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Superannuation Supervisory Levy Determinations Validation Bill 1999
Bills Digest No. 30 1999-2000
Superannuation Supervisory Levy Determination Validation Bill 1999
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not hav e any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Superannuation Supervisor y Levy Determination Validation Bill 1999
Commencement: Clause 2 provides that the Bill commences on the commencement of Part 1 of Schedule 12 to the Financial Sector Reform (Amendments and Transitional Provisions) Act (No. 2) 1999 . That Act provides for commencement after all of the 'Validation Acts'(1) have received the Royal Assent, and on the day that is the last day on which any of those acts received the Royal Assent. Reference is invited to Bills Digest No. 7 1999-2000 for explanations relating to the commencement of the Financial Sector Reform (Amendments and Transitional Provisions) Act (No. 2) 1999 .
To validate the determination made by the Treasurer on 11 August 1998 under the Superannuation Supervisory Levy Imposition Act 1998 in relation to the amount of levy payable by certain superannuation entities.
The Financial System Inquiry Final Report (FSI Report - sometimes referred to as the 'Wallis Inquiry report') recommended that a single Commonwealth prudential regulator should be established for the deposit taking institutions (including banks, building societies and credit unions), insurance (general and life) and superannuation industries (including retirement savings accounts).(2) The Government implemented that recommendation by the creation of the Australian Prudential Regulation Authority (APRA) under the Australian Prudential Regulation Authority Act 1998 (APRA Act). The creation of APRA resulted in the abolition of the Insurance and Superannuation Commission and the state-based structure for regulation of building societies and credit unions.
Prior to APRA being established, different authorities regulated various industries, which had separate funding mechanisms. This created significant disparities between the nature and level of funding of each regulator.
The FSI Report (Recommendation 104: Regulatory agencies' charges should reflect their costs) recommended that regulatory authorities should collect amounts from financial entities they regulate no more than required to cover the cost of regulating them. Recommendation 104 states:
The regulatory agencies should collect from the financial entities which they regulate enough revenue to fund themselves, but not more. As far as practicable, the regulatory agencies should charge each financial entity for direct services provided, and levy sectors of industry to meet the general costs of their regulation.(3)
The government stated its aim to be:
To establish an administratively simple and uniform scheme based on the principle of full cost recovery from the institutional categories that are regulated.(4)
The total levy receivable for the financial year 1998-99 was estimated at $40 million, and is estimated to be $70 million in 1999-2000(5). In the Determination titled Australian Prudential Regulation Authority (Commonwealth Costs) Determination 1998 , the Treasurer determined that of the total amount of levy collectible for the 1998-99 financial year the amount required to cover the costs to the Commonwealth of providing market integrity and consumer protection functions for prudentially regulated institutions will be $8,950,000. The Australian Securities and Investments Commission was to receive $6,600,000 and the Australian Taxation Office was to receive $2,350,000 of this sum. This means that APRA's share of levy money for supervising the prudentially regulated institutions is $31,050,000.
The Treasurer also has the power under section 7 of the Authorised Deposit-taking Institutions Supervisory Levy Imposition Act 1998 to make a determination on the supervisory levy to apply to 'authorised deposit taking institutions', which includes banks, building societies and credit unions.
An Authorised Deposit-taking Institutions Supervisory Levy was not imposed in 1998-99. Even though banks became regulated by APRA from 1 July 1998, the cost of their prudential regulation was funded by the interest forgone on non-callable deposits held by the Reserve Bank. This form of funding was abolished by the Financial Sector Reform (Amendments and Transitional Provisions) Act 1998 from 1 July 1999, which coincided with credit unions building societies and friendly societies coming under the prudential control of APRA. All 'authorised deposit taking institutions' are subject to the Authorised Deposit-taking Institutions Supervisory Levy for the 1999-2000 financial year.
In broad terms, all industries regulated by APRA are levied on a similar basis. The method used is similar to the pre-APRA method used to levy building societies, credit unions and insurance and superannuation entities.
Further information about the Fin ancial Sector Inquiry Final Report can be obtained from Parliamentary Library Research Paper No. 16 of 1996-97, entitled The Wallis Report on the Australian Financial System: Summary and Critique , by Phil Hanratty.
Since the imposition of levies may amount to the imposition of taxes, the imposition of the levy for different types of regulated entities requires separate legislation to comply with the requirements of section 55 of th e Constitution which states:
Laws imposing taxation shall deal only with the imposition of taxation, and any provision therein dealing with any other matter shall be of no effect.
Laws imposing taxation, except laws imposing duties of customs or of excise, shall deal with one subject of taxation only; but laws imposing duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only.
Supervisory levies are therefore imposed by the followi ng levy imposition Acts:
- Authorised Deposit-taking Institutions Supervisory Levy Imposition Act 1998
- Authorised Non-operating Holding Companies Supervisory Levy Imposition Act 1998
- General Insurance Supervisory Levy Imposition Act 1998
- Life Insurance Super visory Levy Imposition Act 1998
- Retirement Savings Account Providers Supervisory Levy Imposition Act 1998; and the
- Superannuation Supervisory Levy Imposition Act 1998 .
