Referral of the inquiry
1.1
On 8 September 2022, the following bills were introduced into the House of Representatives and read a first time:
Treasury Laws Amendment (2022 Measures No. 3) Bill 2022 (the bill),
Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2022 (FATA Fees bill), and
Income Tax Amendment (Labour Mobility Program) Bill 2022.
1.2
On 28 September 2022, the Senate referred the provisions of the three bills to the Senate Economics Legislation Committee (the committee) for inquiry and report by 17 November 2022.
Purpose of the bills
1.3
The package of bills seeks to amend various foreign investment, taxation and superannuation laws. The Treasury Laws Amendment (2022 Measures No. 3) Bill 2022 contains five schedules which propose to:
Double the maximum financial penalties for contraventions of the relevant provisions relating to foreign ownership of residential land in Australia (Schedule 1).
Allow the Australian Taxation Office to share protected taxation information with an Australian government agency, for the purposes of administering major disaster support programs declared by the Minister (Schedule 2).
Extend, for a period of 12 months, a temporary mechanism for responsible Ministers to make alternative arrangements for meeting information and documentary requirements under Commonwealth legislation (Schedule 3).
Extend the current Seasonal Labour Mobility Program withholding tax regime to include the Pacific Australia Labour Mobility (PALM) scheme, and any future similar temporary migration programs prescribed by regulations (Schedule 4).
Create a supplementary performance test for faith-based superannuation products (Schedule 5).
Report structure
1.4
The vast majority of evidence received for the inquiry through submissions and the public hearing pertained to Schedule 5 of the bill. Consequently, only a brief overview of Schedules 1 to 4 is given in this introductory chapter. Given the focus of the evidence received, the discussion in Chapter 2 is constrained mostly to comments relating to Schedule 5.
Schedule 1—Foreign acquisitions and takeover penalties
Overview
1.5
Schedule 1 of the bill seeks to amend the Foreign Acquisitions and Takeovers Act 1975 (FATA) to double the maximum financial penalties for contraventions of residential land provisions. Penalty provisions in the FATA that apply to non-residential land matters are not being amended.
1.6
The FATA Fees bill would amend the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 to update the fee cap amount to incorporate indexation and the dates referred to in the indexation provisions.
1.7
The amendments in Schedule 1 deal with three groups of penalties:
Financial penalties for criminal offences relating to developers selling a dwelling to a foreign person without advertising the dwelling in Australia.
Civil penalties relating to residential land acquisitions by foreign persons in particular circumstances.
Civil penalties relating to failures by a foreign person to lodge tax returns, keep various records and provide various notices.
1.8
Schedule 1 of the bill would partly implement the government’s 2022 election commitment to increase foreign investment fees and penalties. In outlining the need for the amendments, the Assistant Treasurer commented that ‘non-compliance with the residential land obligations by foreign persons has flow-on implications for Australia’s housing stock and housing affordability’.
Commencement
1.9
Schedule 1 of the bill would commence on 1 January 2023. The FATA Fees bill would commence the day after Royal Assent.
Consultation
1.10
The Explanatory Memorandum (EM) does not reference any consultation activities in relation to Schedule 1 of the bill.
Financial impact
1.11
The EM states that this measure is estimated to increase receipts by
$2.3 million over the four years from 2022–23. The financial impact over the forward estimates period is outlined as follows.
Table 1.1: Financial impact of Schedule 1 measure ($m)
Source: Explanatory Memorandum, p. 1.
Legislative Scrutiny
1.12
The Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee) has not raised any concerns with Schedule 1 of the bill.
Human rights implications
1.13
The Statement of Compatibility with Human Rights in the EM states that Schedule 1 of the bill and the FATA Fees bill are compatible with the human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Parliamentary Joint Committee on Human Rights
1.14
In its Report 4 of 2022, the Parliamentary Joint Committee on Human Rights (Human Rights Committee) noted that, as pointed to in the EM, the civil penalty provisions under Schedule 1 of the bill may be taken as criminal penalties for the purposes of international human rights law, depending on their potential severity. Therefore, the civil penalty provisions in Schedule 1 may engage criminal process rights, including the right to be presumed innocent until proven guilty, and that a case be demonstrated beyond all reasonable doubt.
1.15
Unlike criminal penalties, civil penalty proceedings only require proof on the balance of probabilities. The Human Rights Committee commented that, given this, there is a risk that the increase in civil penalties sought by Schedule 1 of the bill may not be consistent with the criminal process right.
