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:
- a general concern about the further extension of the use of the TFN;
- the impact of the extension on the 'voluntary quotation' principle;
- the transfer of personal information to organisations not covered
by privacy laws; and
- the possibility that superannuation providers will be able to deduce
the total income of their members from the surcharge assessments provided
by the Australian Taxation Office (ATO).
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:
... there is both the requirement for me to highlight issues around
privacy, which we have been doing actively all the way through this
process, plus balancing that with the administrative need for efficient
and effective processes. [3]
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:
On every occasion on which the tax file number has been looked at being
extended, you can expect to see concern from me. I would never want
you to assume that you could say that I am quite happy about it. [4]
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:
...when it seems that the parliament is making a decision that it is
going down an administrative efficiency route, then my job is to make
sure that, given that it is then as little privacy intrusive as possible
and the safeguards are there, the way it is administered will give as
much credence to privacy principles as we possibly can. [6]
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:
...represents a number of risks to privacy, including the possibility
that individuals will fail to exercise their choice because of lack
of information, inadequate understanding, or inertia. [9]
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:
where the [tax file number] is already held for superannuation purposes,
opt out is considered an adequate basis for using it for the surcharge.
[12]
8.17 However, in cases where an individual has provided his or her TFN
to an employer for taxation purposes, Mr Waters added that:
the tax office's view to date has been that an opt in would be required,
and that is the subject of current discussions about whether that is
necessary or not. [13]
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:
...if that is going to be administratively disadvantageous to the people-where
they end up with a surcharge when they should not-then we are again
prepared to talk to the tax office about whether opt out is not going
to disadvantage people. [14]
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:
The proposed system will give the trustees of superannuation funds
considerable information about each member's taxable income. The information
will enable trustees (who will include employer and member elected representatives)
to determine: - whether the member's taxable income exceeds $85,000;
- the exact taxable income if it is between $70,000 and $85,000;
- whether the member's taxable income is less than $70,00 [17]
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:
Level of income is about the most privacy sensitive piece of data,
from our research, that exists in the community. The community is very
concerned about income and there is always a concern when income information
moves into another sphere. So I thought it was necessary to register
that concern in my submission and in my oral evidence today, that whenever
there is a broader use of income than has been used in the past it is
a privacy concern. [19]
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:
...these protections are not of the same level as those found in either
the Privacy Act or the secrecy provisions in the Income Tax Assessment
Act. [20]
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]
[GO TO CHAPTER 9]
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.
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