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A Bill for an Act to amend various Acts in relation to superannuation contributions taxes and termination payments taxes, and for related purposes
For authoritative information on the progress of bills and on amendments proposed to them, please see the House of Representatives Votes and Proceedings, and the Journals of the Senate as available on the Parliament House website.
Introduced HR 30 Jun 1999

Superannuation Contributions and Termination Payments Taxes Legislation Amendment Bill 1999

1998-99

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

SUPERANNUATION CONTRIBUTIONS AND TERMINATION PAYMENTS TAXES LEGISLATION AMENDMENT BILL 1999

EXPLANATORY MEMORANDUM

(Circulated by authority of the

Treasurer, the Hon Peter Costello, MP)

ISBN: 0642 40612X

Table of contents

General outline and financial impact

Superannuation Contributions and Termination Payments Taxes Legislation Amendment Bill 1999 This Bill amends the Superannuation Contributions Tax (Assessment and Collection) Act 1997 to:

* remove the requirement for the Commissioner of Taxation to determine an advance instalment of surcharge when an assessment of surcharge is made after 23 March 1999; and

* provide for a self-assessment regime for certain superannuation providers.

This Bill also amends the Superannuation Contributions Tax (Assessment and Collection) Act 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 to settle a range of technical issues to clarify and simplify aspects of the legislation. [Item 1 of Schedules 1 and 2 provides an amended outline of the operation of the Acts]

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.

The amendments are designed to clarify and simplify particular aspects of the existing law (for example, there has been some uncertainty whether superannuation funds on `contributions holidays' have to report surchargeable contributions given that no contributions are actually paid into a fund - the effect of the amendments is that some funds will be required to resubmit reports to the Commissioner). Generally, the amendments will have a beneficial impact.

The Termination Payments Tax (Assessment and Collection) Act 1997 is also amended to maintain consistent application of assessment provisions across the surcharge Acts.

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

mber 1997. Schedu    Proposal announced: Assistant Treasurer's Press Release No. 12 of 23 March 1999. Financial impact: Defers the payment of $120 million for the 2000-2001 financial year and $10 million for later financial years by removing the requirement to determine an advance instalment. There is little, if any, financial impact from the other amen Compliance cost impact: Compliance costs associated with the amendments are low. Putting in place a self assessment regime for specified funds and removing the perceived complexity by clarifying and simplifying aspects of the legislation will aid compliance and reduce costs for superannuation providers.

The Office of Regulation Review has advised that a regulation impact statement is not required in relation to these measures.

Summary of regulation impact statement Policy Objective The policy objective is to enhance the overall operation and efficiency of the superannuation surcharge measure by removing the requirement for the Commissioner of Taxation to determine an advance instalment when an assessment of surcharge is made.

The amendments to remove the requirement to determine an advance instalment will benefit superannuation funds and the community and generally, reduce the administrative burden on superannuation funds.

In this Explanatory Memorandum, the following terms are used:

Commissioner means the Commissioner of Taxation.


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Assessment and Collection Acts means the Superannuation Contributions Tax (Assessment and Collection) Act 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997, respectively.

SCT(A&C) Act means the Superannuation Contributions Tax (Assessment and Collection) Act 1997.

CP(A&C) Act means the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997.

TP(A&C) Act means the Termination Payments Tax (Assessment and Collection) Act 1997.

ITAA1936 means the Income Tax Assessment Act 1936.

ITAA1997 means the Income Tax Assessment Act 1997.

RSA has the same meaning as in the Retirement Savings Accounts Act 1997.

ADF has the same meaning as Approved Deposit Fund in section 10 of the Superannuation Industry (Supervision) Act 1993.

ETP has the same meaning as Eligible Termination Payment in Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act 1936.

SCR 97/1 has the same meaning as in Item 40 of Schedule 1.

Chapter 1
Removing the requirement for the Commissioner to determine an advance instalment

Purpose of the amendments 1.1 To remove the requirement in the SCT(A&C) Act for the Commissioner to determine an advance instalment if superannuation contributions surcharge is payable for a member for a financial year.

Background to the legislation 1.2 The SCT(A&C) Act provides that if surcharge is payable for a member for a financial year, an advance instalment of one-half of the amount of the surcharge is payable on account of surcharge payable for the member for the following financial year.

Explanation of the amendments 1.3 Section 11 of the SCT(A&C) Act is amended to ensure that an advance instalment is only required to be determined if surcharge is payable under an assessment made before 23 March 1999 - the date of the announcement. [Item 8 of Schedule 1]

1.4 Subsection 15(2) is amended to require the Commissioner to determine an advance instalment if, under an assessment issued before 23 March 1999, there is an amount (other than a nil amount) of surcharge payable. [Item 13 of Schedule 1]

1.5 The amendments do not affect determinations of advance instalment made in association with assessments that issued before 23 March 1999; such determinations remain payable by the original due date. The Commissioner's right to recover advance instalments determined before 23 March 1999 remain and late payment penalties continue to accrue if the advance instalment amounts have not been paid.

1.6 Advance instalments previously determined will be applied in accordance with section 17 (credit or refund of advance instalment) of the SCT (A&C) Act.

