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Parliamentary Joint Committee on Corporations and Financial Services
Superannuation Legislation Amendment (Reform of Self Managed Superannuation Funds Supervisory Levy Arrangements) Bill 2013
- Parl No.
- Committee Name
Parliamentary Joint Committee on Corporations and Financial Services
Boyce, Sen Sue
ACTING CHAIR (Senator Boyce)
Thistlethwaite, Sen Matt
Urquhart, Sen Anne
Fletcher, Paul, MP
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Parliamentary Joint Committee on Corporations and Financial Services
(Joint-Thursday, 14 March 2013)
CHAIR (Ms O'Neill)
Mr TONY SMITH
ACTING CHAIR (Senator Boyce)
- Ms Galbraith
Content WindowParliamentary Joint Committee on Corporations and Financial Services - 14/03/2013 - Superannuation Legislation Amendment (Reform of Self Managed Superannuation Funds Supervisory Levy Arrangements) Bill 2013
LENDON, Mrs Alison, Deputy Commissioner, Superannuation, Australian Taxation Office
PETERSON, Mr Brett, Assistant Deputy Commissioner, Superannuation, Australian Taxation Office
CHAIR: Good morning, Mr Peterson and Mrs Lendon; thank you for being with us. I welcome you, as officers of the Australian Taxation office, to the hearing today. I draw the committee's attention to privilege resolution 116, which states that an officer of the Commonwealth shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted.
Would you like to make some opening remarks?
Mrs Lendon : I thought I might just address the question that came up from the SMSF Professionals' Association in respect to the method of collection of the levy. We have no intention to change the process that we have now, which is that that would be done through the tax return. There is not a proposal at all to pull that out and invoice separately or anything like that, it will just be as part of the tax return. I know they would very happy to have that confirmed.
Senator BOYCE: So you will pick up the extra half?
Mrs Lendon : Yes. The plan is that we will then phase that in over a couple of years to minimise the impact in one hit, so that would be done through the tax return process.
CHAIR: Did you have an opening comment prepared that you wanted to give us?
Mrs Lendon : No, thank you.
CHAIR: Well, maybe while we are out of the room you might like to get one! We have got to go to our stations. A division has been called in the House and the members of the House of Representatives will leave. Senator Sue Boyce will assume the chair and the hearing can continue.
ACTING CHAIR ( Senator Boyce ): It is very rarely the case that we can plough on, but we will! Sorry, Mrs Lendon, that was—
Mrs Lendon : I have no opening statement, I was happy to answer to answer any questions.
ACTING CHAIR: I might go to questions first, if I could. You heard some of the witnesses say, and have seen their submissions, that their concern is that they do not feel that there has been sufficient detail provided to justify the current increase in the levy. Could you comment on that view, please?
Mrs Lendon : I might hand over to my colleague to walk through the way that it has been calculated, going forward.
Mr Peterson : The reality is that we have not been through the detail of the calculations with SPAA at this stage. What we have done, as you have heard them say, is publish our costs of administration of the system to our consultative arrangements, which includes the management of self-managed super funds—and we have done that for the last couple of years. We have tried to improve that level of transparency—
ACTING CHAIR: I am sorry Mr Peterson, the bell is competing with you! Could you just speak a little louder for me, please?
Mr Peterson : I will get closer to the microphone! The short answer to the question would be that, as part of this process, we would be expecting to put together a cost-recovery impact statement. This will include all the detail which we believe that the SMSF Professionals' Association and others should be seeking and are entitled to have. We would expect that to be available before the new levy takes effect from 1 July this year.
