Chapter 2Views on the bill
Introduction
2.1This chapter outlines the views of submitters and other stakeholders on the provisions of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (the bill) and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 (the imposition bill).
2.2This chapter is informed by the explanatory materials for the bill and the imposition bill, submissions received by the Senate Economics Legislation Committee (the committee) during the inquiry, evidence provided to the committee at a public hearing in Canberra on 18 April 2024, and additional material submitted to the committee.
2.3The discussion below is separated into key, high level reforms outlined in the schedules to the bill and the imposition bill. This chapter focuses on specific aspects of these reforms raised by multiple submitters and other stakeholders.
2.4The chapter concludes with the committee’s views and recommendations.
Key issues
2.5Submissions and evidence received by the committee during the course of this inquiry commented on the following schedules to the bill:
Schedules 1 to 3 – Better targeted superannuation concessions;
Schedule 4 – Disclosures about recognised assessment activities;
Schedule 5 – Frequency of periodic reviews;
Schedule 7 – Licensing exemptions for foreign financial services providers; and
Schedule 8 – Amendment of the Payment Systems (Regulation) Act 1998.
2.6As no comments were made on Schedule 6, it does not appear in the discussion below.
Schedules 1 to 3 – Better targeted superannuation concessions
2.7Overall, submissions and other evidence received by the committee providing views on Schedules 1 to 3 and the imposition bill were generally supportive of the proposed measures to better target superannuation concessions.
2.8Broadly, submitters and other stakeholders commented on the following aspects of these measures:
the fairness of the changes to superannuation tax concessions;
whether the $3 million threshold should be indexed to inflation;
the taxation of unrealised capital gains;
the impact of the measures on the clarity of the superannuation system;
the application of division 296 tax to judicial pensions;
the application of division 296 tax to defined benefit interests.
Fairness and equity of the reforms to superannuation tax concessions
2.9Many submissions commenting Schedules 1 to 3 and the imposition bill supported the changes on the grounds that they would enhance the fairness and equity of the Australian superannuation system. These submitters argued that the changes would help restore the original intent of the superannuation system as a vehicle for retirement savings. These submitters also characterised these changes as a good first step and encouraged the Government to build on the reforms by making the taxation of superannuation more progressive.
2.10In its submission, the Grattan Institute (Grattan) claimed that superannuation has become ‘a taxpayer-funded inheritance scheme’, costing the federal government $45 billion per year, approximately 2 per cent of Australia’s Gross Domestic Product (GDP). Grattan characterised the $3 million cap on superannuation earnings tax breaks as a ‘sensible step in the right direction’ to improving the equity of superannuation in Australia. Grattan also remarked that any challenges associated with the implementation of the tax were manageable.
2.11Grattan also submitted that the Government should go further and build on these reforms, recommending that pre-existing taxes on superannuation earnings be increased and the scope of the taxes be widened by lowering the threshold at which they apply. Further, Grattan recommended that all superannuation earnings in retirement be taxed at 15 per cent, the same rate which applies before retirement.
2.12Similarly, the Australian Council of Trade Unions (ACTU) supported the changes on the grounds that they would restore the original intent of the superannuation system and make superannuation tax concessions fairer. The ACTU noted that 99.5 per cent of those with superannuation accounts have less than $3 million in their total superannuation balance (TSB), and therefore, most taxpayers will not be impacted by the changes. The ACTU also noted that the $2.3 billion in additional revenue these measures would raise could be spent on improving the working and retirement lives of all Australians.
2.13The Australian Council of Social Service (ACOSS) also supported the changes, asserting that the current tax treatment of superannuation increases inequality in retirement incomes and deprives the Government of revenue it needs to deliver essential services, such as aged care and income support payments. Similarly to Grattan and the ACTU, ACOSS remarked that superannuation has become a ‘tax avoidance, asset accumulation and estate management tool’ for high income earners, contrary to its original purpose.
2.14ACOSS also recommended that the Government enact further reforms to enhance the equity and fairness of superannuation. To this end, ACOSS suggested introducing further taxes on the superannuation earnings of high-income taxpayers, imposing a levy on the investment income of superannuation accounts to fund an aged care guarantee, and limiting other tax concessions.
2.15Some submitters disputed the fairness of the reforms, claiming that the changes to superannuation tax concessions would unfairly target high-income earners who already carry a plurality of the tax burden and support a considerable proportion of government expenditure. These submitters also questioned the rationale for the changes, submitting that it was inequitable to punish account holders who have accrued large superannuation balances simply by following the rules put in place by previous governments.
2.16For example, the Institute of Financial Professionals Australia (IFPA) noted that large superannuation balances are held by a small cohort of individuals and exist due to superannuation policies which were put in place by previous governments. IFPA submitted that changing the treatment of these concessions and applying the changes to existing accounts would unfairly penalise individuals who had simply complied with rules that existed at the time.
2.17Similarly, Ms Naz Randeria highlighted that high-income taxpayers earning more than $250 000 are already subject to an additional 15 per cent tax on their superannuation contributions as per division 293 of the Income Tax Assessment Act 1997. Ms Randeria stated that applying a 15 per cent tax on a proportion of earnings for TSBs over the $3 million threshold would constitute a form of double taxation and negatively impact high-income families and taxpayers.
2.18Some submitters remarked that the reforms were particularly unfair to taxpayers with illiquid assets in their superannuation accounts. The Financial Advice Association of Australia (FAAA) submitted that given the size and nature of illiquid assets, such as a farm or a small business, they cannot be easily sold or otherwise liquidated to accommodate a superannuation tax liability arising under division 296. The FAAA claimed, that in the long-term, this will force more individuals to divest illiquid assets from their superannuation account and acquire more low-risk liquid assets, such as stocks or government bonds. The FAAA argued that these reforms would unfairly target this class of taxpayers and discourage investment in illiquid assets.
2.19In summarising the policy intent of the reforms, the Department of the Treasury (Treasury) cited the increasing cost of these concessions to the federal budget and characterised these changes as designed to moderate the growth of these concessions by ensuring that they are better targeted. In doing so, Mr James Thomson, Director of the Tax and Transfer Branch, cited the findings of the recent Intergenerational Report which indicated that superannuation tax concessions are expected to increase as a proportion of GDP from 1.9 per cent in 2022-23 to 2.4 per cent in 2062-63 and are projected to overtake expenditure on the age pension in the 2040s. Mr Thomson also observed that the majority of the benefit of existing superannuation tax concessions flow to those with above-median incomes:
… from contributions tax concessions, around 90 per cent of the benefit accrues to people with above-median incomes, an around 30 per cent of the benefit goes to people in the top income decile specifically. For earnings tax concessions, people with above median income received around 81 per cent of the benefit, while those in the top decile received around 40 per cent.