1.16
The provisions in Schedule 1 would only apply to ‘foreign persons’; that is, individuals not ordinarily resident in Australia. In light of this, the Human Right Committee commented that ‘these provisions would appear to have a disproportionate impact on non-citizens, and so engage the right to equality and non-discrimination’. However, the Human Rights Committee also reported that the intent of Schedule 1—to increase penalties so as to address non-compliance with the FATA—would appear to constitute a legitimate objective. Consequently, the differential treatment of non-citizens would not be considered unlawful in this circumstance.
Compliance cost impact
1.17
The EM states that this measure does not have any compliance cost impact.
Schedule 2—Data sharing to support government responses to major disasters
Overview
1.18
Schedule 2 of the bill seeks to amend the tax secrecy provisions in the Taxation Administration Act 1953 (TAA 1953) to allow tax information to be disclosed to Australian government agencies for the purposes of administering major disaster support programs approved by the Minister.
1.19
The amendments set out in Schedule 2 are necessary as the current tax secrecy provisions under the TAA 1953 prohibit a taxation officer from disclosing protected information to an Australian government agency for the purpose of administering a major disaster support program. Under current law, such disclosure is considered an offence and can attract a penalty of up to two years imprisonment.
1.20
The Assistant Treasurer outlined how the amendments in Schedule 2 would reduce red tape and improve the efficiency of major disaster recovery efforts:
[Schedule 2] will assist Australian government agencies to address the needs of individuals and businesses significantly disrupted by a major disaster event more efficiently and effectively.
1.21
A comparison of key features of the new law proposed by Schedule 2 of the bill and the current law are listed in the table below:
Table 1.2: Summary of Schedule 2 amendments
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A taxation officer may disclose or record information that is protected information acquired as a taxation officer to an Australian government agency for the purpose of administering a program that is declared by the Minister to be a major disaster support program.
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A taxation officer is prohibited from disclosing or recording information that is protected information acquired as a taxation officer to an Australian government agency for the purpose of administering a major disaster support program. Such disclosures would be an offence under the TAA 1953.
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Source: Explanatory Memorandum, p. 16.
Commencement
1.22
Schedule 2 of the bill would commence on the day after Royal Assent. The EM notes that the measure applies in relation to records and disclosures of information made on or after the commencement of the amendments, regardless of whether the information was obtained before, on or after that commencement.
Consultation
1.23
The EM does not reference any consultation activities in relation to Schedule 2 of the bill.
Financial impact
1.24
The EM states that this measure would have no financial impact.
Legislative Scrutiny
Reversal of the evidential burden of proof
1.25
In its Scrutiny Digest 5 of 2022, the Scrutiny Committee raised concerns with Schedule 2 of the bill. Specifically, the Scrutiny Committee outlined that in certain circumstances where an offence is committed, the proposed amendments would make it such that a defendant would bear the evidential burden of proof. Under common law, it is ordinarily the duty of the prosecution to prove all elements of a defence.
1.26
The Scrutiny Committee disagreed with the reasoning outlined in the EM and considered that such matters would be more appropriately included in elements of the offence.
Human rights implications
1.27
The Statement of Compatibility with Human Rights in the EM states that Schedule 2 of the bill is compatible with the human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
1.28
The Human Rights Committee examined the bill but made no comment with regard to Schedule 2 and whether it raises any human rights concerns.
Compliance cost impact
1.29
The EM states that Schedule 2 of the bill is unlikely to have more than a minor regulatory impact.
Schedule 3—Modification power
Overview
1.30
Schedule 5 of the Coronavirus Economics Response Package Omnibus (Measures No. 2) Act 2020 is a general instrument-making power that enables responsible Ministers to make a determination that adjusts arrangements for meeting information and documentary requirements under Commonwealth legislation in response to Covid-19.
1.31
This instrument-making power is a temporary mechanism that is presently due to terminate on 31 December 2022. Schedule 3 of the bill would extend the date on which the temporary mechanism will terminate by one year to
31 December 2023.
1.32
In his second reading speech, the Assistant Minister commented:
…these provisions address continuing difficulties experienced by individuals, businesses, and government agencies in complying with information and documentary requirements, including requirements to witness and sign documents.
1.33
A comparison of key features of the new law proposed by Schedule 3 of the bill and the current law are listed in the table below:
Table 1.3: Summary of Schedule 3 amendments
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A Minister responsible for an Act or legislative instrument that requires or permits certain matters relating to information and documentation may determine that different arrangements apply in response to COVID-19 until the end of
31 December 2023.
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A Minister responsible for an Act or legislative instrument that requires or permits certain matters relating to information and documentation may determine that different arrangements apply in response to COVID-19 until the end of
31 December 2022.
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A determination made by a Minister which provides that different arrangements apply has no operation after 31 December 2023.
