Chapter 3
Views on the bill
3.1
The committee received four submissions on the bill. The Department
of the Treasury, which sponsored the bill, provided a submission which briefly outlined
the policy justification for the measures and provided information on the
process and outcomes of public consultation over the bill, mainly in respect of
the reforms to income tests. Treasury also provided a second submission
responding to industry submissions.
3.2
The other submissions were received from industry participants,
Mercer and the Industry Funds Forum Inc (IFF), and the Australian Council of
Trade Unions.
General issues
Time for inquiry
3.3
The Mercer submission expressed concern over the 'very short
window of opportunity to make submissions on the bill', given the significance
of some of the measures (particularly the Schedule 3 amendments).[1]
3.4
Although it did not explicitly comment on the period allowed for
the inquiry, the IFF stated that it had confined its submission to comment on a
couple of issues 'due to the very short time frame for consultation' on the
bill.[2]
PAYG tax instalment reduction/introduction of regulations (Schedule 1)
3.5
Neither of the industry submitters provided comment on the
proposed PAYG tax instalment reduction.
Temporary residents’ superannuation and unclaimed money (Schedule 2)
Previous criticisms
3.6
Mercer made a submission to the committee's 2008 inquiry into the
provisions of the bills that introduced the changes to the unclaimed money
regime for temporary residents' superannuation.[3]
While Mercer consider the measures in the current bill as being of 'little
consequence' in the context of that new system, their submission repeats its broader
criticisms of the 2008 changes.[4]
Committee view
3.7
The committee notes that a number of Mercer's concerns were examined
in its November 2008 report, Temporary Residents' Superannuation Legislation
Amendment Bill 2008 [Provisions]; Superannuation (Departing Australia
Superannuation Payments Tax) Amendment Bill 2008 [Provisions]. It is also
notable that Treasury undertook a consultation process on the current bill at
the end of 2008, in which many of these and other issues were considered. This
led to a number of changes to the proposed measures, as outlined in the
Treasury submission.
3.8
The committee also observes that the issues raised by Mercer concerning
the unclaimed money regime changes affecting temporary residents' superannuation
are strictly beyond the scope of the inquiry. Accordingly, the committee did
not examine or re-visit any such issues as they were not relevant to the content
or operation of the provisions of the bill.
Reforms to income tests (Schedule 3)
3.9
The ACTU submission expressed support for the reforms to income
tests as they currently appear in Schedule 3. The ACTU described the measures
as 'important equity measures which remove inconsistencies in the treatment of
non-wage remuneration, better target the dependency tax offsets to lower-income
families and treat the income of individuals and families without access to
salary-sacrificing in an equivalent way to those who are able to access such
arrangements'.[5]
Ad hoc withdrawals from
superannuation
3.10
The IFF expressed concern about the proposal for all withdrawals
from superannuation being counted as income in the year of withdrawal. Their
submission cites the example of a retiree whose total income is comprised of
the aged pension and an allocated superannuation pension from which is drawn
the minimum 5 per cent per annum. An additional withdrawal from the allocated
pension fund for, say, the purchase of a new car, would be treated as income,
thereby reducing that person's aged pension payments in that year.
3.11
The IFF submitted that reductions in aged pension payments for
purposes such as the periodic replacement of assets or for health expenses will
unfairly affect many superannuation fund members.[6]
Accordingly, IFF urged the government to retain existing taxation laws that
allow ad hoc withdrawals from superannuation without affecting aged pension
entitlements.
3.12
Responding to the IFF's submission on this issue, Treasury
advised:
The [IFF] submission includes a case example involving an Age
Pension recipient however reportable superannuation contributions, which are to
be added to income tests for income support recipients below Age Pension age
from 1 July 2009, are already assessed for individuals above Age Pension age.[7]
Committee view
3.13
The committee notes that the measures will not have the effect
detailed in the example provided.
3.14
The committee notes also that the broader policy intent of the
income test reforms is to remove inconsistencies in the treatment of certain
types of income when determining eligibility for government support payments.
These measures aim to make Australia's tax and transfer system more equitable,
and are underlined by the idea that, generally speaking, government support
payments are means- or income‑tested. The EM explains:
This approach promotes the underlying principle of government
support that individuals with greater means to support themselves receive less
support than those with fewer resources or those in greater need of assistance.
Income tests are generally comprised of different types of income, such as
income from work-related activities or income from investments.[8]
Employer superannuation
contributions
3.15
The IFF was also concerned about the effect of employer
superannuation contributions in excess of compulsory 9 per cent contributions
on determining a person's eligibility for government benefits, such as Family
Tax Benefit A and B.
3.16
The IFF was concerned that additional superannuation payments by
an employer will be added to a person's assessable income and thus may have a
detrimental effect on qualification for other benefits.[9]
They suggest that in cases where an industrial agreement requires an employer
contribution above the 9 per cent compulsory contribution rate, the additional
contribution should be excluded for the purposes of calculating an entitlement
to benefits such as Family Tax Benefit A and B.
