RE: Submission on Superannuation Legislation Amendment Bill No 3 1999
This is the submission of the Australian Society of Certified Practising
Accountants' (ASCPA) prepared by the Superannuation Centre of Excellence,
chaired by Murray Wyatt, to the Senate Economics Committee in regard to
Superannuation Legislation Amendment Bill (No.3) 1999. We appreciate
the ability to make comment on this bill but are concerned about the very
short time frame of three days to make comment on complicated legislation.
General Comment on Superannuation Amendment Bill No 3 1999
The ASCPA continues to have grave reservations about this bill. The proposal
to shift regulatory authority of self-managed funds (SMFs) to the Australian
Taxation Office (ATO) is fundamentally “anti-Wallis” (despite
the recommendation flowing from the Financial Service Inquiry). This proposal
contradicts the spirit of “regulatory consistency” and “competitive
neutrality” that was at the heart of the Wallis reforms. Instead
of reducing the number of superannuation regulators, this proposal introduces
a third regulator into the superannuation arena and has the potential
to create an inconsistent and uneven playing field. It magnifies the complexity
of superannuation legislation by creating jurisdiction for three regulators
when only eleven months ago there was only one administering the Superannuation
Industry (Supervision) Act (SIS).
These changes may have arisen due to the preferences among regulators
than having any sound policy basis. The transition to the ATO also raises
serious concerns behind the real intent of these changes, be they a more
aggressive enforcement policy by the ATO (with its concomitant objective
to raise revenue) or a desire to “rationalise” the superannuation
industry by effectively reducing the number of small superannuation funds.
It is questionable the degree to which the changes proposed in this bill
actually subject self-managed funds to ”minimal prudential regulation”
as stated in the 12 May 1998 Budget Night announcement. The draft legislation
effectively maintains the legislative regime excluded funds are currently
subject to.
It is noted, however, the bill does improve upon the 12 May 1998 announcement
and the previous Exposure Draft of the trustee rules for self-managed
funds, though further change would prove beneficial to trustees and their
advisers.
Specific Comments and Recommendations on Superannuation Amendment Bill
No 3 1999Schedule 1, Item 2
Comments
The nine month change over time frame for trustees to nominate their
preferred jurisdiction is too short and does not reflect the reality of
how small fund trustees, their accountants and other adviser organise
their work. Often, excluded superannuation fund trustees only make active
decisions on an annual basis.
Recommendation
The date “1 April 2000” in (2) should be replaced with either
“1 April 2001” or a later date.
Schedule 1, Item 10
Comments
There does not appear to be a clear delineation of the duties between
the ATO and Australian Prudential Regulatory Authority (APRA). Phrases
such as "to the extent that administration is not conferred on the
Commissioner of Taxation" are vague and open ended.
The wording of the explanatory memorandum suggests that the Australian
Securities and Investments Commission (ASIC) does have a role. With the
definition of SMF that has been adopted and the reasons behind it, it
is difficult to envisage what role ASIC would have in the regulation of
these funds.
Recommendation
Any Memorandum of Understanding between the ATO and APRA should be
made publicly available.
As well any role that ASIC might play in the regulation of SMFs needs
to be clarified.
Schedule 1, Item 14
Comments
Making the ATO and APRA to be responsible, for a fund's past activities
particularly when the fund may have been under a different jurisdiction
at the time, is problematic. There is a strong possibility of a retrospective
effect could be made where the opinion of one regulator differs from the
opinion of the other regulator.
Recommendations
Add at the end of sec 6(4)(a)(ii) “where on the last day of a
year of income, that entity was subject to regulation by APRA.”
Add at the end of sec 6(4)(b)(ii) “where on the last day of a
year of income, that entity was subject to regulation by the Commissioner
of Taxation.”
Schedule 1, Item 22
Comments
There is a serious question whether it is worthwhile for the linkage
test to be continuous. It seems unfair that fund trustee/members may be
adversely affected through circumstances such as death where a link is
broken. As well, given the wide definition of “relative” there
should have also been consideration of inclusion of “same sex partners”,
keeping with the spirit of the Superannuation (Entitlements of Same
Sex Partners) Bill currently before parliament.
Use of the term “each other” in 17A(1)(e) is ambiguous and
could lead to an interpretation that all members need to be linked to
all other members.
Recommendations
Section 17A(1)(e) should be rewritten as follows:
“each member of the fund is linked to another member of the fund
at the time at which the fund came into existence.”
Comments
It would seem inconsistent that 17A(2) permits there to be linked trustees
in the instance of a single person fund but does not permit this in a
multi-member fund.
Recommendation
There should be consideration of other times when there should be
linkages between trustees (rather than members alone) may be needed. It
should also be considered that not all linked, non arm's length members
should be forced to be trustees.