Indexation of the $3 million threshold to inflation
2.20Several submitters expressed concerns that the $3 million threshold for division 296 tax was not indexed to inflation. These submitters claimed that the lack of indexation would significantly increase the number of account holders who would be affected by the tax over time, unfairly increasing the tax burden on future generations of taxpayers. Submitters commenting on this issue also rejected the Government’s rationale for the lack of indexation and claimed that revenue had been prioritised over intergenerational equity.
2.21In its submission, the Business Council of Australia (BCA) stated that the threshold should be indexed to prevent an unintended increase in the tax burden over time. The BCA submitted that on figures provided by the Government, the proportion of superannuation account holders affected by the tax would increase from 0.8 per cent to 10 per cent of over the next 30 years if the threshold was not indexed to inflation.
2.22The BCA noted the Government’s rationale for not indexing the threshold to inflation on the grounds that this practice is consistent with other thresholds in the superannuation tax system, such as the division 293 threshold, and that the absence of indexation provides certainty to taxpayers. The BCA disputed this rationale, asserting that the certainty argument was unconvincing given that the inflation rate can be reasonably predicted based off the official target rate set by the Reserve Bank of Australia (RBA). The BCA concluded that any increases in the threshold as a result of inflation would be reasonably predictable, and rejected the Government’s rationale for not indexing the threshold to inflation.
2.23The Financial Services Council (FSC) characterised the lack of indexation of the $3 million threshold as intergenerationally unfair and asserted that the changes failed to provide the superannuation industry and individual account holders with the certainty they require. The FSC disputed the Government’s assertion that the changes would only affect 80 000 high-income account holders in 2025-26. Mr Blake Briggs, Chief Executive Officer of the FSC, expanded on this point in his evidence to the committee, asserting that over time the tax will affect more than the 80 000 account holders identified by the Government and will target middle income earners:
My understanding of that estimate is that the 80,000 only applies to the number of people currently in retirement with balances over $3 million, so it's a state-at-time assessment at this point in time. The FSC has done analysis to estimate how many people that are currently in the workplace will be affected, and our estimate—and we think it's quite conservative—is actually about 500,000 people, because, by virtue of the government's decision not to index it, the effective threshold for someone who's currently in their 20s is much closer to a $1 million. So the concept that we're really only targeting the very top end of Australians, I think, is a bit misleading because the reality is, by choosing not to index it, you're actually very much targeting Middle Australia of future generations' retirees, and we don't think that is fair and equitable.
2.24Mr Briggs concluded by asserting that the lack of indexation of the threshold reflected a conscious choice by the Government to prioritise the benefits to the budget over intergenerational equity. Mr Briggs also rejected the argument that indexing the threshold for division 296 tax would be unorthodox, claiming that many superannuation thresholds are indexed.
2.25However, other submitters disputed these arguments, asserting that the lack of indexation is not unusual in superannuation tax concessions and that the threshold is too high for the absence of indexation to raise concerns.
2.26In his evidence to the committee, Mr Matthew Linden, Executive General Manager of Strategy for the Super Members Council, noted that not all thresholds for superannuation tax concessions are indexed. In his evidence, Mr Linden referred to the thresholds for division 293 tax and the low-income super tax offsets, both of which are also not indexed to inflation.
2.27Further, Dr Peter Davidson, Principal Adviser for ACOSS, contested the argument that the lack of indexation will increase the scope of division 296 tax to middle-income account holders over time. Dr Davidson observed that the $3 million threshold is ‘an extraordinary high level affecting only a very small number of people’ and, therefore, does not require indexation.
2.28Treasury also highlighted that similar thresholds for superannuation tax concessions are not indexed to inflation and that the $3 million threshold was set at a sufficiently high level to prevent the tax from unfairly targeting middle-income taxpayers in the future. In his evidence to the committee, Mr Hawkins observed that many of the thresholds for similar taxes are not indexed, citing the threshold for division 293 tax, and that parliaments are free to change these thresholds by further legislation if necessary. Mr Hawkins also rejected the argument that the changes would unfairly target younger generations of taxpayers, characterising it as unusual for a young person today on an average salary to be captured by the tax even in 40 years’ time. Mr Hawkins expanded on this point before the committee:
There has been a cameo that was discussed at the time of the original announcement, where a young person who earns average wages through their entire working life might be captured by this tax. We haven't assessed that type of cameo but I would point out that that's not the usual experience of someone in the labour market. In fact someone who commences in the labour market at the ages of 19, 20 or 21 is far more likely to be earning well less than the median wage across the rest of the population, which is around $90,000. Those early earnings in the early years of someone's working life will make a significant impact on their end balance.
2.29In their submission to the inquiry, Grattan called for the $3 million TSB threshold to be reduced to $2 million, having the effect of capturing more superannuants in the tax measure. In arguing for that threshold, Grattan said that the threshold should not be indexed.
Taxation of unrealised capital gains
2.30Several submitters expressed strong concerns that the changes in Schedules 1 to 3 and the imposition bill would result in the taxation of unrealised capital gains. These submitters claimed that the taxation of unrealised capital gains would be contrary to long-standing principles of taxation in Australia and set a poor precedent for the tax system to the detriment of current and future taxpayers.
2.31The Centre for Independent Studies (CIS) submitted that if implemented as drafted, division 296 would amount to a tax on unrealised capital gains, describing the changes as a ‘wealth tax’. The CIS submitted that division 296 tax would not apply to earnings as currently defined and taxed in superannuation funds but would instead tax the increase in the value of a taxpayer’s total superannuation account balance. The CIS submitted that these gains would be taxed as per division 296 regardless of whether this increase is a result of real cash earnings and the realisation of capital gains or from unrealised ‘paper’ gains.
2.32The CIS expressed strong concerns about the precedent set by the taxation of unrealised capital gains for the Australian taxation system and the damage this could do to current and future taxpayers. The CIS asserted that the taxation of unrealised capital gains would result in a considerably heavier tax burden than if the gains were taxed after realisation. The CIS also claimed that the taxation of unrealised capital gains would create ongoing uncertainty about how assets should be valued, increasing the compliance costs of the tax.
2.33These concerns were shared by The Tax Institute which submitted that the taxation of unrealised capital gains proposed by division 296 was inconsistent with Australia’s current approach under the capital gains tax (CGT) regime and would create significant compliance costs for taxpayers. The Tax Institute expressed concerns that the taxation of unrealised capital gains would set an undesirable precedent for Australian taxpayers:
The taxation of unrealised capital gains is rife with issues, such as cash flow misalignment and increased compliance costs for taxpayers … the practical and financial burden of taxing a gain that is yet to be realised outweighs any perceived macroeconomic benefits and sets a dangerous precedent for our taxation and superannuation systems more broadly. The taxation of unrealised gains can place taxpayers under significant pressure due to the mismatch between the tax liability and the cash flow associated with the underlying asset.