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A determination made by a Minister which provides that different arrangements apply has no operation after 31 December 2022.
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Commencement
1.34
Schedule 3 of the bill would commence the day after Royal Assent.
Consultation
1.35
The EM does not reference any consultation activities in relation to Schedule 3 of the bill.
Financial impact
1.36
The EM states that this measure would have no financial impact.
Legislative Scrutiny
1.37
The Scrutiny Committee has not raised any concerns with Schedule 3 of the bill.
Human rights implications
1.38
The Statement of Compatibility with Human Rights in the EM states that Schedule 3 of the bill is compatible with the human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
1.39
The Human Rights Committee examined the bill but made no comment with regard to Schedule 3 and whether it raises any human rights concerns.
Compliance cost impact
1.40
The EM states that this measure does not have any compliance cost impact.
Schedule 4—Tax treatment for new or revised visa programs
Overview
1.41
The PALM scheme is the primary temporary migration program that aims to address workforce shortages, particularly in rural and regional Australia, as well as support the economic development of Pacific nations and Timor-Leste. The PALM scheme commenced on 4 April 2022, consolidating two former labour schemes—the Seasonal Labour Mobility Programme and the Pacific Labour Scheme
1.42
Schedule 4 to the bill—and the Income Tax Amendment (Labour Mobility Program) Bill 2022—seek to make amendments to reduce the withholding tax rate on income earned by foreign resident workers under the PALM scheme to 15 percent, with effect from the 2022–23 income year. Presently, foreign workers participating in the PALM scheme are generally taxed as non-residents, starting at a marginal tax rate of 32.5 percent. PALM scheme workers who are considered Australian residents for tax purposes would pay ordinary resident tax rates.
1.43
Schedule 4 of the bill also proposes amendments to allow the concessional tax treatment (i.e. 15 percent withholding tax) to be extended to foreign resident workers under any new programs prescribed by regulations, rather than being required to amend the relevant taxation legislation. The EM comments that this provides ‘the necessary flexibility to make timely changes to tax arrangements to support the success of Australia’s existing and future labour mobility programs’.
1.44
The EM states that the measures in Schedule 4 are important in ensuring the success of the PALM scheme, further noting:
The amendments seek to increase Australia’s attractiveness as a destination of choice for foreign resident workers and importantly, support development and strategic objectives in the Pacific by ensuring that workers pay tax at a concessional rate on their earnings in Australia.
1.45
A comparison of key features of the new law proposed by Schedule 4 of the bill and the current law are listed in the table below:
Table 1.4: Summary of Schedule 4 amendments
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With effect from the 2022-23 income year, a final withholding tax of 15 per cent applies to each dollar of income derived by foreign resident workers under the PALM scheme.
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Generally, foreign residents are subject to the ordinary tax rates applying for foreign residents. For the 2022-23 and 2023-24 income years, the lowest marginal tax rate starting at 32.5 per cent applies from the first dollar of income earned up to $120,000. From the 2024-25 income year onwards, the lowest marginal tax rate starting at 30 per cent applies from the first dollar of income earned up to $200,000.
However, a final withholding tax of 15 per cent applies to each dollar of income derived by foreign resident workers under the Seasonal Labour Mobility program.
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Commencement
1.46
The amendments in Schedule 4 of the bill would apply in relation to salary, wages, commission, bonuses or allowances paid to an employee under the PALM scheme from 1 July 2022.
Consultation
1.47
The EM does not reference any consultation activities in relation to Schedule 4 of the bill.
Financial impact
1.48
The EM states that the Pacific Labour Mobility reforms measure was estimated to increase receipts by $165.0 million over the then forward estimates period. The financial impact for the current financial year and three years of forward estimates is outlined as follows.
Table 1.5: Financial impact of the Pacific Labour Mobility reforms ($m)
Source: Explanatory Memorandum, p. 4.
Legislative Scrutiny
1.49
The Scrutiny Committee has not raised any concerns with Schedule 4 of the bill or the Income Tax Amendment (Labour Mobility Program) Bill 2022.
Human rights implications
1.50
The Statement of Compatibility with Human Rights in the EM states that Schedule 4 of the bill and the Income Tax Amendment (Labour Mobility Program) Bill 2022 are compatible with the human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
1.51
The Human Rights Committee examined the bill but made no comment with regard to Schedule 4 and whether it raises any human rights concerns.