Chapter 2
Providing for a self assessment regime for specified superannuation funds

Purpose of the amendments 2.1 The amendments will provide for a system of self assessment for specified superannuation funds.

Background to the legislation 2.2 Currently, all superannuation funds are required to report specifed information to the Commissioner by the notification date (31 October) or such later date allowed by the Commissioner. The Commissioner is then required to assess the surcharge liability.

Explanation of the amendments 2.3

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New sections 15A and 15B of the SCT(A&C) Act provide a self assessment regime for specified superannuation funds. [Item 15 of Schedule 1] This measure will reduce costs for these funds because they will be able to deal with a number of tax issues at the same time and will provide the Commissioner with the flexibility to align reporting requirements with income tax lodgment requirements.

2.4 A self assessing superannuation provider will be a superannuation provider specified, or included in a class of superannuation providers specified, in a determination made in writing by the Commissioner. [Item 39 of Schedule 1]

2.5 For the 1998-99 financial year, it is proposed the specified funds will be excluded funds as defined in the Superannuation Industry (Supervision) Act 1993 that can self assess the liability for each and every member of the fund and pay the self assessed liability when they report (by electronic transmission) by the notification date determined by the Commissioner.

2.6 If a fund is not in a position to self assess the surcharge liability for each and every member of the fund and/or report by electronic transmission, then it will not be considered to be a self assessing fund and will be required to report by the notification date set out in the legislation (or a later date approved by the Commissioner).

2.7 No member will be required to give information to a superannuation fund to enable the fund to self assess the surcharge liability in respect of that member.

2.8 Funds specified as self assessing superannuation funds by the Commissioner will not be required to pay the 1998-99 self assessed liability for members when they report contributions in relation to that financial year. The Commissioner will issue an assessment to these funds which will set out the payment date. Self assessing funds will be required to pay self assessed liabilities for the 1999-2000 financial year and later financial years.

2.9 New subsection 15B(5) imposes the same penalty for self assessing funds that fail to comply with the reporting requirements that are applied to all other funds that fail to comply with the reporting requirements of section 13 of the SCT(A&C) Act. [Items 15 and 26 of Schedule 1]

2.10 The amended definition of notification date at section 43 of the SCT(A&C) Act provides that the notification date for a self assessing provider for the financial year is a date notified by the Commissioner. [Item 36 of Schedule 1]

Chapter 3
Clarification of surchargeable contributions

Purpose of the amendments 3.1 The purpose of the amendments is to remove any doubt about what superannuation amounts are subject to surcharge and how those amounts are to be calculated.

Background to the legislation 3.2 The Assessment and Collection Acts provide for the assessment and collection of the superannuation contributions tax payable on the surchargeable contributions of high income individuals.

3.3 The Superannuation Contributions Tax Imposition Act 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 impose the superannuation contributions tax that is payable on a member's surchargeable contributions under the Assessment and Collection Acts.

Explanation of the amendments Surchargeable contributions 3.4 Sections 8 and 9 respectively of the Assessment and Collection Acts, are amended to clarify what surchargeable contributions are and how they are to be calculated. [Item 2 of Schedules 1 and 2]

3.5 The amendments introduce flexibility to enable changes to be made to the method of calculation of surchargeable contributions to take account of changes to benefit structures and the like.

Surchargeable contributions for a member other than a member of a defined benefits superannuation scheme 3.6 New subsections 8(2) and 9(2) respectively of the Assessment and Collection Acts provide that the surchargeable contributions of a member of a superannuation scheme that is not a defined benefits scheme are so much of the contributed amounts (defined in sections 43 and 38 respectively of the Assessment and Collection Acts) [Items 2 and 31 of

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Schedule 1 and Items 2 and 18 of Schedule 2]
that are:

* taxable contributions under:

- subparagraph 274(1)(a)(i) of ITAA1936 - contributions made to a complying superannuation fund by an employer or by another person who is not the member;

- subparagraph 274(1)(b)(ii) of ITAA1936 - a superannuation guarantee shortfall component paid by the Commissioner to a complying superannuation fund;

- subparagraph 274(1)(ba)(i) of ITAA1936 - contributions made to an RSA by an employer or by another person who is not the member;

- subparagraph 274(1)(ba)(iv) of ITAA1936 - a superannuation guarantee shortfall component paid by the Commissioner to an RSA;

- paragraph 274(1)(d) of ITAA1936 - a superannuation guarantee shortfall component paid by the Commissioner to a complying ADF; and

- paragraph 274(1)(e) of ITAA1936 - amounts paid by the Commissioner to a complying superannuation fund or an RSA from the Superannuation Holding Accounts Reserve; or

* contributions allowed as a deduction to a member under section 82AAT of ITAA1936 because:

- the member does not receive any employer superannuation support; or

- the member does receive employer superannuation support but the member's income from the employer who provides that support is less than 10% of the member's total assessable income; or

* specified roll-over amounts that are the roll-over of an amount that is an ETP under paragraph (a) of the definition of ETP in subsection 27A(1) of ITAA1936 received by a complying superannuation fund, an RSA, a complying ADF, a life assurance company or a registered organisation; and

* if there are any regulations in force for the purpose of subparagraph (ii) of the definition of contributed amounts - any amount referred to in the regulations that are credited, allocated or attributable to the member for the financial year less any part of such an amount that is, under the regulations, to be regarded as reasonably attributable to interest; and

* if there are no regulations in force for the purpose of subparagraph (ii) of the definition of contributed amounts and the financial year is later than the 1996-97 financial year - any allocated surplus amounts in relation to the member in respect of the financial year.