2.34The Tax Institute also noted that the taxation of unrealised capital gains has historically been used only in the context of anti-avoidance provisions. Therefore, The Tax Institute submitted that it should not be a feature design of this measure or the Australian taxation system more broadly. Further, The Tax Institute stated that if the Government is committed to including the taxation of unrealised capital gains as part of this measure, that it is not treated as an acceptable precedent for future tax proposals and be ‘quarantined’ to division 296.
2.35However, some submitters supported the taxation of unrealised capital gains as a feature of the changes, asserting that it would enhance the fairness of superannuation and is already an element of the tax system. For example, Grattan expressed support for the taxation of unrealised capitals gains, citing the benefits of shifting to taxing capital gains on an accrual basis identified by the 2010 Henry Tax Review. Grattan noted that the taxation of unrealised capital gains is already a feature of the tax system with state land taxes and council rates levied accounting for unrealised gains on property. Grattan acknowledged the complications which the taxation of unrealised capital gains may have for taxpayers but emphasised that these should not be overstated.
2.36Some submitters also asserted that the taxation of unrealised capital gains would unfairly target account holders with illiquid assets in their superannuation account, such as farmers and small business owners. These submitters claimed that illiquid assets can not be easily refinanced or sold to accommodate a tax liability. Therefore, these submitters asserted that the tax might encourage them to divest their account of these assets, compromising the overall strength of their superannuation.
2.37For example, The Tax Institute noted the difficulties that this treatment of unrealised capital gains would cause for holders of superannuation accounts with illiquid assets such as property. The Tax Institute explained that due to the illiquid nature of assets such as a farm or a small business, taxpayers who hold these assets in their superannuation accounts cannot easily move or sell them to finance a tax liability arising under division 296. Accordingly, the Tax Institute claimed that a taxpayer may need to move such assets out of their superannuation account, contrary to the strength of that taxpayer's superannuation fund and their capacity to self-fund their retirement.
2.38These concerns were echoed by the Self Managed Super Fund (SMSF) Association which submitted that a tax on paper or accounting movements would particularly harm account holders with SMSFs, which usually consist of illiquid assets. Mr Peter Burgess, Chief Executive Officer of the SMSF Association, expanded on this point in his evidence to the committee:
… There is a view that, as asset prices increase, so does the yield, so these SMSFs should always have sufficient liquidity to pay this tax. Now, that is not the case. When it comes to rural properties, the yield is determined by other factors, not the value of the actual land itself. It could be determined by the use of that land. That's a really important point as to why, if you're basing a tax on unrealised gains, you could create significant liquidity problems for these types of funds—because they simply won't have the cash to pay that tax.
2.39The committee also received evidence that the taxation of unrealised capital gains on superannuation would constitute double taxation on assets in superannuation accounts when sold. These submitters also claimed that the changes do not provide taxpayers with the opportunity to obtain a tax refund or otherwise minimise their liability when earnings on their superannuation account were negative or they fell under the $3 million threshold.
2.40The Institute of Financial Professionals Australia (IFPA) submitted that the treatment of unrealised capital gains included in the measure amounts to a form of ‘double taxation’ on the same asset. The IFPA claimed that, under these changes, superannuation account holders will pay more tax on the proportion of their TSB which is in excess of $3 million and then pay tax again on the earnings of that asset when it is sold.
2.41The IFPA also commented on the proposal to allow account holders to carry forward losses on their superannuation account and offset them against future division 296 tax liabilities. IFPA submitted that the reforms provide no refund of division 296 tax paid when earnings are negative, or an account holder’s TSB drops below the $3 million threshold. Although losses can be carried forward to offset against division 296 tax in future financial years, the IFPA claimed that taxpayers will never recoup tax previously paid if their account balance remains below the threshold. The IFPA submitted that this was inequitable and that the system for carrying forward these losses is overly complex and confusing for potential taxpayers.
2.42In its evidence, Treasury submitted that the formula contained within the bill to calculate an account holder’s division 296 tax liability has been designed so that the liability is calculated consistently across all potential taxpayers, regardless of the type of superannuation interest they hold. Mr Hawkins stated that this will ensure that the liability of all account holders is calculated equally by using the same formula and that this would reduce compliance costs for taxpayers.
2.43Treasury also observed that the changes provide flexibility for account holders with self-managed funds in the event that they do not have the liquidity to meet the tax liability, while also noting that they should manage the fund in a way that maintains appropriate liquidity to meet all their obligations. Mr Hawkins highlighted that the changes provide taxpayers with the option of paying the tax using their own personal resources instead of releasing money from their account by selling or otherwise liquidating assets. Mr Hawkins observed that taxpayers also have a period of 84 days to pay the liability, and noted that this is a substantial increase over the usual 21-day period for other debts in the tax system. Further, Mr Hawkins stated that if the tax remains unpaid, the liability will be carried forward at the shortfall interest charge rate, which is substantially lower than the general interest charge rate which is usually applied to unpaid tax debts.
2.44Treasury also provided evidence regarding the mechanism to allow losses to be carried forward, and that this mechanism is more generous than elsewhere in the tax system. Carried forward losses that relate to the decline in value of assets can be used to offset future earnings that relate to non-capital amounts, such as interest and dividends. Elsewhere in the tax system, capital losses are quarantined to reducing future capital gains only.
Risk to the superannuation system
2.45Several submitters expressed concerns that the changes to superannuation tax concessions in Schedules 1 to 3 and the imposition bill would risk the clarity of superannuation and undermine public confidence in the superannuation tax system. Submitters cited the retrospective nature of the change, increased compliance costs for account holders and financial advisers, and the considerable amount of regulation associated with division 296 tax as creating significant complexity for taxpayers.
2.46The Financial Services Council (FSC) submitted that the changes are retrospective and therefore, the reforms apply a new tax to superannuation balances which were accumulated under pre-existing tax policy settings. The FSC expressed the view that this is unfair given that the taxpayers who would be subject to division 296 tax accumulated large superannuation balances under different policy settings. Accordingly, the FSC recommended that the Government provide impacted individuals with the option of transferring their assets outside the superannuation system without incurring any tax penalty. The FSC considered this to be in the interests of fairness and claimed that it would assist those account holders with a high proportion of illiquid assets in their superannuation funds.
