Appendix 4
8 September 1999
Mr P Hallahan
Secretary
Senate Economics Legislation Committee
SG 64, Parliament House
CANBERRA ACT 2600
Fax (02) 6277 5719
Dear Mr Hallahan
Superannuation Contributions and Termination Payments Taxes Legislation
Amendment Bill 1999
When giving evidence before the Committee on Monday of last week, both
Senators Sherry and Watson raised with me issues to which I was requested
to respond to the Committee.
Inequitable basis of calculation
Senator Watson raised the issue of the actual disadvantage to defined
benefit fund members arising from surcharge being calculated on the basis
of defined benefits payable on retirement after a specified age, when
the vast majority of members leave before that age and receive benefits
calculated on an accumulation basis.
I have made inquiries of the actuary of the fund to which I referred
in my evidence and of another senior actuary in a large actuarial organisation
as to the number of funds with this benefit design.
Both actuaries made the point that, historically, the dominant design
for Australian defined benefit funds comprised a defined benefit on retirement
(after a specified age), death or disablement but with the leaving service/resignation
benefit being the member's own contributions plus interest. Apparently
there are “literally hundreds” of defined benefit funds which
still have this design structure, with modifications to avoid superannuation
guarantee charge liability.
An example of one of these is the fund of X Limited which has a defined
benefit for retirement, after the age of 55, of 20% of final average salary
for each year of service with the employer.
The resignation benefit is Member contributions (5% of salary) plus
earnings on that amount plus minimum superannuation guarantee contributions
(currently 7% of AWOTE) plus earnings - approximately 12% of salary
plus earnings.
Assuming that a Member aged 54 will leave this fund before age 55, surcharge
should logically be charged on the 12% of salary plus earnings actually
received by the Member. However, applying SCR 97/1, surcharge is determined
on the basis of 27% of salary.
There are, apparently, thousands of examples or surcharge being determined
on a basis of calculation that will prove to be totally inappropriate.
I was also advised that information on this issue was provided to the
Government by the Institute of Acturies prior to the passage of the surcharge
legislation.
Subsection 48(2) Acts Interpretation Act 1901
The issue raised by Senator Sherry related to proposed sub-section 42(3)
of the Superannuation Contributions Tax (Assessment and Collection)
Act 1997, (item 28 of Schedule 1) which refers to sub-section 48(2)
of the Acts Interpretation Act 1901. This is stated not to apply
in relation to any regulations made under the Superannuation Contributions
Tax (Assessment and Collection) Act 1997.
Sub-section 48(2) states as follows:
“A regulation, or a provision of regulations, has no effect if,
apart from this sub-section, it would take effect before the date of notification
and as a result:
(a) the rights of a person (other than the Commonwealth or an authority
of the Commonwealth) as at the date of notification would be affected
so as to disadvantage that person; or
(b) liabilities would be imposed on a person (other than the Commonwealth
or an authority of the Commonwealth) in respect of anything done or omitted
to be done before the date of notification.”
In other words, to the extent that regulations purport to have effect
before the date of notification, they shall not do so where this adversely
affects a person's rights or imposes liabilities on a person.
Obviously, in order for the new provision to be required, the Government
(or ATO) must be contemplating the issue of regulations which will either
adversely affect rights or impose new liabilities prior to the date of
notification. There is simply no other reason to make the amendment.
It follows that if regulations are to be issued which merely clarify
an existing liability, the amendment would not be required. It is only
where there is disadvantage to a person that the amendment is of relevance.
The new provision is therefore an admission of an intention to issue
retrospective regulations adversely affecting rights or imposing new liabilities.
I suggest that the effect of the proposed amendment is to remove a fundamental
safeguard of the interests of the citizens of Australia and that it is
entirely inappropriate. In addition, if the representations of the Government
and the ATO, that the amendments are merely clarificatory, are correct,
the amendment is unnecessary.
Number of superannuation funds which are adversely affected
Finally, in the evidence given by the Australian Taxation Office, it
was suggested that the relevant number of funds potentially adversely
affected by the retrospective element of the Bill is 1,000 - 1,500. This
was based on the number of funds lodging surcharge returns on a basis
other than SCR 97/1, all of which would be defined benefit funds. Whether
or not that figure is correct (and it is obviously more relevant to know
the number of members affected rather than the number of funds), I suggest
that it is also appropriate to take into account, the number of funds
which have objected against assessment to surcharge and the number of
members whom they represent. There are also those funds which, through
ignorance, have failed to note the issue at all, but whose rights will
be affected!
If I can be of further assistance to the Committee, please let me know.
Yours sincerely
Chris Beeny
Partner
Direct line (61 3) 9643 4061
Direct fax (61 3) 9643 5999