Surchargeable contributions for a member of a defined benefits superannuation scheme 3.7 New subsections 8(3) and 9(4) respectively of the Assessment and Collection Acts provide that the surchargeable contributions of a member of a defined benefits superannuation scheme are the amounts that constitute the actuarial value of the benefits that accrued to, and the value of administration expenses and risk benefits provided in respect of, a member in a financial year. [Item 3 of Schedules 1 and 2]

Actuarial value of benefits prior to 1999-2000 financial year 3.8 New subsections 8(4) and 9(5) respectively of the Assessment and Collection Acts explain that for the 1996-97 and the next two financial years, the actuarial value of the benefits that accrued to, and the value of administration expenses and risk benefits provided in respect of, a member in the financial year is to be worked out by an eligible actuary using the formula:

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annual salary is either:

* the member's annual salary for the financial year; or

* if another amount is taken to be the member's annual salary for the purposes of the scheme, that other amount.

notional surchargeable contributions factor is the factor worked out by an eligible actuary either:

* in accordance with the method set out in Superannuation Contributions Ruling SCR 97/1 [defined at Item 40 of Schedule 1 and Item 22 of Schedule 2]; or

* in accordance with another method approved in writing by the Commissioner.

3.9 The method set out in SCR 97/1 applies to all providers. However, if a provider is of the view that the method set out in SCR 97/1 is not appropriate for the particular superannuation scheme, the provider may apply to the Commissioner to use another method.

3.10 A provider applying to use another method to calculate the notional surchargeable contributions factor will be required to:

* explain why the method in SCR 97/1 is inappropriate;

* set out that other method; and

* explain why that other method is the most appropriate method to be used.

3.11 A superannuation provider is not required to apply to the Commissioner to use another method.

3.12 New subsections 42(2) and (3) and 37(2) respectively of the Assessment and Collection Acts enable regulations to be made to modify Superannuation Contributions Ruling SCR 97/1. The regulations can insert, omit

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or alter a provision of SCR 97/1 and can be made to take effect before the date on which they are notified in the Gazette. The new subsections provide that subsection 48(2) of the Acts Interpretation Act 1901 does not apply in relation to regulations made under that Act. [Item 28 of Schedule 1 and Item 14 of Schedule 2]

Actuarial value of benefits for the 1999-2000 financial year and later financial years 3.13 New subsections 8(5) and 9(6) respectively of the Assessment and Collection Acts provide that for the 1999-2000 and later financial years, the actuarial value of the benefits that accrued to, and the value of administration expenses and risk benefits provided for, a member in a financial year is to be calculated in accordance with a method set out in the regulations (or another method approved by the Commissioner in writing). [Item 3 of Schedules 1 and 2]

3.14 The definition of notional surchargeable contributions factor at sections 43 and 38 respectively of the Assessment and Collection Acts is repealed. [Item 37 of Schedule 1 and Item 20 of Schedule 2]

Chapter 4
Liability to surcharge

Purpose of the amendments 4.1 The amendments:

* 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 an avenue 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; and

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

Background to the legislation 4.2 The definition in section 43 of the SCT(A&C) Act identifies the holder of surchargeable contributions of a member. However, where:

* there are no actual contributions (for example, contributions holiday);

* contributions have been expended in full (for example, to pay for death and/or disability insurance);

* contributions have been expended in part (for example, invested or used to pay expenses); or

* a member dies;

the law is not clear who holds the contributions when an assessment of a surcharge liability is made.

4.3 Where a member dies before the making of a surcharge assessment and the member's benefit has been withdrawn from the superannuation fund, the surcharge assessment is taken not to have been made. However, the same rules do not apply where the member dies before the making of a surcharge assessment and the member's benefits remain in the superannuation fund.

4.4 Any surcharge liability relating to a member's surchargeable contributions in a constitutionally protected fund is a liability of the member personally. The Commissioner maintains a debt account for these members who are required to pay the lesser of the amount in the debt account or 15% of the employer financed benefit when they leave the constitutionally protected fund. However, if they roll over their benefits to another fund, they may not have funds readily available to pay the amount in the debt account (in all other funds, the surcharge liability is paid by the provider before any amounts are transferred).

4.5 A member of a superannuation fund may commute part of a pension to pay a sucharge liability. This amount is currently an ETP under the ITAA1936. However, an amount commuted by a member of a constitutionally protected fund solely to pay a surcharge liabilty is not an ETP (paragraph (r) of the definition of ETP in subsection 27A(1) of the ITAA1936).