2.47Chartered Accountants Australia and New Zealand (CA ANZ) submitted that the changes were characterised by complex design features which would add considerable administration costs to the superannuation system if introduced as drafted. CA ANZ claimed that the cost assumptions outlined in the EM underestimated the expenses which will be incurred by individual account holders, superannuation funds, accountants, lawyers, and others involved in the superannuation system. CA ANZ claimed that the reforms will require changes to the reporting that superannuation funds must submit to the Australian Taxation Office and that this would give rise to additional implementation costs to the detriment of superannuation account holders.
2.48These views were supported by Mr Tony Greco, General Manager of Technical Policy for the Institute of Public Accountants, in his evidence to the committee:
The proposed policy is incredibly complex and costly to administer for government, superannuation funds and individuals. We consider the cost estimates contained within the bill's explanatory memorandum to be low. All superannuants are impacted by these policies, as all administration systems, disclosure documents, annual statements, call centre scripts et cetera must be adjusted. Everyone is going to pay for this.
2.49Further, multiple submitters expressed concerns about the reliance of division 296 on regulation and the implications of this for understanding how the tax will operate. For example, the Association of Superannuation Funds of Australia (ASFA) submitted that the bill leaves several key details of division 296 tax to be specified in regulations. In particular, ASFA noted that the bill requires an individual’s TSB to be calculated by reference to a ‘TSB value’ determined by regulation, rather than their transfer balance account. ASFA stated that it could not fully assess the legislative regime for division 296 tax without access to the draft regulations.
2.50The committee also received evidence that the changes to superannuation tax concessions may pose added risk to the financial system. These submitters claimed that the changes would incentivise SMSF account managers to divest their superannuation of illiquid assets, such as property, creating liquidity and reinvestment risk for the financial system.
2.51Treasury referred to past reviews of the financial system which indicated that individual superannuation funds with liquidity risk do not pose a systematic risk or a broader contagion risk to the financial system. In his evidence, Mr Hawkins remarked that Treasury had not conducted any modelling on how these changes may impact this risk but noted that there is a legislative requirement for funds to manage their liquidity so that they are able to meet their obligations, including any tax liabilities.
2.52In his second reading speech, the Minister also noted that superannuation earnings will remain concessional:
This measure maintains concessional taxations within the superannuation system, and does not place a limit on the total amount that can be held within superannuation, beyond, of course, what is constrained by relevant annual contribution caps. It ensures that concessions are better targeted at amounts that deliver income for a dignified retirement.
Tax liability in instances of death, illness or disability
2.53Several submitters noted that the changes do not appear to provide exemptions or minimise an account holder’s division 296 tax liability in instances of death, illness or disability. These submitters stated that the failure to provide exemptions in these circumstances is contrary to established policy and unfairly punishes taxpayers who have an inflated TSB due to receipt of a death, illness or disability benefit.
2.54Certified Practising Accountants (CPA) Australia submitted that division 296 tax appears to apply in instances where TSBs exceed the $3 million threshold due to the receipt of incapacity benefits as a result of illness or injury. CPA Australia also noted that there does not appear to be an exemption for account holders with terminal medical conditions. CPA Australia claimed that this feature of the reforms appears to end the long-standing policy of providing tax relief in instances of death or terminal medical conditions.
2.55Further, the SMSF Association submitted that the changes do not appear to provide an exemption from liability in cases where an account holder receives a reversionary pension in the event of the death of their partner and their TSB exceeds the $3 million threshold as a result. Accordingly, the SMSF Association recommended that Treasury re-evaluate the current treatment of reversionary beneficiaries within the framework of death benefits.
2.56These concerns were reiterated by Ms Julie Abdalla, Senior Counsel of Tax and Legal for the Tax Institute, who submitted that the changes should be amended to exempt liability in instances where the threshold has been exceeded due to the receipt of a terminal illness or disability benefit. In her evidence, Ms Abdalla also remarked that the measures currently do not exempt taxpayers from division 296 liability in the year of their death. Ms Abdalla stated:
Currently, only taxpayers who die on any day before 30 June in an income year are exempt from the tax for that income year, but those who die on 30 June remain liable for the tax for that year. This is an unnecessary and inequitable anomaly that should be removed.
2.57In its response to these concerns, Treasury stated that the measures draw a distinction between structured settlement contributions and total permanent disability insurance proceeds. Mr Thomson submitted that structured settlement contributions concerning disability, medical or terminal illness related payments are essentially exempt from division 296 tax. Mr Thomson characterised these contributions as a ‘large amount of money paid to an individual to compensate them for loss resulting from serious injury and to provide ongoing medical care’ and stated that their exemption from this tax is consistent with their existing treatment.
2.58Mr Thomson noted that total and permanent disability proceeds are not exempt from division 296 tax. Mr Thomson observed that these proceeds are counted as a contribution in the first year and benefit from the concessional treatment of funds in the superannuation system if account holders choose to keep them in their accounts. Mr Thomson noted that these funds are subject to division 296 tax in future years if they are maintained in the superannuation system.
Application to judicial pensions
2.59The committee received evidence expressing concerns about the application of division 296 tax to judicial pensions received by former state, territory and Commonwealth judges and their spouses. Submitters and other witnesses providing evidence on this matter expressed concerns that applying division 296 tax to these pensions would undermine the quality and independence of the judiciary, with harmful consequences for Australian democracy.
2.60The Australian Judicial Officers Association (AJOA) submitted that the application of division 296 tax to judicial pensions would undermine the independence of the judiciary and create unintended consequences for the judicial system. The AJOA observed that, typically, judges will limit their sources of income in order to preserve their independence and maintain the public perception of their impartiality. However, the AJOA claimed that the application of division 296 tax to judicial pensions would significantly deplete the retirement incomes of judges, encouraging them to look for future sources of earnings after retirement, potentially undermining the independence, perceived or otherwise, of the judiciary.
2.61The AJOA asserted that the changes may also discourage people from becoming judges in the long-term due to the perception that they will have a less lucrative judicial pension after they retire from the bench. The AJOA claimed that the application of division 296 tax to judicial pensions would also create a divide between judges of state courts and judges of territory or Commonwealth courts, as that tax is applied differently to state judges and territory and commonwealth judges. The AJOA claimed that this would divide the judiciary along state, territory and federal lines, doing institutional damage to the courts.
2.62Further, the AJOA claimed that division 296 tax would disproportionately affect female judges, decreasing the number of female candidates for positions on the courts, widening the gender disparity in the judiciary. The AJOA asserted that female candidates for judicial office are likely to have less funds in their superannuation account on retirement than male candidates due to a tendency to appoint female judges at an earlier stage in their career. Therefore, the AJOA asserted that female judges would be disproportionately affected by division 296 tax, potentially discouraging female candidates for judicial office from accepting these appointments.
2.63Submissions received by the committee on this issue also disputed the fairness of applying division 296 to judicial officers given their high marginal rate of income tax. These submitters also stated that the measures were poorly calculated and based on misguided assumptions.
