CHAPTER 8

Twenty-third Report of the Senate Select Committee on Superannuation
SUPERANNUATION SURCHARGE LEGISLATION
TABLE OF CONTENTS

CHAPTER 8

PRIVACY

Overview

8.1 The issue of privacy arises in relation to the surcharge legislation because of the method by which an individual's surcharge liability is assessed. In order to determine whether an individual's adjusted taxable income exceeds the $70 000 surcharge liability threshold, details of an individual's superannuation contributions need to be matched with the individual's income by using his or her tax file number (TFN).

8.2 While originally TFNs were used only for income tax purposes, over recent years the use of TFNs has been extended to other areas such as child support, higher education contributions and taxation on superannuation payouts. [1] The use of TFNs for the administration of the superannuation surcharge represents a further significant extension of the allowable uses of TFNs, [2] the privacy implications of which were raised by the Privacy Commissioner in her submission to the Committee. Her concerns included:

8.3 Each of these concerns is discussed below.

Another extension to the use of TFNs

8.4 Members of the Committee questioned the Privacy Commissioner about her views on the latest extension to the allowable uses of TFNs, in particular, her apparent acquiescence in the face of the Government's decision to go ahead with the legislation despite privacy concerns.

8.5 The Privacy Commissioner, Ms Scollay, indicated that under the Privacy Act:

8.6 Ms Scollay stressed that her acquiescence with regards to the use of TFNs for the administration of the superannuation surcharge should not be seen as support for the extension:

8.7 Mr Nigel Waters from the Privacy Commissioner's Office added that, while the Office had communicated their concerns about the legislation to the Government, once the decision had been taken to continue, the Commissioner's role became one of minimising the privacy intrusiveness of the legislation. [5] Mr Waters emphasised that the balance between privacy and administrative efficiency was set by Parliament.

8.8 Ms Scollay indicated that:

Voluntary quotation principle

8.9 Concerns about the possible misuse of tax file numbers prompted the introduction of specific guidelines on the collection, storage, use and disclosure of TFNs. One of the principles embodied in these guidelines is that an individual should have the right to choose whether or not to quote his or her TFN. This principle is referred to as the 'voluntary quotation' principle. [7]

8.10 The Privacy Commissioner expressed concern that the legislation requires all superannuation fund members to quote their TFNs, regardless of whether their income falls below the surcharge liability threshold, or be liable to pay the surcharge. [8] This situation brings into question the principle of 'voluntary quotation' because individuals who choose not to quote their TFN are subject to a penalty.

8.11 To ensure that the 'voluntary quotation' principle is adhered to, an individual must be given the opportunity to object to his or her TFN being used for a purpose other than the one for which it was provided. There are two ways in which this can be achieved: the 'opt in' approach or the 'opt out' approach.

Opting in or out?

8.12 An 'opt in' approach requires the active consent of an individual for a proposed course of action. That is, where an individual is notified of a particular course of action, the individual must formally respond and indicate his or her agreement. An 'opt out' approach refers to a situation where no formal response is made to a notification of a particular course of action, and that failure to respond is taken to imply agreement with the proposed action.

8.13 The Privacy Commissioner indicated that her preference was for the 'opt in' approach. The 'opt out' approach, in her opinion:

8.14 The Privacy Commissioner stressed the importance of providing individuals with sufficient information on why the TFN is needed, what it will be used for and the consequences of not providing the TFN, to enable them to make an informed choice about whether or not to quote their tax file numbers. [10] This information should be reinforced by means of a public education campaign. [11]

TFNs held by superannuation funds/employers

8.15 Where an individual has already provided his or her TFN to a superannuation fund for other superannuation purposes, the fund is required to notify the individual of its intention to forward the individual's TFN to the ATO for the purpose of administering the surcharge. The individual has 30 days in which to respond, after which time, if no objection has been raised, the TFN is forwarded to the ATO. Where an employer has an individual's TFN for superannuation purposes, the same procedure must be followed.

