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These Bills form part of a package of legislation designed to
give a legislative framework for the introduction of a superannuation
contributions surcharge for high income earners. [1]
1. On 23 October 1997, the Senate referred the following six Bills to
this Committee for inquiry and report by 17 November 1997:
- the Superannuation Contributions Tax (Members of Constitutionally
Protected Superannuation Funds) Assessment and Collection Bill 1997;
- the Superannuation Contributions Tax (Members of Constitutionally
Protected Superannuation Funds) Imposition Bill 1997;
- the Superannuation Contributions and Termination Payments Taxes Legislation
Amendment Bill 1997;
- the Superannuation Contributions Tax Imposition Amendment Bill 1997;
- the Superannuation Legislation Amendment (Superannuation Contributions
Tax) Bill; and
- the Termination Payments Tax Imposition Amendment Bill 1997.
2. The reasons for referral and the principal issues for consideration
were:
- the impact of the Bills on fund members to whom the contributions
tax applies; and
- to investigate the impact of the Bills on the superannuation industry
and fund members.
3. The Committee contacted a number of organisations seeking submissions
and expressions of interest, and conducted a public hearing in Canberra
on 28 October 1997. Six submissions were received and the names of those
making submissions, together with a list of the witnesses who gave evidence
at the public hearing, are listed in Appendices A and B.
4. The Committee expresses its appreciation to those persons and organisations
who made submissions and gave oral evidence.
The issues dealt with in the Bills
5. Detailed explanations of each Bill are provided by the relevant Explanatory
Memoranda and second reading speeches. It is recognised that the terminology
"surcharge" is strictly no longer applicable. However, the Government's
background material continues to use the word and for the sake of convenience
the term "surcharge" will be used in this report to cover the
superannuation contributions tax.
Superannuation Contributions Tax (Members of Constitutionally Protected
Superannuation Funds) Assessment and Collection Bill 1997
6. This bill provides for the assessment and collection of the surcharge
from members of constitutionally protected superannuation funds.
Superannuation Contributions Tax (Members of Constitutionally Protected
Superannuation Funds) Imposition Bill 1997
7. This bill imposes the surcharge on members of constitutionally protected
funds.
Superannuation Contributions and Termination Payments Taxes Legislation
Amendment Bill 1997
8. This Bill makes consequential amendments to a number of Acts as a
result of the two Bills above. It also makes technical amendments to 'clarify
the operation of the surcharge'. [2]
Superannuation Contributions Tax Imposition Amendment Bill 1997
9. Through the provisions of this Bill, the Superannuation Contributions
Tax Imposition Act 1997 is amended to round the rate of surcharge imposed
under the Act to five decimal places. The Bill also makes technical amendments
to that Act concerning the actions the Commissioner must take where a
member has not provided his or her tax file number.
Superannuation Legislation Amendment (Superannuation Contributions
Tax) Bill 1997
10. This Bill amends nine Acts covering superannuation arrangements for:
- Federal Parliamentarians;
- the Governor-General;
- certain Judges and tribunal members;
- certain Defence Force personnel; and
- Commonwealth civilian employees.
11. The purpose of the amendments is to build on earlier legislation,
ensuring that the surcharge applies to high income-earning members of
those schemes and providing for reductions in the benefits payable to
such members when a surcharge debt has been paid from the relevant scheme.
Termination Payments Tax Imposition Amendment Bill 1997
12. This Bill amends the Termination Payments Tax Imposition Act rounds
the rate of termination payments surcharge imposed under that Act to five
decimal places.
GOVERNMENT SENATORS' VIEWS
13. The following section represents the views of Senator John Watson
(Chairman), Senator Alan Ferguson and Senator Julian McGauran.
Limitations of the inquiry
14. In response to a firm request from the Government that the Committee
report quickly, the Committee agreed to report on Monday 10 November 1997.
In order to meet this deadline, a public hearing was held on Tuesday 28
October during the sitting of the Senate.
15. The tight timeframe was due to the Government's desire to bring on
debate at the earliest opportunity to give maximum time for funds to meet
the reporting deadline of 15 December 1997. There had been delays in presenting
the legislation to the Parliament due to the need to cover a significant
number of technical issues that arose during and subsequent to the Committee's
previous inquiry on this matter. The Institute of Actuaries has been heavily
involved in determining the standards surrounding the "notional contribution"
rates. This has been a time consuming exercise involving much negotiation
and discussion.