What we will do is expose the costs of progressing with the work on administering self-managed super funds and we will show the methodology for projecting forward. In terms of the methodology for projecting forward, what we have done, effectively, is take 2011-12 as a base year and apply to that a couple of variations. The first is growth in the level of self-managed super funds, and you heard Mrs Slattery say that they are growing at a rate of about 30,000 funds a year at the present time, which is fairly substantial. We and SPAA are quite proud of the level of growth in the industry. That represents the growth year-on-year over the past several years of about six to eight per cent. On a go-forward basis, we are projecting five to 5½ per cent. Our sense is that you have to have a discipline of expecting some efficiency in the work you do so we are projecting at a lower level than we actually expect the growth to be.
Senator BOYCE: That was going to be one of my questions. Are there economies of scale here?
Mr Peterson : There certainly are. We know we have to be more efficient in what we do because that is what we owe to the Australian community so we factored in that level of the growth expectations.
Senator BOYCE: Could you be a bit more precise about what you mean by that. What have you factored in?
Mr Peterson : We expect growth probably in the six to eight per cent range. But in calculating the cost, to account for the fact that we expect ourselves to become more efficient, we only costed a forward growth at five to 5½ per cent. It is 5½ per cent for the first year and five per cent for subsequent years. We are expecting to get better and more efficient. We have also factored in the cost of pay rises.
Senator BOYCE: Is that for your supervisory staff?
Mr Peterson : That is correct. To do that we have used annual wage increases in line with a Treasury budget parameter. Average weekly earnings non-farm growth is the parameter we have picked. That has been effectively chosen as a proxy for ATO staff pay rises. Using the base year, we have assumed growth, we have assumed pay rises and we have projected those figures forward. Over the five years 2011-12 through to 2015-16, we have projected total costs in the order of about $513 million using the arithmetic I just explained to you.
Senator BOYCE: Is that over that forward period?
Mr Peterson : It is over that total five-year period factoring in the levy figure. We have calculated cash receipts equal to $530 million. We have tried to balance the figures. I should explain to you cash receipts are different to multiplying the number of funds by the amount of the levy.
Senator BOYCE: They lag by 12 months.
Mr Peterson : They lag by at least 12 months. Additionally, you have a number of funds in the system which have been wound up and have not found their way out of the system yet. We have some funds which in fact are emptied out—correctly or otherwise—and the money is just not collectable. You have some debts which you can just never ever collect. There is a difference to what you collect and what theoretically is on the table.
Senator BOYCE: If every one of those was a functioning fund.
Mr Peterson : If every one of those was a functioning fund and they all paid on time then cash collections would be the number of funds times $259.
Senator BOYCE: Even working on the June 2012 figures, you came up with a collection rate of around $87 million whereas you said the costs were $85 million.
Mr Peterson : The levy went from $200 back to $191 at that time. The calculation here is not meant to balance year-on-year. What it is seeking to do is get a balanced picture across a five-year period, which is the normal period of review for cost-recovery arrangements in line with government guidelines.
Senator BOYCE: You said you were going to have those discussions before 1 July with the funds. Is that correct?
Mr Peterson : We would be expecting to publish a cost recovery impact statement before 1 July. The figure was announced by the minister in October.
Senator BOYCE: This legislation, one would hope, will need to be passed before 1 July. There seems to be some sort of a timing issue around your discussion with the funds as to justification for the increase?
Mr Peterson : I would have to acknowledge that the detailed discussions followed behind the minister's announcement—there is no question about that.
ACTING CHAIR: There are now concerns around that, but, clearly, if this legislation is to be passed, it would also be good for that justification to have been made to the funds so that they are not needing to raise these issues with us.
Mr Peterson : Absolutely. No dispute about that at all. We are moving to do that, obviously.
ACTING CHAIR: Okay. Thank you. You mentioned in response to the ANAO in 2007 that you were moving to an integrated core processing system which would allow you to distinguish levy revenue from other revenue. Have you done so?
Mr Peterson : We publish levy revenue each year in our annual report, and I saw somebody referring to the page the other day. I have to admit not knowing all the detail of our accounting mechanism, but I would be very surprised if the answer was not absolutely yes.