Committee view
3.17
The committee observes that the IFF's reservations about counting
excess employer superannuation contributions as income for the purposes of determining
eligibility for assistance payments, such as family tax benefits, goes to the
heart of the policy issue driving the reform. As the EM notes, it is a source
of inequity that certain fringe benefits are not currently counted as income in
determining eligibility for certain government assistance programmes. Also, the
proposed changes will collectively bring a more consistent approach to
determining eligibility for the range of government assistance payments,
thereby reducing complexity for both administrators and persons interacting
with any such schemes.
Cost issues
3.18
Mercer contended that, due to the vagueness of the legislation,
'a very significant proportion of employers will need to seek professional
advice as to their responsibilities' for reporting, and argues that the cost to
employers of complying with the income test reforms has been underestimated.[10]
It cites as an example the first-year direct compliance cost estimate:
...the estimated costs of $648 for 25,000 small to medium
businesses seem to be unrealistic. Even the cost of advice obtained in order to
understand the new rules is likely to cost more than this estimate, let alone
the costs of changes to systems, staff training costs and so on.[11]
3.19
The submission also notes that the EM:
-
'ignores the cost impact on many hundreds of thousands of other
small businesses, who will need advice' on the changes; and
-
underestimates the ongoing costs for small to medium businesses
(at $33 per annum).[12]
Committee view
3.20
The committee notes that the EM provides both cost estimates and a
relatively informative assessment of the impacts of the changes. The cost
analysis is placed within a broader context of impact-group identification and discussion
of the costs and benefits of the changes to individuals and employers
(including small business), tax practitioners and other intermediaries, the
Australian government and the Australian community. The committee received no
evidence on which to base a finding that the compliance cost estimates are
inaccurate.
Consistency of income tests
3.21
Mercer's view was that the proposed changes will result in a
'complex web of different rules', making it difficult for individual taxpayers
to understand the content and application of various income tests, and raising
the likelihood that professional financial or tax advice will be required. The
submission offers a number of examples of what it calls 'the vagueness of the
legislation' and recommends that implementation of the changes be delayed to
allow them to be considered as part of the Henry tax review.[13]
Committee view
3.22
The committee notes that the relative complexity of the tax and
transfer system will be reduced by the proposed measures, such as by introducing
common definitions across a range of income tests, and aligning the income
tests and $150 000 taxable income threshold for the dependency tax offset and
family benefit payments. The use of the concept of 'capacity to influence', in
the majority of cases, appears to be neither overly difficult to apply nor
significantly likely to lead to inequitable outcomes.
Defined benefit funds
3.23
Mercer submitted that the bill makes little reference to how RESC
relate to defined benefit funds, although its opinion was that the bill as
written will apply to the employer sponsored portion of defined benefit
arrangements. The submission states that, where a RESC does arise in relation
to a defined benefit fund, the bill provides 'no method of calculation for such
cases'.[14]
Given this and other complexities, Mercer's position is that defined benefit
funds should be excluded from the new arrangements.
Committee view
3.24
The committee notes that the EM contains a significant discussion
of how the concepts of RESC and 'capacity to influence' interact with defined
benefit funds.[15]
An example is provided, which shows that, where a member of a defined benefit
fund has the capacity to 'salary sacrifice' a member contribution, then the
amount of any such contribution they have influenced to be paid (such that
their assessable income is reduced) will be counted as RESC.
Time for implementation
3.25
Mercer was concerned that employers would struggle to implement
the changes effectively by 1 July 2009 as is currently required (enabling
payment summaries prepared after this date to reflect the changes). Mercer felt
that the possibility of 'significant confusion' over the reforms, and the
likely need for employers to obtain advice concerning the changes, would
justify delaying the changes until 1 July 2010. It recommended a date not
earlier than 1 July 2010 for implementation.
3.26
The Treasury submission observed that one of the main issues
raised in consultations was the commencement date of the reforms, with software
companies in particular concerned that there was not sufficient time to test
and implement software changes.[16]
However, 'proposals to defer the commencement of the reforms were not accepted'
because:
It is considered that the changes to the RESC definitions since
the consultation draft [of the bill] have simplified the definition and
mitigated the compliance costs for software companies.[17]
Committee view
3.27
The committee believes that there is sufficient time for the
superannuation industry, and associated industries such as software developers,
to comply with the changes to income tests proposed in the bill. The income
test reforms were announced in May 2008, and were the subject of a Treasury consultation
process in November and December 2008, giving the industry sufficient warning
and opportunity to prepare for the transition to the new arrangements. Further,
the changes—mainly involving the harmonisation of definitions used across a
range of programmes—are not overly technical or complex, so as to require the
delay of the scheme beyond July 1 2009.
3.28
The committee notes that the Australian Taxation Office will
provide clear information about the new provisions, such that most small
businesses will not be required to pay for advice about their liability.[18]
Recommendation
3.29
The committee recommends that the Senate pass the bill.
Senator Annette Hurley
Chair
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