2.64A submission made by a group of retired judges of the federal courts expressed concerns that the legislation appears to falsely equate a recipient of a judicial pension with a person who holds a superannuation fund with the capital to produce an income equivalent to the amount of that pension. The retired judges explained that a judicial pensioner does not have the capital to produce such an income, and that the judicial pension is already taxed at the top marginal rate of income tax. The retired judges also expressed concerns that the application of the tax to judicial pensions is left to regulations, which they have not been able to review, creating uncertainty about how the tax will operate.
2.65Several submitters and other witnesses expressed doubts about the constitutional validity of the changes to the extent that they apply to judicial pensions. These stakeholders requested copies of the legal advice relied on by the Government in designing the measures and warned that it would be difficult for the High Court to adjudicate the lawfulness of the measures if they were challenged.
2.66In additional information provided to the committee, former Justice of the High Court the Hon Susan Crennan AC KC, expressed doubts that the application of division 296 tax to judicial pensions was constitutional. Ms Crennan submitted that the remuneration of judges is protected by section 72(iii) of the Constitution which provides that it shall not be diminished during their continuance in office. Ms Crennan stated that pension entitlements are included as ‘remuneration’ for the purposes of section 72(iii) and noted that this potentially renders division 296 unconstitutional to the extent that it applies to judicial pensions. Ms Crennan also asserted that the measure may be found unconstitutional if it impairs judges from particular states or jurisdictions from serving on the High Court of Australia.
2.67These views were reiterated by former Chief Justice of the Federal Court, the Hon Michael Black AC KC, who submitted that the application of division 296 tax to judicial pensions may be in conflict with the constitutionally protected independence of judges as outlined in section 72(iii) of the Constitution. In his evidence to the committee, Mr Black referenced previous case law which suggested that judicial pensions were included as ‘remuneration’ for the purposes of section 72(iii) of the Constitution and stressed the importance of maintaining the independence of the judiciary:
Its independence is highly important … and there should be no way in which the rights, the entitlements or otherwise of the judiciary should be interfered with. The Constitution is designed to protect that, and, indeed, there are some dicta, some sayings, in the High Court that would extend that protection to the pension. The critical thing is that this independence is upheld. The fear is that this legislation and these regulations impact upon that.
2.68Mr Black also stressed the importance of avoiding a challenge to the legislation in the High Court. Mr Black asserted that such a challenge would have the potential to damage public confidence in the judiciary and would place High Court judges in an extremely difficult situation, given their pecuniary interest in the outcome of any challenge.
2.69Responding to these concerns, Treasury submitted that it had designed the tax so that it applies as broadly as possible within constitutional limits and noted that some individuals have been excluded from its application under this approach. In his evidence to the committee, Mr Hawkins stated that the legislation was drafted based off legal advice from the Australian Government Solicitor and that the changes were consistent with this advice. Further, Mr Hawkins observed that the measures reflect an equitable approach and that individuals with large superannuation balances should pay this tax regardless of the type of superannuation interest they happen to hold.
2.70On the constitutional argument, Mr Hawkins observed that the legal advice Treasury relied on when drafting these changes specifically addressed this issue. Mr Hawkins submitted that the legislation reflects the best possible interpretation of how the law applies with respect to the constitutional issue, noting that the changes apply to retired judges on the basis that their renumeration is not changed by the legislation during the period of their judicial service.
Application to defined benefit interests
2.71Several submitters expressed concerns about the application of division 296 tax to defined benefit interests and pensions, and how these interests are valued under the legislation. These submitters questioned the utility of taxing these interests given that they either make no earnings or are already taxed at marginal rates.
2.72The CIS submitted that defined benefit interests are typically public-sector unfunded pensions schemes which receive no contributions and generate no earnings. The CIS also noted that defined benefit pensions are currently taxed at full marginal rates. The CIS questioned the imposition of division 296 tax on a fund which generates no earnings and on pensions which are already taxed at marginal rates. Accordingly, the CIS recommended that defined benefit interests be exempt from the tax.
2.73The CIS recognised that defined benefit interests should be expressed as capital values and included in the calculation of a superannuation account holder’s TSB (TSB). To this end, the CIS recommended that the capital value of defined benefit pensions be included in an account holder’s TSB and be recalculated each year under actuarially-determined rules, recognising the impact of age and life expectancy on capital value.
2.74Similarly, the Australian Council of Public Sector Retiree Organisations (ACPSRO) submitted that defined benefit pensions should not be included within the scope of division 296 tax. The ACPSRO claimed that defined benefit pensions receive different tax treatment than funds which are accumulated under Superannuation Guarantee (SG) arrangements. In particular, the ACPSRO stated that defined benefit account holders have less flexibility to restructure their assets to minimise their division 296 tax liability, are already taxed at marginal rates and do not have access to the exemptions available to SG account holders. Accordingly, the ACPSRO concluded that defined benefit interests should not be subject to division 296 tax.
2.75The committee also received evidence expressing concerns about the complexity of applying division 296 to defined benefit interests and noted the difficulty to taxpayers of navigating the corresponding regulation.
2.76For example, Mr Tony Negline, Superannuation and Financial Services Leader of Chartered Accountants Australia and New Zealand, stated that the draft regulations for defined benefit interests are so complex as to render the changes unworkable. Mr Negline stated that it will be difficult for a holder of a defined benefit interest to know if their calculations have been done correctly. Mr Negline expanded on this point:
It would be fair to say, however, that the [draft] regulations are very complex. They're being adjusted at the same time. They rely on family law rules, and those family law rules are sunsetting and the Attorney-General's Department is consulting at the same time in relation to a new version of those family law rules. It's very difficult for us to get our head around exactly what is going on. As was provided in evidence about half an hour ago, there are more defined benefit systems and adjustments and so on in defined benefit funds than most of us have had hot dinners.
2.77In its evidence, Treasury observed that the draft regulations for defined benefit interests reflect the need to ensure that the changes apply equally to all different types of superannuation interests. However, Mr Hawkins noted that the calculation of defined benefit interests is slightly different than that used for accumulation benefits. Mr Hawkins outlined that the TSB for a defined benefit interest holder is calculated using an actuarial assessment of what that benefit is worth to that member at a particular point in time. Mr Hawkins reiterated that the calculation of an interest under the changes has been designed to ensure that the approach is consistent across defined benefit members and accumulation members.
Schedule 4 – Disclosures about recognised assessment activities
2.78The committee received one submission on the proposed changes to the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act) outlined in Schedule 4.
2.79As outlined in Chapter 1, these changes would provide two additional exemptions for the Australian Charities and Not-for-profits Commission (ACNC) to make public disclosures regarding investigations into alleged misconduct in the charities and not-for-profit sector.