ACTING CHAIR: The other question around that area, of course, is: are you confident that you are distinguishing regulatory costs from administrative costs in terms of levy?
Mrs Lendon : We have a process, our strategic costing framework, which gathers all the costs for various activities. It is a disciplined process that is audited by the ANAO. So we are very clear about what costs should go in and what should be our normal business as usual, running the business line.
ACTING CHAIR: Is that available to the funds and fund organisations?
Mrs Lendon : The information I think that the SPAA people referred to is that sort of level of detail that we have provided. I guess there is always the question about what level of detail you go into in exposing those costs, because we can get down to one FTE on something. There is finding the right balance here.
ACTING CHAIR: But it does not sound like you have got the right balance right now, Mrs Lendon.
Mrs Lendon : We are hearing that, certainly, from the associations—it is too high level or, if we get into the weeds, people cannot understand that sort of level of detail. We have to find a better balance with that and we are certainly aware of that.
ACTING CHAIR: Is the current system you are using to allocate those costings based on some sort of international accounting standard?
Mrs Lendon : I would have to take that on notice. I know it is a very vigorous process and it has had a lot of scrutiny, but I cannot answer whether it meets particular accounting requirements. I would expect so, but I would have to check.
Senator THISTLETHWAITE: The organisations that appeared before us earlier said that they were not opposed to a levy increase, but they did want greater justification and transparency. Is the ATO doing anything about consulting with those organisations regarding what would be a satisfactory level of information for them?
Mrs Lendon : We have consultation processes in place, as you heard—our super consultative committee—and we have a range of subcommittees under that where we do hear from industry about their concerns. So we certainly have the processes in place to do that and we do use those. It is about getting the balance about what kind of information. We are absolutely open to talking that through more detail, and I think as Mr Peterson said in respect to the cost-recovery impact statement, that is going to be a good mechanism for us to have that conversation.
Senator THISTLETHWAITE: Has that conversation been had? In other words, have you asked them in any of these consultations what they are looking for?
Mrs Lendon : Not on this specific issue that I am aware of.
Mr Peterson : No, not that I am aware of, either. I actually have a sneaking suspicion that I am not entirely they know what they are looking for, so it will be a bit of a process of testing some material with them. As Mrs Lendon indicated, we can go down to some fairly detailed levels, but nobody wants that—or, at least, we don't think they want that.
Senator THISTLETHWAITE: Is there an intention to discuss it in the future?
Mr Peterson : No doubt through the cost-recovery impact process we will have those conversations. I am pretty sure they will be pretty rigorous, because I am pretty sure that Mrs Slattery and her colleagues will ensure that they are.
Senator THISTLETHWAITE: Okay. Thanks.
Senator URQUHART: Can you tell you what sort of information, if any, that the ATO publishers on the costs that you incur from the supervising self-managed superannuation funds? Do you actually publish any of that information about the costs that you incur?
Mrs Lendon : We have not published any information on that that I can recall. We share it, as we have, at the consultative committees, but it has not been published.
Senator URQUHART: Why don't you publish it?
Mr Peterson : It is a question of detail. Normally we use an annual report type process and that is subject to a whole range of guidelines that require what is reported and if it is not there then the reason is that is not required to be there, broadly put.
Senator URQUHART: So it is contained in the annual report but not actually published?
Mr Peterson : ATO costs are contained in the annual report, but not down to the level we are talking about here.
Senator URQUHART: Why don't you publish that?
Mr Peterson : It is a question of detail, I think. That is the bottom line.
Senator URQUHART: What? There is too much detail?
Mr Peterson : We could publish this but it raises a question about what else you publish. Do you publish how much you spend on the income tax aspects of self-managed funds, how much money you spend on excess contributions tax, the superannuant holding account for small accounts—a whole range of things like that? There is an enormous list of things the ATO does. This is just one in effect and not one of the largest things the organisation does. So it is a detail issue, I guess.