8.16 When questioned at a public hearing of the Committee about the use of the 'opt out' approach in these circumstances, Mr Waters indicated that:

8.17 However, in cases where an individual has provided his or her TFN to an employer for taxation purposes, Mr Waters added that:

TFNs held by the ATO

8.18 Where the Tax Office has an individual's TFN, the Tax Office requires the individual's consent to pass on the TFN to the superannuation provider in order to streamline future matching. The Privacy Commissioner indicated that this 'opt in' approach is her preferred approach. She added, however, that:

Personal information not covered by privacy laws

8.19 In her submission to the Committee, the Privacy Commissioner expressed concern that personal information, particularly information relating to income, will be provided to organisations not covered by privacy laws. Currently, superannuation providers do not fall within the jurisdiction of the Privacy Act. [15]

8.20 A related concern arises where the trustee of a superannuation fund is an employee of the same company as the individual who has been assessed for his or her surcharge liability. The trustee may in fact sit in the desk next to that individual. The information provided to the trustee would enable the trustee to determine with a fair degree of accuracy the taxable income of his or her fellow employee. [16]

8.21 A submission by William M. Mercer Pty Ltd summarised this issue succinctly:

8.22 Mercer argued that there is no way under the proposed system that this can be avoided unless the member declines to provide a TFN. However, non provision of a TFN will result in the fund incurring a surcharge each year. Further, there is no interest payable by the ATO in respect of surcharge assessments subsequently reduced because of the later provision of a TFN.

8.23 Mercer concluded that: "This makes the maintenance of privacy a very costly exercise for superannuation fund members." [18]

8.24 When questioned about the possibility of superannuation funds deducing their members' level of income from the surcharge assessments provided by the ATO, Ms Scollay replied that:

Safeguards

8.25 The Privacy Commissioner was questioned about whether there were sufficient safeguards under current superannuation legislation to protect against the misuse of TFNs and unauthorised disclosure of personal information, and whether any such safeguards were as strict as those contained in the income tax law.

8.26 Ms Scollay indicated that she had been assured that the Superannuation Industry (Supervision) Act 1993 (the SIS Act) provided sufficient safeguards and penalties for unauthorised disclosure. However, in a supplementary submission, the Commissioner advised that while there were safeguards to protect personal information held by superannuation providers:

8.27 The Commissioner advised that this situation could be overcome by applying all privacy principles in the Privacy Act to superannuation providers with respect to the administration of the surcharge, [21] or by including in the surcharge legislation provisions for a Minister to make principles (disallowable instruments) on matters including the acquisition, storage, use and disclosure of personal information held by superannuation funds. Penalties for failure to comply with any such principles should also be included in the legislation. [22]

Monitoring privacy compliance by the superannuation industry

8.28 Under the superannuation surcharge legislation, there is no role for the Privacy Commissioner to monitor the privacy compliance of superannuation providers. When questioned on this issue, Ms Scollay commented that if the Privacy Commissioner had that role it would provide an extra safeguard and easier access to a complaints mechanism. [23]

8.29 In her supplementary submission, the Privacy Commissioner indicated that if required to monitor privacy compliance, her office would need either a modest increase in resources or would have to divert some existing resources away from other tasks. [24]

 

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Footnotes

[1] Submission 29, p. 2.

[2] Submission 29, p. 3.

[3] Evidence, p. 131.

[4] Evidence, p. 134.

[5] Evidence, p. 132.

[6] Evidence, p. 134.

[7] Submission 29, p. 2.

[8] Submission 29, p. 3

[9] Submission 29, p. 4.

[10] Submission 29, p. 4

[11] Submission 29, p. 4; Evidence, p. 137.

[12] Evidence, p. 139

[13] Evidence, p. 139.

[14] Evidence, p. 140.

[15] Submission 29, p. 5.

[16] Evidence, eg pp. 188, 228; Submission 9, pp. 5-6

[17] Submission 9, pp. 5-6.

[18] Submission 9, p. 6.

[19] Evidence, p. 142.

[20] Supplementary Submission, 14 March 1997, p. 2.

[21] Supplementary Submission, 14 March 1997, p. 2.

[22] Supplementary Submission, 14 March 1997, p. 2.

[23] Evidence, p. 143.

[24] Supplementary Submission, 14 March 1997, p. 3.