Public confidence in the charities and not-for-profit sector
2.80The committee received evidence from the Governance Institute of Australia expressing support for the reforms to the ACNC Act on the grounds that they will guarantee public confidence in the charities and not-for-profit sector.
2.81The Governance Institute submitted that the increased opportunities for disclosure would allow the ACNC to better carry out its regulatory and supervisory roles. The Governance Institute highlighted the rationale for the changes outlined in the Minister’s second reading speech and expressed the view that the reforms would increase public confidence in the ACNC as well as the charities and not-for-profit sector more broadly. The Governance Institute concluded by emphasizing the importance of upholding public trust in the ACNC and recommended that the reforms be passed.
Schedule 5 – Frequency of periodic reviews
2.82The committee received several submissions which commented on the changes to the frequency of periodic reviews of the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
2.83As outlined in Chapter 1, the amendments in Schedule 5 would amend the Financial Regulator Assessment Authority Act 2021 (FRAA Act) to extend the period between reviews of the financial market regulators from every two to every five years.
Effectiveness and accountability of financial market regulators
2.84The committee received evidence that a reduction in the frequency of periodic reviews of ASIC and APRA would undermine their effectiveness and make it more difficult for the Government to hold them accountable for poor regulation. Further, submitters questioned the rationale for the reforms, given the importance of the financial services market to the broader Australian economy and the significant risks to the economy of poor regulation.
2.85Dr Andy Schmulow of the University of Wollongong submitted that the reforms were ‘wrong-headed’, ‘counter-productive’ and would compromise the accountability of the financial market regulators for minimal gain. Dr Schmulow stressed the importance of having competent, effective and accountable financial regulators to prevent market failures and noted the serious consequences of poor financial regulation for the broader economy and individual households.
2.86Dr Schmulow also claimed that this change would allow more gaps in the regulatory framework to go undetected and unaddressed for longer, limiting the regulators’ ability to effectively monitor the financial market. Further, the committee was advised that due to the complexity of financial regulation, regulators often ‘fall prey to capture’ and become implicitly subservient to the industry that they are responsible for monitoring. Dr Schmulow submitted that without adequate oversight of the regulators, the likelihood of ASIC and APRA being ‘captured’ by the industry and failing to fulfill their responsibilities as regulators was significantly increased.
2.87Submitters providing evidence on this issue disputed the Government’s characterisation of the current frequency of the review cycle as imposing a burden on the regulators. Submitters expressed the view that the reviews should be seen as an opportunity for the regulators to collaborate with the FRAA to improve their performance, to the benefit of consumers and the broader financial services market. The committee was also advised that the costs to ASIC and APRA of complying with biennial reviews are considerably less important than the costs to consumers of poor regulation. Other submitters observed that the biennial review cycle of ASIC and APRA had only been in force for one cycle, and that there has not been sufficient time to determine whether a decrease in the frequency of this cycle is required.
2.88The FSC submitted that this change would be contrary to the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services sector, which proposed that the FRAA should conduct biennial reviews of both ASIC and APRA, reporting directly to the Minister and the Parliament. The FSC stated that the reforms constituted a ‘watering down’ of the Banking Royal Commission’s recommendations and would diminish the Government’s ability to scrutinise the conduct of the regulators.
2.89Responding to these concerns, Treasury rejected claims that the changes to the FRAA Act would limit the oversight of the regulators. Treasury claimed that this reform would enhance the scope of these reviews and provide the regulators with more time to implement any recommendations. Mr Hawkins described the policy intent behind the change as follows:
The intention of moving to five years is that for the first statutory review by the FRAA, the Financial Regulator Assessment Authority—in the time frames they had to do assessments of APRA and ASIC they were quite confined to certain aspects of the operations of those agencies, and that short period of time didn't give the agencies the opportunity to implement any of the findings of those reviews. By expanding it out to five years, it gives you an opportunity to do a much more thorough inquiry into the operations and effectiveness of those agencies and a greater opportunity for the agencies to implement any findings.
Schedule 7 – Licensing exemptions for foreign financial services providers
2.90The changes outlined in Schedule 7 to amend the requirement for foreign financial services providers (FFSPs) to obtain an Australian Financial Services (AFS) licence received broad support from submitters.
2.91As outlined in Chapter 1, Schedule 7 would amend the Corporations Act to provide several additional exemptions for FFSPs from the requirement to obtain an AFS licence and fast-track the licensing process for providers seeking to establish a business in Australia.
Providing foreign providers access to the financial services market
2.92Evidence received by the committee concerning the changes outlined in Schedule 7 indicated strong support for making the financial services market more accessible for foreign providers.
2.93The Australian Financial Markets Association (AFMA) agreed with the policy objective of Schedule 7 to assist Australian professional and wholesale investors to diversify their investment opportunities by reducing barriers to entry for FFSPs in the Australian financial services market. In doing so, the AFMA emphasised the importance of maintaining appropriate regulatory oversight of FFSPs and maintaining the integrity of the domestic market. The AFMA noted the importance of FFSPs to the Australian economy given globalisation and the integration of the world’s financial services.
2.94Herbert Smith Freehills (HSF) also expressed strong support for the changes in Schedule 7. HSF stated that the reforms would end the current uncertainty in the financial services industry by providing explicit exemptions for foreign providers, rendering these providers legally and commercially viable in the Australian financial services market.
2.95However, despite expressing general support for these changes, some submitters raised concerns about technical aspects of the exemptions. These submitters stated that the exemptions, as currently drafted, would create significant confusion and compliance problems for foreign financial services providers and recommended that they be amended.
2.96For example, the AFMA recommended that the requirement to provide financial services from outside Australian jurisdiction not apply where the representative of the FFSP acts predominantly for a body corporate which holds an AFS licence. The AFMA noted that the professional investor exemption requires FFSPs to provide financial services to professional investors outside Australian jurisdiction. However, the AFMA claimed that FFSPs may occasionally contract representatives of an AFS licence holder to act for them for organisational purposes. The AFMA recommended that the professional investor exemption be amended to account for this discrepancy.
2.97The AFMA also expressed concerns regarding proposed section 911H in the bill. Section 911H would impose conditions on all proposed new exemptions to require FFSPs to provide assistance, including opening books, to ASIC on the request of the regulator. Section 911H would also require FFSPs to submit to the non-exclusive jurisdiction of Australian courts for proceedings brought by ASIC or another Commonwealth entity. The AFMA asserted that the requirements that would be imposed by section 911H were excessive and would discourage FFSPs from entering the Australian financial market. Accordingly, the AFMA recommended that section 911H only apply where the financial services business that the entity carries on is predominantly within Australian jurisdiction.
