Scrutiny of Bills Thirteenth Report of 1999

1 September 1999

ISSN 0729-6258

MEMBERS OF THE COMMITTEE

Senator B Cooney (Chairman)

Senator W Crane (Deputy Chairman)

Senator T Crossin

Senator J Ferris

Senator B Mason

Senator A Murray

TERMS OF REFERENCE

Extract from Standing Order 24

(1)

(a) At the commencement of each Parliament, a Standing Committee for the Scrutiny of Bills shall be appointed to report, in respect of the clauses of bills introduced into the Senate, and in respect of Acts of the Parliament, whether such bills or Acts, by express words or otherwise:

(i) trespass unduly on personal rights and liberties;

(ii) make rights, liberties or obligations unduly dependent upon insufficiently defined administrative powers;

(iii) make rights, liberties or obligations unduly dependent upon non-reviewable decisions;

(iv) inappropriately delegate legislative powers; or

(v) insufficiently subject the exercise of legislative power to parliamentary scrutiny.

(b) The Committee, for the purpose of reporting upon the clauses of a bill when the bill has been introduced into the Senate, may consider any proposed law or other document or information available to it, notwithstanding that such proposed law, document or information has not been presented to the Senate.

SENATE STANDING COMMITTEE FOR THE SCRUTINY OF BILLS

THIRTEENTH REPORT OF 1999

The Committee presents its Thirteenth Report of 1999 to the Senate.

The Committee draws the attention of the Senate to clauses of the following which contain provisions that the Committee considers may fall within principles 1(a)(i) to 1(a)(v) of Standing Order 24:

Australian Radiation Protection and Nuclear Safety Act 1998

Australian Radiation Protection and Nuclear Safety (Consequential Amendments) Act 1998

Social Security Amendment (Disposal of Assets) Bill 1999

Superannuation Contributions and Termination Payments Taxes Legislation Amendment Bill 1999

Australian Radiation Protection and Nuclear Safety Act 1998

Introduction

The Committee dealt with the bill for this Act in Alert Digest No. 10 of 1998, in which it made various comments. The Minister for Health and Aged Care has responded to those comments in a letter dated 25 August 1999. A copy of the letter is attached to this report. Although this bill has now been passed by both Houses (and received Royal Assent on 24 December 1998) the Minister's response may, nevertheless, be of interest to Senators. Relevant parts of the response are discussed below.

Extract from Alert Digest No. 10 of 1998

This bill was introduced into the House of Representatives on 11 November 1998 by the Minister for Health and Aged Care. [Portfolio responsibility: Health and Aged Care]

The bill proposes to establish a scheme to regulate the operation of nuclear installations and the management of radiation sources, including ionizing material and apparatus and non-ionizing apparatus, where these activities are undertaken by Commonwealth entities.

Abrogation of the privilege against self-incrimination

Subclause 66(2)

Subclause 66(1)(e) of this bill authorises an inspector to require any person on particular premises to answer any questions put by the inspector and produce any documents requested by the inspector. Subclause 66(2) seems to make compliance an absolute requirement.

Subclause 66(2) is in the same form as subclause 55(2) in a bill of the same name which was introduced into the House of Representatives on 8 April 1998 and on which the Committee reported in its Seventh Report of 1998. In that Report, the Committee referred to correspondence from the Parliamentary Secretary to the Minister for Health and Family Services. This correspondence confirmed the Government's intention that the bill should not abrogate the privilege against self-incrimination, and proposed to clarify this by including a statement to this effect in the Explanatory Memorandum to the bill.

The Committee notes that neither the current bill, nor its Explanatory Memorandum, refers to the privilege against self-incrimination. The Committee also notes the different approach taken in subclause 16(2) of the Anti-Personnel Mines Convention Bill 1998, presently before the Parliament, which specifies that a person is guilty of an offence if that person recklessly contravenes a requirement to answer questions or produce documents. The Explanatory Memorandum to this bill states that the offence created does not abrogate the privilege against self-incrimination.