Explanation of the amendments Holder of the surchargeable contributions of the member 4.6 New section 8A of the SCT(A&C) Act makes it clear that the provider remains the holder of a member's surchargeable contributions unless the member transfers to another provider, receives a lump sum, commences to receive a pension or annuity or dies. If the member transfers part of the contributed amounts to another provider, that other provider is a holder of that part of the contributed amounts transferred.


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4.7 If any contributed amounts in respect of a member for a financial year are paid to a person other than a superannuation provider (that is, if either a lump sum or a pension or annuity is paid or begins to be paid), then the person to whom the amounts are paid or begin to be paid is the holder (that is, the member or the transferee provider or the beneficiary of the member's estate, as the case may be, becomes the holder). [Item 4 of Schedule 1]

4.8 New subsection 8A(4) of the SCT(A&C) Act provides that a person receiving the benefits is the holder of a deceased member's surchargeable contributions. [Item 4 of Schedule 1]

4.9 Additional amendments are made to sections 19 and 20 of the SCT(A&C) Act to clarify who is the holder of a member's surchargeable contributions. [Items 18, 19, 22 and 23 of Schedule 1]

4.10 A consequential amendment is made to the definition of holder of surchargeable contributions of a member in section 43 of the SCT(A&C) Act. [Item 33 of Schedule 1]

Who is liable to pay? 4.11 New subsection 10(2) of the SCT(A&C) Act makes it clear the superannuation provider that is the holder of the surchargeable contributions when an assessment on those contributions is made is liable to pay the surcharge assessed. [Item 5 of Schedule 1]

4.12 New paragraph 10(4)(ca) of the SCT(A&C) Act provides that person receiving the benefits will be required to pay a surcharge liability assessed in respect of financial years before the financial year in which the member died if the liability has not already been paid by a superannuation provider or the member. [Item 7 of Schedule 1]

Deceased members 4.13 New subsection 11(2) of the CP(A&C) Act ensures no surcharge is payable on the surchargeable contributions of a member of a constitutionally protected fund for the financial year in which the member dies or a later financial year. [Item 4 of Schedule 2]

4.14 New subsection 15(7) of the SCT(A&C) Act and new subsection 14(2) of the CP(A&C) Act provide that an assessment issued in relation to a member's contributions in respect of the financial year in which the member died or a later financial year is taken not to have been made. [Item 14 of Schedule 1 and Item 8 of Schedule 2]

Rollover relief for members of constitutionally protected funds 4.15 New subsection 15(8A) of the CP(A&C) Act allows members of constitutionally protected funds, who do not receive any payment from the fund because they roll over benefits to another superannuation fund, to direct the new fund to pay the surcharge liability advised by the Commissioner from the benefits rolled over. [Item 9 of Schedule 2]

4.16 The Superannuation Industry (Supervision) Act 1993 is amended to enable the member to direct a trustee to pay an amount from the member's rolled over benefits. [Item 1 of Schedule 5]

Commuting part of a pension to pay surcharge 4.17 Amendments to the Income Tax Assessment Act 1936 extend the concession granted to members of constitutionally protected funds under paragraph (r) of the definition of ETP in subsection 27A(1) to members of any superannuation fund who commute part of a pension solely to pay a surcharge liability.

4.18 Only amounts actually paid to the Commissioner by the fund to discharge the relevant surcharge debt will obtain the benefit of not having the commuted amount treated as an ETP. The law will not require funds to change rules/deeds to create/extend/limit the ability to commute. [Item 1 Schedule 4]

Chapter 5
Reporting

Purpose of the amendments 5.1 The purpose of the amendments is to provide alternative reporting requirements for superannuation providers to reduce administration costs incurred (and ultimately borne by all members) in reporting surcharge information to all members.

5.2 In addition, amendments are made to clarify what is to be reported to the Commissioner in respect of:

* surchargeable contributions; and

* contributed amounts.


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Background to the legislation
5.3 Subsections 13(2) and 12(2) respectively of the Assessment and Collection Acts require all superannuation providers to give information to the Commissioner.

5.4 Subsections 13(5) and 12(4) respectively of the Assessment and Collection Acts require superannuation providers that give a statement to the Commissioner containing surcharge information, to give the member the details reported to the Commissioner, not later than 12 months after the statement is given to the Commissioner.

5.5 This reporting requirement applies to every member in relation to whom surcharge information was reported to the Commissioner.

5.6 Subsections 13(7) and 12(5) respectively of the Assessment and Collection Acts specify certain particulars to be reported by providers to the Commissioner.

Explanation of the amendments 5.7 An amendment to subsection 13(2) of the SCT(A&C) Act exempts self assessing superannuation providers from reporting under section 13. They are required to report under new sections 15A and 15B. [Item 9 of Schedule 1]

5.8 New subsections 13(5A) and 12(4A) respectively of the Assessment and Collection Acts require superannuation providers to give details to the member of what the provider reported to the Commissioner within 30 days of the member or former member requesting that information (that is, members will not have full information unless they specifically ask for it from the provider).