Senator URQUHART: I raised it because the National Audit Office recommended in 2007 that the ATO publicly report on the cost of administering the self-managed funds.
Mr Peterson : We have taken those discussions to our consultative arrangements.
Senator URQUHART: Yes, and where have they gone from there?
Mr Peterson : That is where they have been published with the consultative arrangements.
Senator URQUHART: Thank you.
Mr FLETCHER: SPAA told us that the ATO had reported to an industry forum that the cost of supervising the sector was $85.2 million. Is that a correct statement?
Mr Peterson : Yes, it is.
Mr FLETCHER: For 2011-12?
Mrs Lendon : Yes.
Mr FLETCHER: How did you arrive at the levy for 2013 of $259? What was the calculation process?
Mrs Lendon : We can repeat that. We did cover that whilst you were out of the room but I am happy to run through it again.
Mr FLETCHER: Please.
Mr Peterson : The process was effectively to use 2011-12 as a base year. We have got the figure of $85.2 million from a costing framework we use within the ATO. Taking the 2011-12 year as a base year and projecting forward we have included two factors in the calculation. The first is the level of growth in the number of self-managed superannuation funds. You heard Mrs Slattery tell you earlier that they are growing at an average rate of about 30,000 each year. Over the last handful of years that is a growth rate of about six to eight per cent.
Mr FLETCHER: Does growth increase costs ahead of revenue? What does it do to the margin between revenue and cost?
Mr Peterson : The money raised from the revenue trails substantially at the present time behind the growth in the level of funds. If I look at the last financial year, the 2011-12 financial year, for the vast majority of self-managed super funds their required lodgement date is not until May this year. It is at that point that the levy is actually imposed. An assessment process flows from that and then a debt arises and gets paid from that. Effectively, you have at least a 12-month delay from—
Mr FLETCHER: Is your problem one of timing or quantum? In other words, will you raise in respect of the 2011-12 year under the current arrangements, an amount which is sufficient to cover that $85.2 million?
Mr Peterson : I think we will. You might recall that Mrs Slattery also let you know that the levy dropped from $200 to $191.
Mr FLETCHER: Why would it not be sufficient to address the shortfall to take the timing measure that is part of what is proposed?
Mr Peterson : Timing and cash flow is a factor of when you get the money. Shortfall is ultimately a slightly different issue. In terms of the calculation, if I can come back to that, the methodology was to assume growth in the number of funds. We have projected a rate of 5½ to five per cent over the years to 2015-16. We have actually seen growth over the last several years of six to eight per cent in the number of self-managed super funds. We chose a lower percentage than the actual rate of grow (1) because there is some uncertainty and (2) because we think that we owe it to the Australian community to get more efficient at what we do. So we have depressed the figure by assuming a lower rate of growth in the calculation. We have also assumed a salary increase for ATO employees and we have projected that on the basis of a Treasury figure. The Treasury figure we used was annual wage increases in line with the 2012-13 budget parameter of average weekly earnings.
Mr FLETCHER: Of that $85.2 million, or whatever the number is in any year, what percentage of that is salary costs or people costs? I presume the vast bulk of it is.
Mr Peterson : You would expect the bulk of it to be, but it is a full-cost recovery arrangement so it also includes things like compensation, corporate services and support—the whole range of things that it takes to keep people employed like accommodation, electricity and computers.
Mr FLETCHER: Understanding that—apologies if you went over this before—is it correct that for 2011-12, when you finally collect the total amount of the levy that you are allowed to collect under the present arrangements, you will have fully covered your costs for 2011-12?
Mr Peterson : Yes, I think we would expect it to be in that order.
Senator BOYCE: Is that with or without the increase?
Mr FLETCHER: Before the increase.
Mr Peterson : That is before the increase. You asked me about how the increase was calculated.
CHAIR: Could we get an answer on that? I would really like to know how the increase was calculated.