Compliance cost impact
1.52
The EM states that this measure would result in a negligible impact on compliance costs.
Schedule 5— Faith-based products
Background
1.53
Announced in the 2020-21 Budget, the former government’s Your Future, Your Super (YFYS) reform package was designed to ensure the superannuation system delivers outcomes in the best financial interests of members. The package was developed in response to recommendations of the Productivity Commission’s 2018 report, Superannuation: Assessing Efficiency and Competitiveness.
1.54
The Treasury Laws Amendment (Your Future, Your Super) Act 2021 (YFYS Act) implemented the YFYS reforms and came into effect on 1 July 2021, with supporting regulations made on 5 August 2021. Schedule 2 to the YFYS Act introduced an annual superannuation performance test, which aims to hold superannuation trustees to account for underperformance through greater transparency and increased consequences.
1.55
The Australian Prudential Regulation Authority (APRA) is required to conduct the superannuation performance test every year. The performance of a superannuation product is determined against a benchmark. APRA compares the product’s investment performance relative to a passive investment portfolio of indices (a benchmark portfolio), based on the product’s strategic asset allocation.
1.56
The EM summarises the conditions under which a superannuation product fails the performance test, and the consequences where failure does occur:
Products which fall short of the benchmark by more than 0.5 percentage points a year, on average, over a rolling eight-year period, fail the performance test and the trustee must notify the product’s beneficiaries by a standard letter as prescribed by the regulations. Products that fail the performance test in two consecutive years are prohibited from accepting new beneficiaries until they pass the performance test again.
1.57
The performance test was first applied to MySuper products from 1 July 2021. A total of 13 products failed the performance test for that year, two of which belonged to funds with religious affiliations—Australian Catholic Superannuation and Retirement Fund and Christian Super. These two funds who failed the performance test in 2021 have since merged with other funds, leaving only two religious funds—Anglican Super (managed by Mercer) and Crescent Wealth.
1.58
In December 2021, the then Shadow Assistant Treasurer, Mr Stephen Jones MP, announced that, if elected, it would ‘allow APRA to take into account the religious affiliation of a super fund when applying the recently-introduced performance benchmark’. Schedule 5 of the bill would implement this commitment through the introduction of a supplementary performance test for faith-based products.
1.59
The Assistant Treasurer outlined the importance of implementing a supplementary test for faith-based products in his second reading speech, commenting that the measure ‘will ensure that Australians of faith are able to participate fully in our superannuation system, without compromising on their values or on performance standards’.
Provisions
1.60
Schedule 5 to the bill proposes amendments to the Superannuation Industry (Supervision) Act 1993 (SIS Act) to provide for a supplementary annual performance test for faith-based products. A faith-based product would pass the annual performance test if it passes the original or the supplementary performance test.
1.61
The supplementary performance test would be implemented as part of the existing performance test framework, as set out in Part 6A of the SIS Act. The EM summarises the existing performance test framework:
…APRA must run the performance test for all Part 6A products. A ‘Part 6A product’ is defined in section 60B to mean MySuper products and other products to be specified in the SIS Regulations. APRA makes a determination of the performance test results by 31 August of that financial year. A product either meets the requirement for assessment under section 60D (that is, it passes the performance test) or does not meet the requirement for assessment (that is, it fails the performance test).
1.62
Under the proposed changes, a product would be defined as a faith-based product if it is a Part 6A product which APRA has determined to be a
faith-based product. APRA may determine that a product is a faith-based product if a trustee provides APRA with a valid application. A decision made by APRA as to whether or not a product is a faith-based product will not be a ‘reviewable decision’; that is, it would not be subject to a merits review.
1.63
The bill sets out the application requirements in order to be determined to be a faith-based product. A valid application must contain:
a declaration from the trustee(s) that the product’s investment strategy accords with faith-based principles;
a declaration from the trustee/trustees that they have:
disclosed their faith-based investment strategy to members of the product in a document required to be given to each beneficiary of the fund that holds the product in the financial year under the Corporations Act or the SIS Act; and
disclosed and in the future disclose their faith-based strategy in marketing materials;
one or more indices which APRA could use to assess the product’s performance; and
any other information prescribed by the regulations or a legislative instrument.