5.9 New subsections 13(5B) and 12(4B) respectively of the Assessment and Collection Acts allow superannuation providers to report to the member in writing or by some other means of communication. The provider must report to the member in writing if the member specifically requests information in this manner. If the provider reports to all members in accordance with the current provisions, no further reporting is required to individual members. [Items 10, 11 and 35 of Schedule 1 and Items 5, 6 and 19 of Schedule 2]

5.10 New subsections 13(7) and 12(5) respectively of the Assessment and Collection Acts ensure surchargeable contributions and contributed amounts identified under sections 8 and 9 respectively of the Assessment and Collection Acts are reported as appropriate. [Item 12 of Schedule 1 and Item 7 of Schedule 2]

5.11 The amended definition of contributed amounts at sections 43 and 38 respectively of the Assessment and Collection Acts ensures that all amounts, whether paid, credited, attributed or arising from surplus less amounts reasonably attributable to interest are reported to the Commissioner. [Item 31 of Schedule 1 and Item 18 of Schedule 2]

5.12 Transitional provisions require providers that have not reported in line with the legislation as amended to resubmit a report by a date published in the Gazette. [Item 43 of Schedule 1 and Item 26 of Schedule 2]

5.13 Superannuation providers that have previously reported surchargeable contributions calculated using notional surchargeable contribution factors worked out in line with the method set out in SCR 97/1, or by another method approved by the Commissioner in writing, are not required to resubmit reports.

Chapter 6
Assessments of surcharge

Purpose of the amendments 6.1 The amendments are made to:

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

* support the making of, and the 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 with a provision of the surcharge Acts;

* limit the time in which the Commissioner can amend an assessment under the Assessment and Collection Acts and the TP(A&C)Act (the time limit does not apply to amendments made to assessments calculated at the highest rate because the member has not quoted a Tax File Number); and

* expand the objection provisons and remove current limits on the rights of members and providers to object against surcharge assessments.

Background to the legislation 6.2 Sections 15 and 14 respectively of the Assessment and Collection Acts and section 11 of the TP(A&C) Act provide for a process of assessment and the information to be included in an assessment. The sections also set out how

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assessment information is to be given to providers and members.

6.3 Sections 15 respectively of the Assessment and Collection Acts and section 11 of TP(A&C) Act also set out the day that surcharge is payable.

6.4 Regulation 14 of the Superannuation Contributions Tax (Assessment and Collection) Regulations and regulation 15 of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Regulations allow the Commissioner to serve notices electronically.

6.5 As there is no time limit for amending surcharge assessments, the Commissioner, funds and members incur additional costs by having to retain records for significant periods of time in order to resolve disputes that may arise many years after assessments have issued and been paid.

6.6 Subsections 40(3) and 34(3) respectively of the Assessment and Collection Acts and section 28 of the TP(A&C)Act that set a period for which records are to be retained are inconsistent with an unlimited time in which amendments can be made.

6.7 Sections 24 and 20 respectively of the Assessment and Collection Acts also allow a member of a superannuation fund who is dissatisfied with a surcharge assessment, to object against the assessment if it relates to the calculation of the member's adjusted taxable income. A superannuation provider is able to object against a member's assessment provided that the member is dissatisfied. If the member is not dissatisfied, a superannuation provider may have no objection rights.

Explanation of the amendments Assessments of surcharge 6.8 New subsections 15(1), (2) and (5) to (12) and new section 14 respectively of the Assessment and Collection Acts and new subsections 11(1) and (3) to (5) of the TP(A&C) Act:

* identify the process of making an assessment;

* change some references to an assessment to references to a notice of assessment where appropriate;

* change some references to a copy of an assessment to references to a notice of assessment where appropriate;

* support the making and the electronic transmission of assessments; and

* ensure minor defects do not affect the validity of an assessment (or determination of advance instalment, where appropriate). [Items 6, 13 and 14 of Schedule 1, Item 8 of Schedule 2 and Items 2 and 3 of Schedule 3]

6.9 Minor consequential amendments are made in new paragraphs 18(1)(a) and (c) of the SCT(A&C) Act. [Item 17 of Schedule 1]

6.10 The definitions of assessment and determination in section 43 of the SCT(A&C) Act, assessment in section 38 of the CP(A&C) Act and assessment in section 31 of the TP(A&C) Act are amended to reflect the changes. [Items 29 and 32 of Schedule 1, Item 16 of Schedule 2 and Item 6 of Schedule 3].

Limiting the time for amendment 6.11 New sections 17A and 15A respectively of the Assessment and Collection Acts and new section 11A of the TP(A&C) Act limit the time in which an amendment can be made to 4 years from the date of issue of the assessment (for a debit amendment) and 4 years from the date the surcharge became due and payable (for a credit amendment) where the Commissioner does not form the opinion that fraud or evasion is present.

6.12 The new provisions also ensure a further amendment can only be made within 4 years in respect of a particular that has previously been amended. No further amendments are permitted after this time. [Item 16 of Schedule 1, Item 10 of Schedule 2 and Item 4 of Schedule 3].