Mr Peterson : We have used 2011-12 as the base year—$85 million. We have factored in those two variables which I have outlined to you, and over the five-year period from 2011-12 to 2015-16 that would give a total cost of about $513 million. Factoring in the $259 figure that has been chosen, over that same period we are projecting cash collections of that same figure. When I come back to cash collections, there is a timing issue which we have already discussed. The second issue is that multiplying the number of funds by the size of the levy gives you an interesting figure, but an unrealistic one.
CHAIR: Why is that?
Mr Peterson : There are a couple of reasons. There is the timing issue—money can come in at different points depending upon when funds lodge and pay. The second aspect on the table is that not all funds registered at a given point in time are necessarily operating—they can be in the process of being wound up, for example. They may have been emptied out of money either lawfully or unlawfully. They may be otherwise unable to pay. There may be some intervening event, and some do not pay their debts, ultimately.
Mr FLETCHER: For internal purposes, do you have a reduction factor that you apply?
Mr Peterson : Yes, you always collect less than you actually assess.
Mr FLETCHER: In terms of the numbers, is it five per cent, eight per cent or 10 per cent? Is it of that order of magnitude?
Mr Peterson : I would be guessing if I gave you a percentage. I honestly do not know.
Mr FLETCHER: I would like to ask you about the statement you made before—to make sure that I am getting it right—that apart from the timing difference, broadly, for 2011-12 what will be collected under the levy will cover the costs.
Mr Peterson : Yes, we expect it to be in that order.
Mr FLETCHER: How is that consistent with this statement in the explanatory memorandum?:
The current SMSF supervisory levy does not fully recover the ATO’s costs of regulating the sector.
Mr Peterson : You have to consider the situation here in terms of history and retrospectively. What we have found over the years—and Mrs Slattery referred to this when she spoke about the $45 levy—and what you see in this sector is that ATO costs over a number of years have been somewhat higher than the amounts that have actually been recouped by the levy.
Mr FLETCHER: Yes, but you just told us that for the year which has just come to an end the levy covers the tax office's costs. And yet an explanatory memorandum has been provided to the parliament which says:
The current SMSF supervisory levy does not fully recover the ATO’s costs of regulating the sector.
Mr Peterson : I can only assume that that is a reference to the projection going forward.
CHAIR: And is it an accurate record of what has been going on in the past as well?
Mr Peterson : It is an accurate record of what has happened in the past, yes. What you find is that the levy was at $200 when self-managed funds were administered by APRA back in 1998 or thereabouts.
Mr FLETCHER: Could I just ask about one other area, which is the forecast of revenue of $88 million in 2015-16. As I understand it, that is the incremental revenue over what would have been received had the current arrangements stayed in place. Is that an accurate statement?
Mr Peterson : I am not sure what you are referring to, I am sorry.
Mr FLETCHER: I am referring to page 3 of the explanatory memorandum which says that revenue for 2015-16 is $88 million.
Mr Peterson : I will have to go there—
Mr FLETCHER: Do you have that in front of you?
Mr Peterson : Yes I have it now, thank you very much.
Mr FLETCHER: Am I right to think that the process of calculating that number—that $88 million—would have been, firstly, to say, 'What would the levy be in the base case?'—let's assume it is a continuation of the current $191—then, 'What will the levy be if the legislation goes through?'—which I think for 2015-16 will be $259, and therefore the increment is $68 per fund. Does that sound a reasonable statement so far?
Mr Peterson : In terms of the increment per fund, yes: probably—yes.
Mr FLETCHER: I am just interested to know how that $88 million was arrived at. I may be misunderstanding the way it is calculated, but if that is meant to give the incremental impact then $88 million divided by 68 gives almost $1.3 million in funds. I cannot imagine that the tax office is predicting that there will be $1.3 million in funds by 2015-16.
Mr Peterson : Yes. Let me give you a couple of things here, if that is okay, and then Ms Lendon can pick some mistakes I make!