Accordingly, the Committee reiterates the observations in its Seventh Report of 1998 and seeks the advice of the Minister as to:

the reason why neither the bill nor its Explanatory Memorandum clarifies the intention to retain the privilege against self-incrimination; and
the disadvantages, if any, of the different approach to the same issue adopted in the Anti-Personnel Mines Convention Bill 1998.

Pending the Minister's advice, the Committee draws Senators' attention to this provision, as it may be considered to trespass unduly on personal rights and liberties, in breach of principle 1(a)(i) of the Committee's terms of reference.

Relevant extract from the response from the Minister

As detailed in previous correspondence to the Committee on this matter, the Attorney-General's Department advised that subclause 66(2) is highly likely not to abrogate the privilege against self-incrimination. When the Bill was before Parliament in June 1998, my former Parliamentary Secretary, the Hon P.M. Worth MP, wrote to the Committee agreeing to issue a corrigendum to the Explanatory Memorandum to clarify the intent of the provision in this regard. Unfortunately, when the Bill was reintroduced into Parliament following the Federal election, the change to the explanatory memorandum was not made. However, it is my clear intention that the provision not abrogate the privilege against self-incrimination. I believe this is supported by the original advice from the Attorney-General's Department which indicates that:

there is no express contrary intention that clause 55 (now section 67) alters the application of the privilege against self-incrimination; and
the language and character of the clause, and the character and purpose of the clause within the context of the legislation, indicates that it is highly unlikely that the clause abrogates the privilege against self-incrimination by necessary implication.

The Committee thanks the Minister for this response.

Australian Radiation Protection and Nuclear Safety (Consequential Amendments) Bill 1998

Introduction

Extract from Alert Digest No. 10 of 1998

This bill was introduced into the House of Representatives on 11 November 1998 by the Minister for Health and Aged Care. [Portfolio responsibility: Health and Aged Care]

The bill proposes to make consequential changes to the Australian Nuclear Science and Technology Organisation Act 1987 and to provide for transitional arrangements to cover the operation of controlled facilities and the handling of radiation sources while applications for licences to cover these facilities and activities are being made under the proposed Australian Radiation Protection and Nuclear Safety Bill 1998. The bill also proposes to repeal the Environment Protection (Nuclear Codes) Act 1978.

Commencement

Subclause 2(2) and Schedule 1, item 5

By virtue of subclause 2(2), the amendment proposed by item 5 of Schedule 1 to the bill is to commence on Proclamation, with no further time specified within which the bill either must come into force or be repealed. The Committee notes that paragraph 6 of Office of Parliamentary Counsel Drafting Instruction No 2 of 1989 suggests that such an approach should be used only in unusual circumstances, where commencement depends on an event whose timing is uncertain.

Accordingly, the Committee seeks the advice of the Minister on the reason for departing from the Drafting Instruction.

Pending the Minister's advice, the Committee draws Senators' attention to the provision, as it may be considered to delegate legislative power inappropriately, in breach of principle 1(a)(iv) of the Committee's terms of reference.

Relevant extract from the response from the Minister

The Committee sought an explanation on why subclause 2(2) provides for the commencement of an amendment repealing the Environment Protection (Nuclear Codes) Act 1978 on Proclamation. The Committee advised that Office of Parliamentary Counsel Drafting Instructions No. 2 of 1989 suggest that this approach should only be used in unusual circumstances where commencement depends on an event whose timing is uncertain.

Such circumstances exist in the present case. Each of the States and Territories has legislation regulating radiation and nuclear activities in that jurisdiction. The various pieces of legislation reference Codes developed under the Environment Protection (Nuclear Codes) Act 1978. Before the Act is repealed, it will be necessary for all jurisdictions to make minor amendments to their legislation to enable continued reference to the three Codes developed to date, under the Environment Protection (Nuclear Codes) Act 1978. Consultations are currently underway with all jurisdictions and, subject to Parliamentary timeframes, it is anticipated that the provision repealing the Environment Protection (Nuclear Codes) Act 1978 will be proclaimed before January 2000.