2.98Further, HSF raised concerns about proposed section 911F in the bill. Section 911F would allow for the Minister to modify primary legislation via regulation as part of the new professional investor exemption for FFSPs. HSF noted that the Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee) raised concerns regarding proposed section 911F and supported the Scrutiny Committee’s suggestion that the section be amended to insert an express requirement that regulations may only be made in ‘exceptional circumstances’.
2.99HSF also submitted that proposed subsection 911P(3) may create uncertainty for FFSPs which are not carrying on a business in Australia. HSF submitted that the provision may erroneously lead these providers to think that they are required to register as a foreign company under Part 5B.2 of the Corporations Act if they rely on the exemption under paragraph 911A(2)(ep). HSF noted that the Explanatory Memorandum provides that subsection 911P(3) was designed to streamline the licensing process for FFSPs, rather than introduce new requirements.
Schedule 8 – Amendment of the Payment Systems (Regulation) Act 1998
2.100The committee received several submissions which commented on the changes to the Payment Systems (Regulation) Act 1998 (PSR Act) outlined in Schedule 8. Overall, submissions received on Schedule 8 were supportive of the changes to the PSR Act.
2.101As outlined in Chapter 1, the amendments in Schedule 8 would modernise the payments regulatory framework by changing key definitions to expand the scope of the regulator and provide additional regulatory powers to the Minister.
Modernisation of the payment systems regulatory framework
2.102The committee received evidence that the reforms to the PSR Act in Schedule 8 would modernise the payment systems regulatory framework in line with technological developments in the payments sector. These submitters asserted that these changes would enhance the capability of the regulator and the strength of the payment systems industry.
2.103The Australian Banking Association (ABA) expressed strong support for the proposed changes to the PSR Act, stating that the reforms would modernise the payments system and address developments in the digital payments industry. The ABA noted that since the PSR Act was enacted in 1998, the payments system has undergone significant change in line with developments in digital technology. The ABA observed that the PSR Act had not been updated to take account of these changes, leaving significant gaps in the regulatory framework. The ABA highlighted that the 2021 Review of the Australian Payments System recognised that the PSR Act does not fully capture the full range of payment systems and agents in the modern Australian economy.
2.104Accordingly, the ABA supported changing the definitions of ‘payment system’ and ‘participant’ to encompass a wider range of payment systems across the industry and broaden the scope of the regulatory framework. The ABA submitted that these changes appropriately reflected developments across payment systems and would bring the full range of services, products and agents across the industry within the scope of the regulator.
2.105These views were echoed by the RBA, which strongly supported the need to modernise the regulatory framework for the payment systems industry. The RBA submitted that the way consumers make payments has changed significantly since the PSR Act was implemented and that the regulatory framework must be able to adapt to new developments and risks in payment systems as the industry evolves.
2.106The RBA noted that the updated definitions of ‘payment system’ and ‘participant’ were sufficiently broad to modernise the regulatory framework in line with the policy intent of the changes. Mr Ellis Connolly, Head of the Payment Policy Department of the RBA, expanded on this point in his evidence to the committee:
There's a much broader range of players in the payments system at the moment than there was several years ago. It's important for consumers and also particularly for merchants that there's the potential for the RBA, or another regulator as assigned by the government under the legislation, to be able to regulate those players. In the case of the RBA, that mandate is for efficiency, competitiveness and safety.
Buy-Now-Pay-Later (BNPL) products
2.107The committee received evidence expressing concerns with the RBA’s intention to extend regulation of surcharging to Buy-Now-Pay-Later (BNPL) products under its enhanced powers. The committee was advised that the BNPL sector is a growing part of the payment systems industry and surcharging would increase the cost of living for consumers, reduce competition in financial services, and damage the Australian fintech sector.
2.108Block submitted that surcharging has to-date been used to regulate international credit card schemes and that the market for BNPL products bears little resemblance to these schemes. Block observed that traditional markets attracting surcharging are highly concentrated, lethargic and undergo minimal innovation, unlike the BNPL market. Therefore, Block questioned the rationale for extending surcharging to BNPL products, noting that they represent just 0.7 per cent of payments in Australia and 3 per cent of the entire consumer credit market.
2.109Accordingly, Block submitted that applying surcharging to BNPL products would negatively impact consumers of these products for minimal gain:
Applying policy levers designed for non-competitive environments to highly competitive sectors has the potential to increase the cost of living for millions of consumers, reduce competition in financial services and harm the Australian fintech sector, which already faces many barriers, competing in a highly concentrated market.
2.110To prevent surcharging being applied to BNPL products, Block suggested that the changes to the PSR Act be amended to ensure that regulatory intervention can only occur when the regulator can demonstrate the existence of a clear market failure. Block also proposed that the regulator be required to consider several key factors prior to any intervention in the BNPL market. Mr Michael Saadat, Head of International Public Policy at Block, expanded on these suggestions in his evidence to the committee:
We think these are the threshold questions that need to be considered before the application of regulation. We think regulation is important, but it should only come into play when there's a market failure that needs to be addressed and where there's clear evidence of that market failure. The powers that the RBA has can be highly interventionist, potentially overriding the commercial arrangements that private sector players have put in place and even going as far as regulating price in some cases. So we think these are the matters that need to be considered before you start regulating a new industry like buy-now pay-later: What proportion of payments does that new sector take up in the economy? Is it a dominant form of payment? What is the level of competition like? What other role do these players play in the market for payments?
2.111Mr Connolly attended the public hearing and provided evidence to questions about surcharging, referencing concerns from some inquiry participants:
The Reserve Bank’s current arrangements for surcharging have been in place since the early- to mid-2000s, and we think it’s time for a review of those arrangements. As part of the upcoming review of retail payments regulation, we would intend to conduct a holistic review of surcharging and whether it still remains an appropriate way of regulating the payment system. That would include the issues with regard to the surcharging of buy now, pay later – which I understand to be an issue of concerns to some players in the system.
Ministerial designation powers
2.112Several submitters expressed concerns about the power of the Minister to designate a payment system as a special designated payment if they consider that doing so is in the national interest. These submitters asserted that designation of a payment system is likely to have a significant regulatory impact on participants and stressed the need for balanced regulation. These organisations expressed doubts that the legislation contained sufficient safeguards to ensure that this power would be exercised appropriately and judiciously by the responsible Minister.
2.113Multiple submitters advised that the changes would expand the regulatory framework to a greater range of payment-related functions and expressed concerns that this may limit innovation in the industry. These submitters asserted that the designation power should be subject to consultation and impact analysis requirements prior to its exercise. They submitted that this would ensure that it is subject to appropriate constraints and is guided by the informed advice of the industry.