The measures for the collection of supervisory levies imposed by the above Acts are cont ained in the Financial Institutions Supervisory Levies Collection Act 1998 .
The revenue collected as supervisory levies during a financial year are applied in two ways under the provisions of the APRA Act as follows.
- The Treasurer must determine under subsection 50(2) of the APRA Act for each finan cial year, the amount of levy money received during the financial year that is to be available to cover the costs to the Commonwealth of providing market integrity and consumer protection functions for prudentially regulated institutions. That amount is retained in the Consolidated Revenue Fund, until allocated to the Australian Securities and Investment Commission and the Australian Taxation Office, which perform those functions.
- The balance of the levy money (after 'taking out' the amount for consumer protection functions for prudentially regulated institutions) is to be paid to APRA under subsection 50(1) of the APRA Act.
The Superannuation Supervisory Levy Imposition Act 1998 (SSLI Act) imposes the superannuation supervisory levy on superannuation entities. Section 5 of the SSLI Act defines 'superannuation entity' as a superannuation entity within the meaning of the Superannuation Industry (Supervision) Act 1993 (SIS Act), and is not an excluded superannuation fund within the meaning of that Act.
'Superannuation entity' is defined under section 10 of the SIS Act as a regulated superannuation fund, or an approved deposit fund, or a pooled superannuation trust. 'Excluded superannuation fund' is defined under section 10 of the SIS Act as a superannuation fund with fewer than five members. The Superannuation Legislation Amendment Bill (No.3) 1999 proposes to change, among other things, the definition of 'excluded superannuation fund' to 'self managed superannuation fund'.(6) The superannuation supervisory levy applicable to excluded superannuation funds is set under the Superannuation (Excluded Funds) Supervisory Levy Imposition Act 1991 . The levy amount for the 1998-99 year of income (for returns lodged after 1 July 1999) is $45.(7)
The levy payable by superannuation entities (as defined under section 5 of the SSLI Act) is determined under subsection 7(1) of the SSLI Act.
Under paragraph 7(1)(a), the amount of levy payable is the levy percentage of the superannuation entity’s asset value. Under paragraph 7(1)(b), if the amount worked out in paragraph 7(1)(a) exceeds the maximum levy amount, the amount of levy payable is the maximum levy amount. Under paragraph 7(1)(c), if the amount worked out in paragraph 7(1)(a) is less than the minimum levy amount, the amount of levy payable is the minimum levy amount.
Subsection 7(3) of the SSLI Act gives the Treasurer the power to determine in writing the 'levy percentage', the 'maximum levy amount', the 'minimum levy amount', and how a superannuation entity's asset value is to be worked out. The 'maximum levy amount' cannot exceed the statutory upper limit set under section 5 of the SSLI Act, which is $500,000, or an amount indexed in accordance with the consumer price index for subsequent years.
Subsection 7(5) provides that a determination under subsection 7(3) is a disallowable instrument under section 46A of the Acts Interpretation Act 1901 to which the provisions of section 48 apply. This means that the determination must be notified in the Gazette and shall be laid before each House of the Parliament within 15 sitting days of that House after making the determination.
The levy for the 1998-99 financi al was set in the Superannuation Supervisory Levy Imposition Determination 1998 . This Determination was signed by the Treasurer on 11 August 1998 and appeared in the Commonwealth Gazette of 13 August 1998 (S402) (and is included as an Attachment to this Digest). The Determination was tabled in both Houses of Parliament on 10 November 1998.
Subclause 4(1) of the Determination provides that the 'minimum levy amount' for each financial year is $200; the 'maximum levy amount' for each financial year is $39,000 , and the levy percentage for each financial year is 0.04%.
Subclause 4(2) provides that a superannuation entity's asset value is worked out in the same way that its assets are worked out for subregulation 4(2) of the Superannuation Supervisory Levy Regulations, which states:
4(2) Assets. In this regulation, 'assets', in relation to a levy payer means:
(a) if the levy payer's superannuation fund consists entirely of policies of life insurance on the lives of individual members of the fund - the amount assessed by the insurer as the current value of those policies; and
(b) in any other case - the net balance of the levy payer's superannuation fund or approved deposit fund or unit trust at the end of the year of income to which the return applies obtained from audited accounts of that fund or trust.
Clause 2 of the D etermination stated that it commences on the date of commencement of the APRA Act, which commenced on 1 July 1998.
Subsection 48(2) of the Acts Interpretation Act 1901 provides that determinations have no effect if they take effect before the date of the notification. It states:
(2) A regulation, or a provision of regulations, has no effect if, apart from this subsection, it would take effect before the date of notification and as a result:
(a) The rights of a person (other than the Commonwealth or an authority of the Commonwealth) as at the date of notification would be affected so as to disadvantage that person; or
(b) Liabilities would be imposed on a person (other than the Commonwealth or an authority of the Commonwealth) in respect of anything done or omitted to be done before the date of notification.
In this case, the Superannuation Supervisory Levy Imposition Determination 1998 was to take effect from 1 July 1998, but did not appear in the Gazette until 13 August 1998. Hence the Determination would be of no effect.