I trust this addresses the Committee's concerns.

The Committee thanks the Minister for this response.

Social Security Amendment (Disposal of Assets) Bill 1999

Introduction

The Committee dealt with this bill in Alert Digest No. 11 of 1999, in which it made various comments. The Minister for Family and Community Services has responded to those comments in a letter dated 24 August 1999. A copy of the letter is attached to this report. An extract from the Alert Digest and relevant parts of the Minister's response are discussed below.

Extract from Alert Digest No. 11 of 1999

This bill was introduced into the House of Representatives on 30 June 1999 by the Minister for Community Services. [Portfolio responsibility: Family and Community Services]

The bill proposes to amend the Social Security Act 1991 to:

reduce from $10,000 to $5,000 the “free area” that a person or couple may gift before that gift begins to impact on the level of assistance provided to them; and
change the basis of the concession from “pension year” to “financial year”.

Retrospective application

Clause 2

Clause 2 of this bill provides that, to some extent, it is to commence retrospectively, on 1 July 1999. Further, the bill will adversely affect recipients of social security benefits by reducing the value of assets of which they may dispose in any year without affecting their entitlement to those benefits.

However, item 20 of the Schedule proposes to protect social security beneficiaries from those adverse effects where they dispose of assets between 1 July 1999 and the date on which the bill is assented to. The Explanatory Memorandum observes that the effect of this item is that “amounts paid prior to the Royal Assent under the existing disposal rules are protected from recovery insofar as the provisions of this Act are concerned”.

While the bill is expressed to apply retrospectively, this item seems to reverse the effect of that retrospectivity. Given this, it is not clear why retrospectivity is thought necessary. It is also not clear whether this protection provided by item 20 will be available to all social security beneficiaries, or only a particular class of beneficiaries. The Committee, therefore, seeks the Minister's advice to clarify why the bill has taken this approach to retrospectivity, and whether any particular group of social security beneficiaries may be disadvantaged by the approach taken.

Pending the Minister's advice, the Committee draws Senators' attention to the provision, as it may be considered to trespass unduly on personal rights and liberties, in breach of principle 1(a)(i) of the Committee's terms of reference.

Relevant extract from response from the Minister

Your Committee has sought my advice on the question of the method chosen to ensure that the Bill does not operate retrospectively.

The relevant provisions in the Bill are:

Clause 2 of the Bill provides that the Bill commences on 1 July 1999.

Item 20 in the Schedule inserts a new Item 127 into Schedule 1A of the Social Security Act 1991. New Item 127 provides that where the Social Security (Disposal of Assets) Act 1999 commences on or after 1 July 1999, amounts paid prior to the Royal Assent under the existing disposal rules are protected from recovery insofar as the provisions of that Act are concerned.

Your Committee correctly observes that the new item reverses the effect of what would otherwise be a retrospective commencement. This is not to say, however, that the 1 July 1999 commencement is completely negated.

It is true that social security payments paid prior to the eventual commencement of the Act are completely protected by this provision, and I should add that this provision provides this protection for all social security recipients.

However, social security payments paid after the commencement of the Act may still be affected by the new disposal limits on and from 1 July 1999. That is to say, if on and after 1 July 1999 an amount is disposed of in the terms of the Act, and that amount exceeds the new limit of $5000, then from the date of commencement of the new provisions that amount will be taken into account under the new rules to reduce social security payment amounts paid after the commencement.

I trust the above comments are of assistance to the Committee.

The Committee thanks the Minister for this response.

Superannuation Contributions and Termination Payments Taxes Legislation Amendment Bill 1999

Introduction

The Committee dealt with this bill in Alert Digest No. 11 of 1999, in which it made various comments. The Assistant Treasurer has responded to those comments in a letter dated 30 August 1999. A copy of the letter is attached to this report. An extract from the Alert Digest and relevant parts of the Assistant Treasurer's response are discussed below.