6.13 New sections 17A and 15A respectively of the Assessment and Collection Acts and new section 11A of the TP(A&C) Act also limit the time for amendments made under sections 19 and 20 of the SCT(A&C) Act, section 17 of the CP(A&C) Act and section 12 of the TP(A&C) Act, but do not limit the time for amendment to an assessment calculated at the highest rate because the member did not quote a tax file number. [Items 21 and 24 of Schedule 1, Item 12 of Schedule 2 and Item 5 of Schedule 3].

6.14 Transitional provisions apply to ensure the 4 year amendment period does not prevent amendments to give effect to changes made by this Bill. [Item 45 of Schedule 1 and Item 28 of Schedule 2].

Objections

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6.15 New subsections 24(1) and 20(1) respectively of the Assessment and Collection Acts enable a member to object to an assessment. New subsection 24(1) of the SCT(A&C) Act also enables a superannuation provider to object in its own right, without a member being dissatisfied. [Item 25 of Schedule 1 and Item 13 of Schedule 2]

6.16 New subsection 24(2) of the SCT(A&C) Act enables a provider to object for a `class' of members or against a `class' of assessments. If a provider is not satisfied with the decision on the objection, the provider may appeal. Any relevant appeal fee will be calculated on the basis of a single dispute.

6.17 A new definition for class is included at sections 43 and 38 respectively of the Assessment and Collection Acts. [Item 30 of Schedule 1 and Item 17 of Schedule 2]

6.18 If a member wishes to challenge the most recently reported surchargeable contributions, the member must first contact the superannuation provider. If the matter cannot be resolved between the provider and the member, the matter may be taken to the Superannuation Complaints Tribunal.

6.19 The Commissioner will consider surcharge objections using the member's taxable income as last assessed and surchargeable contributions as last reported.

6.20 The surcharge legislation will continue to apply Part IVC of the Taxation Administration Act 1953 to set out the process and relevant time frames for surcharge objections and for further appeal proceedings. [Item 25 of Schedule 1, Item 13 of Schedule 2 and Item 1 of Schedule 3]

6.21 Transitional provisions allow members and providers more time in which to object to assessments issued before the date of Royal Assent to the Act. [Item 44 of Schedule 1 and Item 27 of Schedule 2]

Chapter 7
Technical amendments

Purpose of the amendments 7.1 Minor technical amendments are made to:

* ensure subsection 7(2) of the Termination Payment Tax (Assessment and Collection) Act 1997 is amended to exempt, from the termination payments surcharge, amounts that are CGT exempt under ITAA1936; [Item 1 of Schedule 6]

* renumber section 35A second occurring to section 35B; [Item 27 of Schedule 1]

* amend the definition of adjusted taxable income at section 38 of the CP(A&C) Act to ensure amounts subject to family trust distribution tax, which are excluded from the taxable income of a member, are included when determining adjusted taxable income; and [Item 15 of Schedule 2]

* amend the definition of unfunded defined benefits superannuation scheme at section 43 of the SCT(A&C) Act to allow regulations to be made to declare what schemes are unfunded defined benefits schemes for the purposes of the legislation. It is proposed that the schemes to be declared in regulation will be either Federal or State unfunded defined benefits schemes. [Item 42 of Schedule 1 and Item 25 of Schedule 2]

Chapter 8
Regulation Impact Statement

Removal of advance instalment of contributions surcharge Specification of policy objective 8.1 To simplify and clarify the surcharge legislation and to enhance the overall operation and efficiency of the surcharge.

8.2 The proposed amendment to the Superannuation Contributions Tax (Assessment and Collection) Act 1997 was announced by the Assistant Treasurer in his Press Release No. 12, dated 23 March 1999.

Background 8.3 The superannuation contributions surcharge was announced in the 1996 Budget as an equity measure to reduce the level of superannuation taxation concessions available to high income earners. The surcharge applies to all employer and personal deductible superannuation contributions of high income earners with adjusted taxable incomes above $75,856 (for 1998-99). The maximum rate of surcharge of 15% applies to people with adjusted taxable incomes of $92,111 and above (1998-99).

8.4 Liability to pay the surcharge is on the holder of the surchargeable contributions at the time the assessment is raised. In most instances, this will be the superannuation provider. A superannuation provider which is liable to pay the surcharge for a member is also liable to pay an advance instalment - individuals are not liable to pay an advance instalment. The advance

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instalment is equal to 50% of the surcharge liability to be paid by the provider in a given year. The advance is intended to recover part of the following year's surcharge liability in the year contributions are actually made.

Issues 8.5 The Government now considers, after extensive consultation with industry, that the advance instalment is not an efficient taxation collection mechanism because:

* it is selectively imposed depending on when data is lodged and when a member's tax file number is identified;

* its imposition is based on the premise that a member's relationship with a fund is constant over time:

- for example, changed circumstances can affect subsequent surcharge liability (ie. where a member's adjusted taxable income varies significantly resulting in a lower or no surcharge liability in the following year, the member must wait until the following year's assessment for a refund);

* the entity which is levied and pays the instalment is not necessarily the entity which will be credited with the instalment:

- includes the issues of: application of the advance to a later assessment where a member has partially transferred contributions (ie. the principle of attaching surcharge liability to current year contributions does not hold up where contributions are split between providers, but the advance remains with the first provider); and whether an advance can be applied if the provider paying the advance does not report for the member in the later year.

