Appendix 5
3 September 1999
Senator Lyn Allison,
Senator Nick Sherry,
Senator John Watson
Parliament House
Canberra ACT 2600
Dear Senators,
Re: Superannuation Contributions and Termination Payments Taxes Legislation
Amendment Bill 1999 (Surcharge Amendment Bill)
There were a number of matters raised during the Public Hearing of the
Senate Economics Committee on Monday evening 30 August 1999 that we feel
need to be seen in a broader context than that in which they were presented.
(i) Surcharge ambiguity - funds affected
At the Senate Economics Committee hearing on the Surcharge Amendment
Bill an ATO officer made a statement to the effect that 5% of superannuation
funds submitted a nil surcharge return. When pressed further he indicated
that only 1000-1500 funds were affected by the so called lack of clarity
within the surcharge legislation.
The ATO officer's figures, which seemed internally inconsistent, in our
view underplay (and consequently seek to marginalise) the extent to which
members of superannuation funds are affected by the legislative difficulties
inherent in the Superannuation Contributions Tax (Assessment Collection)
Act (“the Surcharge Act”).
To this end an extract from APRA's March 1999 Superannuation Statistics
follows:
"In March 1999 there were around 186 443 separate superannuation
funds in Australia managing AUD $386.2 billion in assets on behalf of
19.5 million member accounts. As around 7 million individual Australians
are covered by superannuation this indicates that, on average, each individual
is a member of 2.7 superannuation schemes. Superannuation savings in Australia
are currently growing at around 11per cent per annum.
"The overwhelming majority of superannuation funds, 182 589 or 98
percent, are called excluded funds that contain fewer than five members.
These funds are popularly referred to as small self-managed DIY funds.
They represent a total of only 358 000 members, or only five per cent
of individual Australians who have superannuation.
"The remaining 3 854 funds are defined in terms of the Superannuation
Industry Supervision (SIS) Act 1993 as either standard employer or public
offer funds. These funds represent nearly 98 percent of all member accounts.
The top nine percent of these funds (which are included in the APRA Quarterly
Survey of Superannuation) cover approximately 90 percent of all members
and assets."
Table 1:
| Type of fund |
# funds1 |
Assets (AUD$b) |
Accounts (millions |
| Corporate |
3 463 |
68 |
1.3 |
| Industry |
101 |
28 |
5.9 |
| Public sector |
41 |
85 |
2.9 |
| Retail |
242 |
107 |
9.0 |
| Excluded |
182 589 |
50 |
0.4 |
| Subtotal |
186 443 |
338 |
19.5 |
| Annuities, life office reserves etc |
na |
48 |
na |
| Grand total |
186 443 |
386 |
19.5 |
Source: APRA March 1999 Superannuation Statistics
We also note that many superannuation funds who lodged surcharge returns
consistent with SCR97/1 (and did so effectively under protest) also lodged
objections against surcharge assessments.
A far more statistically relevant figure would be one that identified
defined benefit funds as a separate class and sought to determine which
of those funds had objections on foot. In turn the collective membership
of these funds would give a much truer indication of the extent of the
surcharge problem, especially when viewed alongside APRA's market statistics
as at March 1999.
(ii) Section 48 of the Acts Interpretation Act 1901
We noted in our submission that the proposed amendments contain a statutory
override of sub-section 48(2) of the Acts Interpretation Act 1901 (the
Interpretation Act). You sought more specific advice on this point.
Item 28 of the Surcharge Amendment Bill provides the following:
At the end of Section 42
Add:
(2) The regulations may modify Superannuation Contributions Ruling
SCR97/1 by doing any one or more of the following:
a) inserting a provision in the ruling;
b) omitting a provision from the ruling;
c) altering a provision from the ruling;
(3) Provision may be made in any regulations made under this Act for
those regulations to take effect before the date on which they are notified
in the Gazette (including before the date of commencement of this subsection),
and subsection 48(2) of the Act Interpretation Act 1901 does not apply
in relation to any regulations made under this Act.
Section 48(2) of the Interpretation Act in turn provides:
A regulation, or a provision of regulations, has no effect if, apart
from this subsection, 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”.