Firstly is the Treasury figures, and so I struggle to be able to account for them. Two: what you need to bear in mind is that they represent a bring forward in the payment arrangements as well—
Mr FLETCHER: My understanding is that—and perhaps I am wrong—but I thought that was covered in—
CHAIR: Perhaps Mr Peterson might finish that explanation?
Mr FLETCHER: Sure.
Mr Peterson : The reason these figures look so inflated against what I think you are expecting, is that they represent a bring forward in the arrangements. At the present time the levy is paid substantially in arrears. So for the year that ended in June 2012, you have heard me say that lodgement is not until May and then assessment and collection come some time after that. The intention would be that—if I use the same years as an example—in the year when all the changes are implemented the levy for 2013-14 is the one that will be paid with the return lodged for 2011-12. So what you will get over the intervening 2013-14 and 2014-15 years is a bunching up of amounts, where people continue to pay past plus a bit of a future year. You cannot just apply the difference to this particular table is probably the short answer to the question.
Mr FLETCHER: Perhaps for the sake of time can I ask you to take on notice to explain the derivation of the $88 million figure that is provided for incremental revenue in 2015.
Mr Peterson : Absolutely. It will be a factor of the increased levy;—
Mrs Lendon : The phase-in approach.
Mr Peterson : the phase-in of the timing of the of the collection of the levy, I believe; and some cash flow related aspects.
CHAIR: The response that we have had from the sector seems to be most critical of the limited degree of engagement with the ATO and also a concern about the transparency of the things that we have discussed here today. I note in the response to the 2007 ANAO report that the ATO agreed—and we have been provided with a statement—to clarify the extent to which the levy recovers the costs, to work with Treasury to implement review processes and to provide appropriate cost recovery. There was some discussion then about the systems in place, moving from generic accounting system to a newer system. And there was a commitment to always act in accordance with the Australian government cost-recovery guidelines. So there is a sense that those things have been achieved. I would like your response to the submissions that we have received in terms of communication and transparency, because I think they are the two critical issues here today.
Mrs Lendon : We have a very strong relationship with the superannuation industry built up over many years through our consultative processes. I think it is fair to say that we have not gone into the level of detail around this measure and the costs and getting people across understanding what is involved. There has been information, but clearly from the submissions it has not been enough. I think that is something that we acknowledge and we need to do more about—to work through what is the kind of level of detail. Too much detail can knock everybody out, so we have got to get it right. We have been too high level, is the kind of feedback that I hear, so we need to get it to the level that meets their needs, which is something that we will take on board. I take the cost-recovery impact statement as a really good method to use to have that conversation and to try to get that understanding across the board.
CHAIR: Mr Peterson, did you want to add anything?
Mr Peterson : There is nothing that I can add to that.
Senator BOYCE: I have one more question. Who proposed this increase in the levy? Was it the tax office or the government?
Mrs Lendon : It was a bit before my time in the role. What I do know from talking to my predecessor is that for some time there has been concern that our costs are not being covered by the levy. I do not know if Mr Peterson has further insight into that. I would have to take that one on notice.
Mr Peterson : I think it is best to take that one on notice. My recollection—but my memory sometimes fails the—is that on this occasion the discussion was probably initiated by Treasury, but I may be mistaken.
Senator BOYCE: Okay. Thank you. What about the timing, the shift, in the collection of the revenue? Who initiated that suggestion?
Mr Peterson : Same answer, I think.
Senator BOYCE: Thank you, I would be very pleased to see that answer on notice. Thank you.
CHAIR: It seems as if we have stumbled on an opportunity for the taxation department to engage more with the sector. I am sure that they would be very favourable in a response to requests to meet on a more regular basis. From the testimony we have had this morning, the last meeting was in December and there might have needed to being a meetings in the interim to keep them abreast of what was happening. As things do move quickly sometimes in the sector, it is building those relationships.
Thank you very much for your submission and for your testimony here this morning. It is much appreciated.
Committee adjourned at 11:24