8.6 Many of the issues are administrative and revolve around payment of an advance which subsequently exceeds the member's surcharge liability. In these circumstances there are significant reverse workflows for both superannuation providers and the ATO.

Identification of implementation options 8.7 Options considered capable of meeting this objective are:

(i) No specific legislative change Under this option, most issues would be dealt with administratively as they arise.

(ii) Amendments to address specific problems This would involve policy `housekeeping' amendments to address specific issues, for example, providing the ability to vary the amount of advance instalment.

(iii) Reduce level of advance instalment Lowering the level of the advance instalment (to say 25%), to reduce the number of instances where the advance would exceed the subsequent surcharge liability.

(iv) Repeal the advance instalment provisions Assessment of impacts (costs and benefits) of each option Impact group identification 8.8 The major impact groups which have been identified are: the Government; the ATO (responsible for administration of the surcharge legislation); the superannuation industry (compliance issues); and members of superannuation providers. Within the superannuation industry, the impact of the various options may vary between large providers (including corporate funds) and self-managed funds (including those administered by accountants).

Option (i) - No specific legislative change 8.9 This option relies on providers submitting information on contributions early, and the ATO processing surcharge assessments as soon as possible after receipt of all relevant information. In general, this option would lead to additional costs and provide only limited benefits.

Government 8.10 There would be no change in total surcharge revenue collected.

Some cost to Government would result from earlier repayments of amounts where the advance instalment exceeds subsequent surcharge liability. However, it is expected only a limited number of members would benefit.

ATO 8.11 To the extent possible, the ATO would seek to streamline surcharge administration to permit the timely processing of assessments lodged by providers (effectively self managed funds) immediately after the end of the

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financial year to obtain a refund of a previously paid advance.

8.12 There would be significant additional systems costs to the ATO in providing for the early processing of assessments for a limited number of providers. ATO processing schedules and lack of available time for additional assessment runs would affect the viability of this option.

Superannuation providers 8.13 To benefit under this option, providers would experience substantial compliance costs in having to provide information earlier than required under the legislation. The notification date for providers in the initial reporting year (1997-98) was deferred from 31 October to 15 December 1997 after extensive consultation with the industry.

8.14 The reporting date was again deferred for this financial year (to 15 January), which indicates that the majority of providers could not provide the information early in a financial year without incurring substantial compliance costs.

8.15 In addition, there would only be a benefit in providing this information early if information on taxpayers' taxable income was also available at about the same time.

8.16 There would be little benefit under this option for self managed funds administered by accountants or tax agents who submit client tax returns under a lodgment program. As the program allows lodgment up to end February, there would not only be substantial compliance costs in preparing these returns early, but also costs from the potential bringing forward of payment of tax.

8.17 This option does not address the major concerns of the industry in respect of the surcharge.

Members 8.18 It is unlikely that the benefits to the industry would be sufficient to effect any noticeable change in members' positions.

Option (ii) - Amendments to address specific problems 8.19 Option (ii) would involve providing the ability to vary the advance. It would have the following costs and benefits for identified impact groups.

Government 8.20 There would be minor financing costs to the Government under the proposal to provide for the variation of advance instalments. Under current legislative provisions, even if a member could demonstrate that there would be no surcharge in the relevant year, he or she must still pay the advance and then wait until assessments are sent out in the following year (up to 11 months later), in order to recover the overpaid advance.

The Government would also have to provide additional funding to the ATO to cover the establishment of processes for, and the ongoing costs of, dealing with requests for variations of advance.

ATO 8.21 Significant additional administrative costs would be incurred by the ATO in handling requests for variation of advance instalment, dealing with objections, and in assessing and imposing penalties.

Any penalties imposed as a consequence of incorrect estimates of adjusted taxable income would be unlikely to offset ongoing costs of processing requests for variations.

Superannuation providers 8.22 To be able to apply for a variation it would be necessary, at the time the advance is payable, for a member or provider to have a reasonable idea of the member's surcharge liability in respect of that year. This requires knowledge of the member's likely taxable income and total surchargeable contributions for the income year.

8.23 Members of self managed funds would be the likely major beneficiaries - generally the same accountant prepares the member's personal and the fund's returns and would therefore have this information readily available.

8.24 There may, however, be sizeable increases in compliance costs as the member/accountant would be required to calculate current year `adjusted taxable income', apply for a variation, and potentially lodge an objection if the application was rejected.

8.25 Large superannuation providers (covering the bulk of members) would be unlikely to benefit from this option. To do so they would incur substantial additional compliance costs.

8.26 A number of significant issues would also need to be resolved, such as:

* Who would apply for a variation - would this be the provider (which is liable for payment), or the member (who has the information necessary to determine surcharge liability).


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* Privacy concerns - for a provider to apply for a variation it would require information on members' adjusted taxable incomes. While this may not be an issue for self managed funds, members or their employer's corporate scheme are unlikely to provide this information.