Comments
Subsection (3) and subsection (8) of the new section 17A requires a trustee
who is a disqualified person to either appoint an approved trustee or
wind up a fund. We feel this is onerous upon such individuals, who may
wish to use a legal personal representative.
There is another very problematic situation with a disqualified person.
A disqualified person has 6 months to appoint an approved trustee or wind
up the fund. If the person dies during this period, then subsection (8)
might be read as to not permit their legal personal representative to
act as a trustee. This means that fund would have to come under an approved
trustee (at considerable cost) even though the disqualified person is
now dead and unlikely to unduly influence the legal personal representatives'
actions!
Recommendation
Section 17A (8) should be rewritten as follows:
“For the avoidance of confusion, subsection (3) does not permit
a person, in the capacity of a legal personal representative of a disqualified
person (within the meaning of section 120) to be a trustee of a self managed
superannuation fund, during the period in which the disqualified person
is under a legal disability. A legal personal representative may act as
a trustee in an instance where a disqualified person has died and an approved
trustee has not yet been appointed in accordance with subsection (4).”
Schedule 1, Item 39
The Budget night announcements also indicated that:
"Some existing excluded superannuation funds may not meet the proposed
new definition. In these circumstances they will either need to restructure
to meet the definition or use an approved trustee and be regulated by
the Australian Prudential Regulation Authority (APRA). Importantly, where
such funds employ an approved trustee they will continue to be able to
take advantage of member-directed investment."
While the amendment to section 58 of SIS does permit member-nominated
investments by both SMFs and small APRA regulated funds, there is still
no provision for member-directed investments.
Schedule 1, Item 44
Comments
Despite the improvement with the new Item 38, which links initial notification
to be a SMF with the election to become a regulated fund, we have very
strong reservation about the usefulness of this provision and question
why the ATO would need such notification within a 21-day period.
Such information could be regularly collected when the trustee lodges
an annual return. As well, the ATO has substantial powers under the proposed
s252A to request information on trustees to clarify the fund's status.
This provision will only generate needless paperwork for both the ATO
and trustees. Given the administrative cycle of most excluded funds, we
suspect that the “hit rate” for s106A notifications could be
low anyways and that the ATO will end up relying on information collected
with annual returns and information provided in relation to s252A notices.
Recommendations
The new wording for Section 106A should be as follows:
Trustee's duty to notify Commissioner of Taxation
(1) the trustee of a superannuation fund notify the Commissioner of
Taxation if the trustee:
(a) has knowledge that the superannuation fund has ceased to be a
self managed fund: or
(b) has knowledge that the superannuation fund has become a self managed
fund.
Timing of notice
Notification under subsection (1) must be given when the trustee lodges
their annual return with the Commissioner of Taxation.”
or
Delete Item 43 altogether and merely prescribe notification of self
managed fund / non-self managed fund status on the annual returns made
to APRA and the Commissioner of Taxation.
Schedule 1, Item 55
Comments
SMFs are unable to receive payment the Financial Institutions Assistance
Levy legislation, given the amendment to s228. Yet they are still potentially
subject to levy, given there is no amendment being considered to the Superannuation
(Financial Assistance Funding) Levy Act 1993.
This is unfair in that SMFs could be called up to pay a levy to support
the members of a collapsed non-SMF fund but they could not receive the
benefit of this provision themselves.
It also seems somewhat contradictory to SMFs not needing prudential supervision
(and thus not a factor for ensuring systemic stability) and yet still
potentially subject to this levy.
Recommendation
Amendments should be made to the Superannuation (Financial Assistance
Funding) Levy Act 1993 to exclude SMFs from the levy scheme.
Schedule 2, Item 10
Comments
The Budget night announcement was quite clear that the annual return
lodgement levy for an SMF would be less than $50. We understand that $200
is included to permit “flexibility” but it appears to open the
door to the levy rising rapidly, despite the Government assurances that
this burden would be lightened.
Recommendations
Remove “$200” and substitute “$50”.
Miscellaneous Issues
CGT relief
Capital Gains Tax (CGT) could be a serious problem for many funds as
they seek to restructure to comply with the new requirements. Such relief
has recently been considered to the managed fund industry to comply with
the Managed Investment s Act 1998.
Recommendations
Serious consideration be given to CGT relief for excluded funds wishing
to restructure to comply with the new SMF rules.
If you have any comments or questions on this submission, please feel
free to contact Brad Pragnell, Superannuation and Financial Planning Consultant,
Intellectual Capital, ASCPA on 02 9375 6282 (phone), 02 9375 6299 (fax)
or 0414 89 81 76 (mobile).
Yours sincerely,
Anne E. Molyneux FCPA
Director - Intellectual Capital