Extract from Alert Digest No. 11 of 1999

This bill was introduced into the House of Representatives on 30 June 1999 by the Parliamentary Secretary to the Minister for Finance and Administration. [Portfolio responsibility: Treasury]

The bill proposes to amend the following Acts:

Superannuation Contributions Tax (Assessment and Collection) Act 1997 to:

remove the requirement for the Commissioner to determine an advance instalment if superannuation contributions surcharge is payable for a member for a financial year; and
provide for a system of self assessment for specified superannuation funds;

Superannuation Contributions Tax (Assessment and Collection) Act 1997 and Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 to:

clarify what surchargeable contributions are and how they are to be calculated;
clarify the identity of the holder of the surchargeable contributions of a member for a particular financial year who is to pay the surcharge liability;
provide a means for members of constitutionally protected schemes who transfer benefits to another fund to direct the transferee provider to pay the surcharge liability from the benefits transferred;
ensure that members of all superannuation funds who commute part of a pension to pay a surcharge liability are treated equitably;
provide alternative reporting requirements for superannuation providers to reduce administration costs incurred in reporting surcharge information to all members; and
clarify what is to be reported to the Commissioner in respect of surchargeable contributions and contributed amounts; and

Superannuation Contributions Tax (Assessment and Collection) Act 1997, Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 and Termination Payments Tax (Assessment and Collection) Act 1997 to:

distinguish between the making of an assessment and the assessment notice;
support the making and electronic transmission of assessments;
provide that the validity of an assessment (and determination of advance instalment where appropriate) is not affected by any non-compliance;
limit the time in which the Commissioner can amend an assessment; and
expand the objection provisions and remove current limits on the rights of members and providers to object against surcharge assessments; and

Income Tax Assessment Act 1936, the Superannuation Industry (Supervision) Act 1993 and the Taxation Laws Amendment Act (No. 3) 1997 to make technical amendments.

Retrospective application

Subclauses 2(2) and 2(3)

Subclause 2(2) of the bill provides that the substantive provisions in Schedule 1 are taken to have commenced retrospectively on 5 June 1997. Similarly, subclause 2(3) provides that the substantive provisions in Schedule 2 are taken to have commenced retrospectively on 7 December 1997. The Explanatory Memorandum simply notes that “Some of the amendments will apply retrospectively to ensure the surcharge measure applies equitably to both defined benefit fund members and to members of funds other than defined benefit funds”.

In addition, item 28 of Schedule 1 to the bill proposes to insert a new subsection 42(2) in the Superannuation Contributions Tax (Assessment and Collection) Act 1997. This will allow for the making of regulations with retrospective effect, contrary to subsection 48(2) of the Acts Interpretation Act 1901. The Committee seeks the Treasurer's advice as to why so many of the provisions proposed by this bill are to operate retrospectively; why the bill is to apply retrospectively for a period as long as 2 years; whether this retrospective application will detrimentally affect anyone; and why the bill authorises the making of regulations with retrospective effect.

Pending the Treasurer's advice, the Committee draws Senators' attention to the provisions, as they may be considered to trespass unduly on personal rights and liberties, in breach of principle 1(a)(i) of the Committee's terms of reference.

Relevant extract from the response from the Minister

The Senate Standing Committee was concerned that the provisions of the Bill may be considered to trespass unduly on personal rights and liberties, in breach of principal 1(a)(i) of the Committee's terms of reference and has sought the Treasurer's advice as to:-

i) why so many of the provisions proposed by this Bill are to operate retrospectively;

ii) why the Bill is to apply retrospectively for a period as long as 2 years;

iii) whether this retrospective application will detrimentally affect anyone; and

iv) why the Bill authorises the making of regulations with retrospective effect.

The Government regards the introduction of the superannuation contributions surcharge for high income earners as a major superannuation reform initiative. It was concerned to make the superannuation system more equitable for all Australians, while also ensuring that superannuation remains an attractive savings option. In this regard, high income earners were benefiting from the concessional taxation arrangements to a much greater extent than low income earners.