* Lack of information - providers are not currently required to give to other providers information on contributions made by their members. This information would be necessary to determine whether or not an application for variation of advance was justified. Requiring this data transfer between providers would involve significant compliance costs for both members and providers.

* Systems for matching - matching of surchargeable contributions and adjusted taxable incomes is currently performed by the ATO. Providers may need to develop systems to perform this task if they are to apply for a variation of advance instalment.

* Liability for penalties - if the member is permitted to apply for a variation, who would be liable for the penalty where a significant difference arises between the varied advance and 50% of the actual assessment? Under the legislation, the member is not generally liable for the surcharge, and it would be anomalous to impose a penalty on the provider as a consequence of events outside the provider's control.

For those providers able to utilise the ability to vary an advance instalment there will be an improved cash flow.

8.27 Compared with Option (i), this Option provides greater legislative certainty for the superannuation industry as a whole, however it would increase the complexity of the legislation and its administration.

Members 8.28 Where a provider is able to obtain a variation on behalf of a member, the member will benefit from earnings on moneys which would otherwise have been paid to the Government.

Option (iii) - Reduce level of advance instalment 8.29 Option (iii) would involve reducing the size of the advance instalment from 50% of the surcharge payable in a given financial year to a lower figure, say 25%. This would potentially reduce the number of instances where an advance payment exceeds a subsequent surcharge liability (but does not address the issues mentioned above).

Government 8.30 There would be a deferral in the collection of revenue.

ATO 8.31 There would be minor savings through a reduction in reverse workflows, ie. limited to those circumstances where a person's subsequent year surcharge and advance liability is less than the current year's advance payment calculated on the 50% basis, but greater than that calculated on the lower (eg. 25%) basis.

However, there would be no reduction in system development costs associated with imposition of the advance.

Superannuation providers 8.32 Reduction in the rate of the advance would lead to an improved cash position for providers. This benefit would be passed onto members.

There would also be minor savings through a reduction in reverse workflows.

8.33 However, this option does not address the major issues raised, in consultations, concerning the application of the advance instalment. These concerns include changes to a member's circumstances and transfers by members between superannuation providers.

8.34 There would therefore be a negligible improvement in the efficiency of the surcharge system for superannuation providers, and only minor cost savings.

Members 8.35 There would be a benefit to members paying the surcharge through increased earnings from moneys which would otherwise have been paid to the Government.

Option (iv) Repeal the advance instalment provisions 8.36 Option (iv) would have the following costs and benefits for identified impact groups.

Government 8.37 Removal of the advance from 1998-99 assessments would have no impact on revenue in 1999-00, but would defer revenue by $120 million in 2000-2001 (the first year FBT is included in adjusted taxable income). Smaller deferrals in subsequent years are estimated at $10 million or less a year.


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ATO 8.38 There would be administrative savings for the ATO resulting from a reduction in reverse workflows around members who having paid an advance one year, are not surchargeable in the next.

Superannuation providers 8.39 The complexity that currently exists concerning how the advance is to be applied in certain specific situations (eg. application of the advance to a later assessment where a member has partially transferred contributions), would not arise. Providers would therefore benefit from increased certainty in the operation of the surcharge.

8.40 Superannuation providers would further benefit from a reduced compliance burden. For example, where a member is surchargeable in one year, but is not surchargeable the following year, the provider at present is required to make adjustments to that member's account as a consequence of the advance payment.

Removal of the advance will also lead to an improved cash position worth an estimated $13 million for the funds. This benefit would be passed onto members.

Members 8.41 Those surchargeable members whose accounts are debited for surcharge (and advance) would benefit from increased earnings on the higher balance in their account.

Consultation 8.42 Comments were sought from the Department of the Treasury on the proposal to remove the advance instalment.

8.43 The ATO has engaged in consultation with the superannuation industry to ensure that all the industry concerns have been considered.

Conclusion and recommended option 8.44 Option (iv) proposing repeal of the requirement for an advance instalment of surcharge is the preferred option.

8.45 Option (i) does not offer any significant change that would reduce alleged complexities with the legislation. The option does not provide any legislative certainty for the industry or members.

8.46 Option (ii) is not considered viable. There would be no benefits to providers and increased costs to Government and the ATO. There would be only minor benefits to a limited range of members.

8.47 A number of significant issues would need to be addressed such as, who would be able to vary the advance, and who would be liable if the varied amount proved to be inaccurate.

8.48 Legislative amendments to provide for variations of advance would add significantly to the length and complexity of the surcharge legislation. The provisions themselves would add to the administrative costs of superannuation providers.

8.49 Option (iii) would result in a sizeable deferral in Government revenue, with only limited benefits to the ATO, superannuation providers and members.

8.50 On the other hand, Option (iv) would remove a significant compliance issue for the industry, streamline the ATO's administration of the legislation, and benefit members.

Implementation and review 8.51 Removal of the legislative requirement for payment of an advance instalment will not add to the regulatory burden on superannuation providers. In practice, the efficiency of superannuation providers and administrators should be improved.

8.52 However, given the sensitivity of issues surrounding the surcharge, the ATO will monitor and consult with superannuation providers and administrators with experience following implementation of the measure.