The government has stated that:
There is some ambiguity as to whether these determinations do impose a retrospective requirement as levy payments were in practice not payable until at least 1 October 1998. However, on balance, there is sufficient uncertainty to warrant legislation to ensure that these determinations are valid.(8)
Section 9 of the Financial Institutions Supervisory Levies Collection Act 1998 provides when the levy is due for payment. Under subsection 9(1) if the levy imposition day is 1 July 1998, as the Determination proposes, the levy is due and payable on 1 July 1998. The Second Reading Speech states that in practice the levy was not payable until at least 1 October 1998. When questioned about the 1 October 1998 payment date, the Department of the Treasury advised that the APRA exercised its power under section 12 of the Financial Institutions Supervisory Levies Collection Act 1998 to waive the late payment penalty if superannuation entities paid their respective levy by 1 October 1998.(9)
Subclauses 4(1) and (2) have the effect of overriding the provisions of subsection 48(2) of the Acts Interpretation Act 1901 and validating the invalid Determination made on 11 August 1998 and notified in the Gazette on 13 August 1998.
Paragraph 4(2)(b) provides that the Determination 'to have been effective on and at all times after 1 July 1998'. This enables the levy determination to apply from 1 July 1998. However, paragraph 4(2)(b) may also be construed as applying the Determination made on 11 August 1998 for all subsequent years as well. To enable the levy to be varied for subsequent years subclause 4(3) provides that notwithstanding paragraph 4(2)(b) the Determination may be repealed, rescinded, revoked amended or varied in accordance with subsection 33(3) of the Acts Interpretation Act 1901 .
Subsection 33(3) of the Acts Interpretation Act 1901 states:
Where an Act confers a power to make, grant or issue any instrument (including rules, regulations or by-laws) the power shall, unless the contrary intention appears, be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.
Thus the Treasurer may vary the lev y for future years notwithstanding the provisions of paragraph 4(2)(b) .
The need for this Bill would not have arisen if the Determination had been made on or before 1 July 1998, as explained in the background to this Digest. The total amount of levy due from superannuation entities for the financial year 19 98-99 would not be collectible if this Bill is not enacted.
A similar delay in making Determinations has put at risk the levy collectible for the financial year 1998-99 under the following Acts.
- General Insurance Supervisory Levy Imposition Act 1998 ;
- Autho rised Non-operating Holding Companies Supervisory Levy Imposition Act 1998 ;
- Life Insurance Supervisory Levy Imposition Act 1998 ; and the
- Retirement Savings Account Providers Supervisory Levy Imposition Act 1999 .
Bills to validate the Determinations which a re of no effect made under the above Acts were introduced into the House of Representatives on 30 June 1999.(10)
The Bills to validate the invalid determinations will protect the levies totalling $40 million to be distributed to the three agencies as indicated above.
- Section 1 of schedule 12 of the Financial Sector Reform (Amendments and Transitional Provisions) Act (No. 2) 1999 defines 'Validation Act' as any of the following Acts:
- the Authorised Non-operating Holding Companies Supervisory Levy De termination Validation Act 1999 ;
- the General Insurance Supervisory Levy Determination Validation Act 1999 ;
- the Life Insurance Supervisory Levy Determination Validation Act 1999 ;
- the Retirement Savings Account Providers Supervisory Levy Determination Valida tion Act 1999 ; and
- the Superannuation Supervisory Levy Determination Validation Act 1999 .
- Financial System Inquiry, Financial System Inquiry Final Report , (Mr Stan Wallis, Inquiry Chairman), Canberra, March 1997.
- ibid., p. 532.
- Treasurer, Second Reading Speech of the Treasurer on the Company Law Review Bill 1997, Parliamentary Debates , 26 March 1998, p. 1160.
- Estimates provided to the authors by the Department of the Treasury.
- Reference is invited to Bills Digest No. 188 1998-99, Superannuation Legislation Amendment Bill (No. 3) 1999 .
- Senator the Hon. Rod Kemp, Assistant Treasurer, Press Release No. 28 Lower Supervisory Levy for Excluded Superannuation Funds , 30 June 1999.
- Minister for Financial Services and Regulation, Second Reading Speech of the Minister for Financial Services and Regulation on the Authorised Non-Operating Holding Companies Supervisory Levy Determination Validation Bill 1999 , Parliamentary Debates , 30 June 1999, p. 6174.
- Verbal advice provided to the authors on 30 July 1999.
- Reference is invited to the Bills Digests on the following Bills.
- Authorised Non-operating Holding Companies Supervisory Levy Determination Validation Bill 1999 (No. 21, 1999-2000);
- Life Insurance Supervisory Levy Determination Validation Bill 1999 (No. 28, 1999-2000);
- General Insurance Supervisory Levy Determination Validation Bill 1999 (No. 29, 1999-2000);
- Retirement Savings Account Providers Supervisory Levy Determination Validation Bill 1999 (No. 31, 1999-2000).
David Kehl & Bernard Pulle
11 Aug ust 1999
Economics, Commerce and Industrial Relations Group
Information and Research Services
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