The Government has always been of the view the legislation applying to the surchargeable contributions of high income earners from 20 August 1996 is unambiguous and sets out what is required to be reported and what is surchargeable. This was more so after the relevant legislation was amended in December 1997 to address a perception that the surcharge may not apply to defined benefit funds or to defined benefit funds on `contribution holidays'.

The majority of funds (in excess of 95%) reported surchargeable contributions for the years ended 30 June 1997 and 1998 based on the requirements of the legislation, notwithstanding the fact that a number of funds had received legal advice that there may be issues about the application of the legislation to funds. Unfortunately, a small number of funds (estimated to be less than 5% of all funds) have lodged reports with reduced or nil surchargeable contributions. Some of these funds have reported on the basis that there were no actual contributions because the fund was on a contributions holiday, irrespective of the December 1997 amendments.

The Government decided to move amendments to remove any doubt about what superannuation contributions are subject to the surcharge, how those amounts are to be calculated, what guidelines actuaries are to use to calculate notional factors and what is to be reported to the Commissioner of Taxation for surcharge purposes. In conjunction with these amendments, it decided to clearly identify the holder of the surchargeable contributions of a member for a particular financial year who is to pay the surcharge liability. It also decided to remove the need to determine an advance instalment and to provide for a self-assessment regime for specified funds.

Prior to the drafting of the Bill, there was extensive consultation with industry representatives and industry bodies to seek other suggestions for enhancements to the legislation that would address concerns about the certainty of the law and facilitate administrative ease and convenience that would reduce costs for funds. It is the Government's understanding that there is generally widespread support for the amendments.

Provisions which may be of concern to the Committee

The primary provisions of the Bill which apply from the commencement of the original legislation that may be of concern to the Committee are those that:-

- are specifically designed to remove any doubt about what superannuation contributions are subject to the surcharge, how those amounts are to be calculated and what guidelines actuaries are to use to calculate notional factors (which are complemented by provisions that clearly set out what is to be reported for surcharge purposes);

- clearly identify the holder of the surchargeable contributions of a member for a particular financial year who is to pay the surcharge liability; and

- limit the time for amendments.

Provisions removing doubt about what contributions are subject to surcharge and how they are to be calculated

It is appropriate the particular provisions that remove any doubt about what superannuation contributions are subject to surcharge, how those amounts are to be calculated, what guidelines actuaries are to use to calculate notional factors and what is to be reported, which are the basis of the measure and virtually the sole reason the Government agreed to amend the law in the first place, should have effect from the commencement of the original legislation.

The Commissioner of Taxation issued Superannuation Contributions Ruling SCR 97/1 in August 1997 to provide guidelines for actuaries to calculate notional factors. This Ruling was prepared in conjunction with the Australian Government Actuary who had received input for the Ruling from the Institute of Actuaries of Australia.

Legal advice to some defined benefit funds was that as this Ruling did not have the force of law, it could not be considered to be `Australian actuarial practice'. The amendments now incorporate the Ruling into the legislation to remove concerns about the existence of `Australian actuarial practice' and to give actuaries guidelines to calculate notional factors for the purposes of the legislation.

As a result of these provisions, the minority of funds that have not reported surchargeable contributions for the 1997 and 1998 financial years in line with the requirements of the legislation will be required to submit new reports with surchargeable contributions calculated correctly. To require otherwise would result in an inequitable result for the majority of funds that reported correctly for both the 1997 and 1998 financial years.

The decision to insert a provision to enable the making of Regulations with effect from the commencement of the original legislation was made because the Australian Taxation Office has been informed that there is a likelihood there will be a need to be able to address particular issues with the minority of funds that will be required to submit new reports for the 1997 and 1998 financial years. However, it is generally expected that Regulations likely to result in a change to the method of calculating notional factors will have prospective application to full financial years.