2.114For example, FinTech Australia (FinTech) suggested that the legislation include a requirement that the Minister be satisfied that Treasury has conducted appropriate consultation and analysis and published a report to this effect prior to any designation being made. The FSC recommended that the legislation go further and include a positive statutory duty requiring the Minister to consult with the industry and affected parties prior to a designation being made.
2.115Some submitters also expressed concerns about the national interest test used by the Minister, RBA or another designated regulator when exercising special designation powers. These organisations advised the committee that the national interest test did not have sufficient regard for the role of non-regulatory solutions and warned that the test would impose a greater regulatory burden on participants and consumers.
2.116FinTech recommended that the national interest test be amended so that it is guided by a clear list of relevant considerations which the regulator must take into account when referring to the test. FinTech suggested that these factors be written into the legislation and that ‘competition’, ‘fairness and consistency for participants’ and ‘proportionate regulation’ be included as an additional consideration.
2.117The committee also received evidence arguing that the ministerial designation power would duplicate the pre-existing designation power of the RBA, leading to duplicative regulation and an overly complex payments ecosystem. CA ANZ supported empowering the Minister to take a leadership role in the regulation of payment systems but recommended that this be limited to directing the RBA to designate a special payment system, rather than providing an additional designation power to the Minister.
2.118In its submission, the RBA expressed support for the ministerial designation power, stating that the legislation provided sufficient clarity concerning its exercise and contained appropriate protections for RBA officers. The RBA also noted that the ministerial designation power does not extend to enforcement and specific implementation measures, consistent with the original proposal from Treasury.
2.119Mr Connolly advised the committee that the bank’s regulatory approach would not change under the reforms and would remain consistent if the legislation is passed. The RBA stated that it takes a very consultative approach to its regulation of payment systems and plans on undertaking an extensive consultation process with the industry if the legislation is passed:
Something we would intend to do, assuming the legislation passes, is we would start by running a review of retail payments regulation, which would be a public consultation, enabling all the players in the system, all stakeholders, to share with us their perspectives on what the issues are and to help us to shape what the priorities should be in terms of promoting efficiency, competitiveness and safety in the Australian payments system. We have a very similar approach to those players as we have been taking to the card schemes over the years.
Committee view
2.120The committee welcomes the measures in this bill which will improve the superannuation system and modernise various treasury laws to support better outcomes, and notes the high level of support for these schedules received by the committee.
Schedules 1 to 3 – Better targeted superannuation concessions
2.121The committee strongly supports the reforms to superannuation tax concessions that will ensure they are fairer, more sustainable, and better targeted.
Importance of targeted superannuation tax concessions
2.122Without appropriate targeting, superannuation tax concessions disproportionately benefit Australians with very large TSBs at a significant cost to the federal budget.
2.123The committee welcomes that tax concessions will continue for all superannuants to encourage the contribution to superannuation balances to deliver income in retirement.
2.124These changes are consistent with the original intent of the superannuation system, to provide all Australians with a sustainable and comfortable income in their retirement.
2.125The committee notes the minimal impact that these changes will have to the majority of superannuants, applying to only 80 000, or approximately 0.5 per cent, of all superannuation account holders.
Indexation of the $3 million threshold
2.126The committee notes views of inquiry participants that the $3 million threshold should be indexed, but believes it is appropriate for the Parliament to be responsible for setting this threshold, which is a common feature of the tax system.
Taxation of unrealised capital gains
2.127The committee understands views shared by inquiry participants about the taxation of unrealised capital gains but believes on the balance of evidence that the approach taken in the bill is designed to be applied consistently across all superannuation funds in a sector-neutral way, making it the most appropriate way to reduce compliance burden and costs to funds and their members.
2.128The committee also highlights evidence that the taxation of unrealised capital gains is not unknown to the Australian tax system.
2.129The committee draws attention to measures of the bill that provide taxpayers with 84 days to meet tax liability, considerably longer than the standard 21-day period. As well, interest charged on outstanding division 296 tax debts will be lower than the general rate for unpaid debts.
2.130The committee received evidence that the taxation of unrealised capital gains may present difficulties for account holders with a high proportion of illiquid assets. However, the committee highlights evidence that all superannuation trustees have an obligation to keep sufficient liquidity within their account to meet their APRA obligations.
Application to judicial pensions
2.131Retired judges and their representatives provided evidence to the committee that the application of the measure to judicial pensions could undermine the independence or the integrity of the judiciary.
2.132The committee is of the view that it is important these changes apply equally to all taxpayers with TSBs above the threshold, and that exempting former judges and their spouses would be inequitable and inconsistent with the policy intent of the changes.
2.133The committee notes questions of inquiry participants regarding the constitutionality of taxing judicial pensions. Importantly, Treasury advised the committee that the bill was drafted according to and consistent with legal advice provided by the Australian Government Solicitor.
Schedule 4 – Disclosures about recognised assessment activities
2.134The committee welcomes allowing the ACNC to make public disclosures regarding investigations into alleged misconduct in the charities and not-for-profit sector.
2.135These reforms will guarantee public confidence in the charities and not-for-profit sector and implement key recommendations of the 2018 Strengthening for Purpose: The Australian Charities and Not-for-profits Commission Legislation Review report.
Schedule 5 – Frequency of periodic reviews
2.136The committee believes that extending the periodic review cycle of ASIC and APRA from every two to every five years will allow the FRAA to conduct more comprehensive and considered reviews of the financial market regulators.
2.137The committee notes strong evidence that as a result of this change, financial regulators will then have more time to consider and implement recommendations to strengthen the capabilities of ASIC and APRA.
Schedule 7 – Licensing exemptions for foreign financial services providers
2.138The committee welcomes provisions in Schedule 7 which would provide exemptions for FFSPs from the requirement to hold an AFS licence in primary law.
2.139The committee acknowledges the widespread support for these measures among submitters and other stakeholders providing views on this schedule to this inquiry.
Schedule 8 – Amendment of the Payment Systems (Regulation) Act 1998
2.140The committee welcomes provisions in Schedule 8 which would update key definitions and broaden the scope of the regulatory framework for the payment systems industry which has not been updated since the introduction of the PSR Act in 1998.
2.141The committee welcomes the widespread support for these modernising reforms to the regulatory framework of payment systems, increasing the agility, oversight and capability of the regulators to the benefit of consumers.
2.142The committee recognises views regarding the powers of the Minister to designate a payments system as a special designated payments system and believes they are an important measure to ensure regulations keep pace with industry innovation.
2.143The committee notes evidence from the RBA that it will maintain its regulatory approach of preferencing industry self-regulation, and welcomes that the RBA intends to conduct an extensive consultation process with participants of the payments system industry to inform its approach.
2.144The committee recommends that the bills be passed.
Senator Jess Walsh
Chair
Labor Senator for Victoria