changes should be prospective only, as existing arrangements would be difficult to unwind. The Tax Institute argued that some grandfathering of existing arrangements should be allowed. It questions whether employer contributions could be seen to be not at arm's length. Further, the changes should be confined to expenses, and not include capital outlays.[33]

2.28      The Tax Institute also argued that the application of the non-arm's length principle to minor expenses could taint a much bigger transaction.[34]

2.29      Finally, the Tax Institute pointed out that trustees perform many tasks on behalf of their SMSF. It is not clear which of these tasks might constitute non-arm's length income.[35]

2.30      The Law Council of Australia also expresses concern about the retrospective application of the non-arm's length provisions to existing arrangements, which could affect quite large funds, not just SMSFs.[36]

Committee view

2.31      The committee welcomes the clarification of the non-arm's length provision to ensure that expenses are included in the definition.

2.32      It notes that Schedule 3 provides that the amendments apply in relation to income derived in the 2018–19 income year and later income years, that is, to future income. income only. The amendments will apply to income sources that were acquired before 1 July 2018, but, of course, only applies to non-arm’s length arrangements.

2.33      Schedule 4: Limited recourse borrowing arrangements

2.34      Very few submitters and witnesses addressed Schedule 4 of the bill.

2.35      The SMSF Association noted that the provisions regarding limited recourse borrowing arrangements would have narrower application than was originally suggested, and welcomed the change.[37]

2.36      The Tax Institute warned of a possible interaction between the non-arm's length provisions and the provisions regarding limited recourse borrowing arrangements, with double counting a possibility. It regarded contributions caps as an adequate existing measure for dealing with the issues.

Committee view

2.37      The committee welcomes the measure preventing borrowing as a way of inflating superannuation balances.

Recommendation 1

2.38      The committee recommends that the bill be passed.

Senator Jane Hume
Chair

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