The vast majority of funds (in excess of 95% of funds) that have reported surchargeable contributions calculated in line with the legislation, including in line with methods approved in writing by the Commissioner of Taxation or the Australian Government Actuary on behalf of the Commissioner, will not have to submit new reports. Similarly, there will be no need for adjustments to be made to assessments that have been based on the correct surchargeable contribution amounts.

Provisions identifying the holder of contributions

Presently, there is some confusion and inconsistency about the liability to pay surcharge when a member dies. A surcharge liability for a deceased member of a constitutionally protected fund would be paid by the trustee or beneficiary of the deceased member's estate irrespective of whether a lump sum, or a pension or annuity, has been paid by the fund. However, if a member of any other fund dies and the fund pays a lump sum, or a pension or annuity, to a person other than the member before an assessment of surcharge is given to the fund, then no liability arises.

On the other hand, surcharge continues to be payable by a fund if an assessment is given to the fund before the fund pays a lump sum, or a pension or annuity, even if the member has died. Similarly, if the fund has paid a lump sum, or a pension or annuity, to the member and the member subsequently dies, the trustee or beneficiary of the member's estate is liable to pay any unpaid surcharge liability assessed.

The provisions identifying the holder of contributions may be perceived to adversely impact the beneficiaries of the estates of deceased members. The proposed amendments ensure surcharge liabilities in relation to deceased members of funds are treated consistently (there is no intention that the Commissioner revisit any decisions already made in respect of the surcharge liabilities of deceased members). At the same time, the amendments remove any liability to surcharge in relation to the contributions for the financial year in which a member dies, or later financial years.

Provisions imposing a time limit for amendment

The current legislation does not impose any time limit in which an assessment can be amended and the provisions that set the time period for which surcharge records are to be retained are inconsistent with an unlimited time in which amendments can be made. The absence of a time limit means that funds incur additional costs (that would inevitably be passed on to members) in having to keep records for lengthy periods in expectation there may be a dispute some time into the future.

The provisions in the Bill that limit the time in which an amendment can be made to 4 years from the date of issue for a debit amendment and 4 years from the due date for a credit amendment where the Commissioner of Taxation does not form the opinion that there has been fraud or evasion are similar to provisions in other taxing statutes. Subject to the qualification about fraud and evasion, the law will preclude the Commissioner amending an assessment outside these time limits.

The provisions in the Bill do not impose any time limit for amendments to assessments raised because the Commissioner could not identify a fund member that has not quoted a Tax File Number. These assessments will continue to be able to be amended at any time.

Beneficial impact of other provisions

Other provisions that are to apply from the commencement of the original legislation will either have a beneficial impact, provide certainty or will effectively apply prospectively. Those provisions are the ones that:-

- relax fund reporting requirements to members;

- remove the requirement to determine an advance instalment;

- clearly distinguish between the making of an assessment and the assessment notice;

- ensure minor defects do not affect the validity of an assessment;

- support the making of, and the electronic transmission of, assessments;

- expand the grounds for objection and remove current limits on the rights of members and provider to object to assessments;

- establish a self-assessment regime for specified funds;

- provide an avenue for members of constitutionally protected funds who transfer benefits to another fund to direct that other fund to pay the surcharge liability from the benefits transferred;

- ensure that members of all superannuation funds who commute part of a pension to pay a surcharge liability are treated equitably;

- rectify a technical difficulty to ensure capital gains tax amounts paid as an eligible termination payment are not counted as surchargeable contributions;

- renumber a section;

- bring the definition of `adjusted taxable income' in the constitutionally protected legislation into line with the definition in other surcharge legislation; and

- alter the definition of `unfunded defined benefit fund' to ensure only genuinely unfunded schemes fall within its ambit).

I do not believe these provisions would be seen to breach principle 1(a)(i) of the Committee's terms of reference.

I trust this information satisfies the concerns raised by the Committee.

The Committee thanks the Assistant Treasurer for this response.

Barney Cooney

Chairman