16. On the passage of the legislation, important regulations can then
be tabled and taxation rulings issued.
17. While the thrust of the intent of the legislation has been around
for a considerable time, taxpayers and others affected by the change are
entitled to a reasonable timeframe between the finalisation of the legislative
prescriptive requirements and the 15 December 1997 deadline, when member
contribution statements are due to be forwarded to the ATO. However, the
Committee has been informed that the ATO will consider each case on its
merits. The Institute of Actuaries, a major player in determining the
liability who did not appear before the Committee, took a considerable
time in finalising their position.
18. The legislation also includes provisions for the Commissioner of
Taxation to grant extensions of time to funds in respect of the 15 December
reporting date. On the basis of the evidence, it is clear that many funds
may need to use these provisions.
19. Many of the issues have been covered at length in the previous report
and extensively debated in the Parliament. The Government members have
therefore decided not to address each issue raised in evidence in detail.
The evidence
20. The evidence received by the Committee was in two key areas. These
are:
- evidence specifically on the content of the bills; and
- evidence of a more general nature.
21. Witnesses who gave evidence on the provisions of the bills concentrated
on several key areas. These were as follows:
- the mounting volume of the legislation and difficulties of comprehension;
- industry's ability to meet the December 15 reporting deadline;
- delays in provision of final guidelines, making compliance difficult;
- expanded reporting requirements;
- practicality of applying the surcharge to defined benefits schemes;
- differences in the application of the 15 per cent cap on surcharge
liabilities on members of constitutionally protected schemes, commonwealth
schemes and private sector schemes;
- application of the surcharge to investment earnings within accumulation
schemes through taxation of surplus allocation amounts;
- possible retrospective application of the surcharge to taxation of
surplus allocation amounts;
- possible difficulties with the definition of "allocated surplus
amounts" in the bills; and
- effect of surcharging "notional contributions" where benefits
are not fully vested.
22. Private sector witnesses also gave evidence of a more general nature
about the operation of the surcharge. Points argued by witnesses included:
- complexity of the legislation;
- compliance and administration costs;
- incidental application of surcharge administration costs to moderate
income earners;
- low response rates to requests for tax file numbers and consequent
application of the surcharge to non-target groups;
- application of the surcharge to the full amount of rolled over termination
payments regardless of service period;
- the different treatment of ETPs taken as cash; and
- application of the surcharge to death and disablement superannuation
policies.
23. As stated above, many of these issues have been raised and responded
to in debate during the passage of the original legislation. The Committee
was advised of possible technical anomalies in the legislation, many of
which drew a response from departmental representatives. The Committee
has attached a tabulated list of the issues at Appendix D. This table
was based on detailed issues raised in a written submission by Coopers
and Lybrand. As the Assistant Treasurer has specifically addressed the
issues raised by Coopers and Lybrand, the Government Senators believe
that it would be appropriate for the submission to be reproduced in full
in this report. The submission appears at Appendix E.
24. The Assistant Treasurer wrote to the Chairman of the Committee on
6 November and provided a detailed response to matters raised in the Coopers
and Lybrand submission relating to alleged drafting and associated problems
with the Bills. The text of that response is provided in Appendix F.
25. Given the very technical nature of this legislation, Government Senators
consider it understandable that some confusions and misunderstandings
arising from the detailed drafting would occur. The Minister's response
acknowledges that amendments to the Bills in one area are being considered
by the Government. Government Senators believe the response addresses
the issues raised.
26. By including the Minister's response as an appendix to this report,
it is hoped the Senate will be further assisted in its deliberations on
these Bills.
Conclusions and recommendations
Given that the Opposition has indicated general support to the bills
in the House of Representatives and that there is an urgent need to finalise
the details of the legislation so that the industry can proceed to put
in place any changes needed to meet its reporting deadlines, the Government
Senators recommend that the bills be passed by the Senate without delay.
(Signed)
Senator John Watson Senator Alan Ferguson Senator Julian McGauran
Chairman
Footnotes
[1] Explanatory Memorandum for five of the Bills,
p. 1.
[2] Explanatory Memorandum for five of the Bills,
p. 1.
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