1.64
Faith-based products that pass the original performance test in a given financial year would not be subjected to the supplementary performance test. However, if a faith-based product fails the original performance test, it would be assessed against the supplementary performance test. In these circumstances, none of the consequences that are normally triggered by a product’s failure of the original test, as set out in the existing performance framework, would apply. Instead, those consequences would only be triggered if the faith-based product also fails the supplementary test.
1.65
The EM notes that requirements relating to the supplementary performance test, including the determination of appropriate alternative indices for a faith-based product, may be specified in regulations.
Consultation
1.66
The EM does not reference any consultation activities in relation to Schedule 5 of the bill.
1.67
However, a consultation on the exposure draft of the legislation was carried out by the Department of the Treasury (Treasury) between 20 July and
16 August 2022. Treasury received 15 submissions as part of its consultation process.
1.68
Common concerns raised by stakeholders in the consultation process included:
The proposed definition of a faith-based product, with some expressing concern that the definition is ‘circular’, lacking in detail and clarity.
A lack of appropriate indices by which to measure a product’s performance, both with regard to the existing operation of the superannuation performance test and the proposed supplementary test for faith-based products.
The equity of introducing a supplementary performance test, with some arguing that doing so creates an uneven playing field between faith-based and other values-based superannuation products.
Whether the changes proposed in the bill would better be considered as part of the wider review of the YFYS measures currently being undertaken by Treasury.
Financial impact
1.69
The EM states that there a no financial implications arising from the provisions in Schedule 5 of the bill.
Legislative scrutiny
1.70
In its Scrutiny Digest 5 of 2022, the Scrutiny Committee raised concerns with Schedule 5 of the bill regarding significant matters being included in delegated legislation and the availability of merits review.
Significant matters in delegated legislation
1.71
The Scrutiny Committee noted that Schedule 5 of the bill leaves significant elements of the proposed supplementary performance test scheme to the regulations. For instance, matters left to the regulations include the information that must be included in an application to be considered a faith-based product and the requirements relating to the supplementary test.
1.72
The Scrutiny Committee stated that ‘significant matters should be included within primary legislation unless a sound justification for the use of delegated legislation is provided’. The EM justifies individual uses of delegated legislation. For example, in relation to the power to specify requirements for the supplementary performance test, the EM notes that ‘regulation-making powers reduce the complexity of the SIS Act by removing the administrative and technical matters from the primary law’.
1.73
Notwithstanding this, the Scrutiny Committee expressed the view:
…in this instance, it appears that substantial elements of the scope and operation of the legislative scheme proposed to be introduced by
Schedule 5 of the bill will be left to delegated legislation. The committee considers that it would be more appropriate to include this information within the primary legislation to allow an appropriate level of parliamentary oversight.
Availability of merits review
1.74
Under proposed subsection 60L(4) of the bill, APRA may make a determination that product is a faith-based product if a trustee provides APRA with a valid application within the relevant period. The EM states that ‘APRA’s decision whether or not to determine a product is a faith-based product will not be a ‘reviewable decision’ within the meaning of the SIS Act’. The EM further notes that such a decision constitutes an ‘automatic decision’ and is therefore unsuitable for merits review in accordance with the Administrative Review Council’s guidelines.
1.75
The Scrutiny Committee questioned the explanation that a decision to determine that a product is a faith-based product is an automatic decision, given that proposed subsection 60L(4) states that ‘APRA may make a determination’, further noting:
…there is nothing on the face of the bill mandating that a subsection 60L(4) determination must be made upon receipt of a valid application.
Human rights implications
1.76
The Statement of Compatibility with Human Rights in the EM states that Schedule 5 of the bill is compatible with the human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
1.77
The EM notes that the bill engages with the right to freedom of thought, conscience and religion. However, by supporting individuals’ ability to choose a superannuation product in line with their religious beliefs, Schedule 5 promotes the right to freedom of thought, conscience and religion. Schedule 5 of the bill is consequently considered compatible with human rights.
1.78
The Human Rights Committee examined the bill but made no comment with regard to Schedule 5 and whether it raises any human rights concerns.
Compliance cost impact
1.79
The EM states that the compliance cost impact of this measure will be low.
Conduct of the inquiry
1.80
The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting written submissions by 12 October 2022.
1.81
The committee received seven submissions, as well as additional information and answers to questions on notice, which are listed at Appendix 1.
1.82
The committee held one public hearing for the inquiry in Canberra on
18 October 2022. The names of witnesses who appeared at the hearing can be found at Appendix 2.
Acknowledgements
1.83
The committee thanks all individuals and organisation who assisted with the inquiry, especially those who made written submission and participated in the public hearing.