Whilst it is legally possible to statutorily override the Interpretation
Act, to do so places a special onus on legislators. When Senator Kemp
was asked to respond to the matter of the statutory override of 48(2)
of the Interpretation Act, our recollection of his response was to the
effect that this allowed retrospective amendment for (in effect) the member's
benefit. We note however such a provision would also allow a retrospective
adjustment to the detriment of the member.
(iii) Surcharge Levied on Trustee
We were considerably concerned with comments expressed by Senator Kemp
and more particularly an ATO officer concerning the trustee's role with
respect to surcharge.
At the hearing examples were noted concerning defined benefit fund arrangements
subject to a vesting schedule whereby if a member did not stay in the
fund for a sufficient length of time their benefits on resignation would
simply amount to (a much smaller) accumulation benefit. In these instances
surcharge would be paid, largely by reference to a defined benefit that
effectively may not materialise. In such cases, and with the benefit of
hindsight, it would appear that the surcharge could be substantially overpaid.
The ATO response to the above example was that the trustees should absorb
the cost and not pass this on to members. Where does the trustee get the
money to do this? Further any decision by the trustees to apply fund assets
to pay surcharge assessments clearly involves consideration of their fiduciary
responsibilities. To pay the surcharge in respect of some members may
give rise to a detriment to other members.
In short the panacea for surcharge inequities/capricious results/vagueness
of calculation etc is not simply the absorption of the surcharge by the
trustee. These concerns should be addressed at the legislative level.
The legislation must set out clear and precise guidelines as to how the
surchargeable contributions are calculated. It would be our preference
for the legislation to provide specific authority to enable trustees to
debit a member account in respect of the surcharge. As a matter of law
a trustee cannot deduct an amount from a member's benefit if it has no
entitlement or power to do so.
(iv) Regulations
We remain alarmed at the fact that substantive aspects of the surcharge
regime are dealt with by way of regulation rather than Act of Parliament.
In essence the major substantive provision of the Surcharge Act is the
determination of the surchargeable contributions - it is in respect of
these surchargeable contributions, and subject to the relevant members
adjustable taxable income, that the surcharge is levied. It is troubling
that such a substantive provision is not subject to the legislative scrutiny
and debate afforded Acts of Parliament. Moreover it is especially concerning
that the determination of the surchargeable contributions can be retrospectively
adjusted, potentially to members detriment, by means of retrospective
regulation.
To this end we are also concerned by comments from the ATO officer to
the effect legislative ambiguity (which to be fair to the ATO officer
he did not concede was the case in the instance being examined) could
be resolved in the regulations. Such legislative ambiguity should be resolved
in the Surcharge Act.
(v) 96/97 Surcharge Year
We raised concerns in our written submission and in our oral evidence
concerning the inconsistent surcharge treatment of members whose defined
benefits are funded by actuarial surplus as compared to those members
whose accumulation benefits are funded by actuarial surplus.
This is a very important issue and is a major, if not the most glaring,
inconsistency of the Surcharge Act. At a minimum there should be symmetry
in the surcharge treatment of such members. We would be happy to discuss
this point further should you wish.
(vi) Penalty Interest
In discussions on the night of the hearing, an ATO officer noted in respect
of the 96/97 year that the interest for the non paid surcharge assessments
could go back to 1 July 1997 although the ATO had a discretion to determine
from when such interest would be applied (and the officer indicated that
no decision had been made in regard to that matter).
In our view, given the very clear legislative uncertainty still surrounding
the Surcharge Act and the requirement to re-report, there should be no
basis for any such interest charge going back to 1 July 1997.
Ordinarily, the interest would only apply from the due date of the relevant
surcharge assessments (which for the 96/97 year would have been sometime
around March 1998).
Indeed it is our view that no interest should be paid on any surcharge
payable as a consequence of retrospectively amended legislation when the
trustees only refrained from making such payments because they sought
to act diligently and with regard to their fiduciary responsibilities.
Yours faithfully,
Neil Simpson,
Fund Secretary
For and on behalf of the Trustee Directors and members of the
Lend Lease Superannuation Fund