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Tax Laws Amendment (Superannuation Reporting) Bill 2004

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2004

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

tax laws amendment (superannuation reporting) bill 2004

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Treasurer, the Hon Peter Costello MP)

 



T able of contents

Glossary                                                                                                               1

General outline and financial impact............................................................ 3

Chapter 1            Removal of the superannuation guarantee reporting requirement           5

Index                                                                                                                  15



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ATO

Australian Taxation Office

Commissioner

Commissioner of Taxation

ITAA 1936

Income Tax Assessment Act 1936

ITAA 1997

Income Tax Assessment Act 1997

SG

superannuation guarantee

SGAA 1992

Superannuation Guarantee (Administration) Act 1992

 



Removal of the superannuation guarantee reporting requirement

Schedule 1 to this bill amends the Superannuation Guarantee (Administration) Act 1992 to remove the requirement for employers to provide reports to employees under the superannuation guarantee (SG) arrangements. The removal of this requirement will have effect from 1 January 2005. After this date, employers will not be required, under the SG arrangements, to report to employees on employer superannuation contributions.

Date of effect :  This measure will have effect in respect of contributions made on or after 1 January 2005.

Proposal announced :  This measure was announced by the Prime Minister in his statement of 6 July 2004 titled Committed to Small Business .

Financial impact Unquantifiable but likely to be insignificant .

Compliance cost impact :  This measure will reduce the compliance impact on employers arising from their SG obligations.

Summary of regulation impact statement

Regulation impact on business

Impact :  The recommended option removes the requirement for employers to report superannuation contributions under the SG arrangements. The provision of information to employees will be maintained by a combination of reporting provisions in other Australian workplace legislation that requires reporting on payslips, and annual reporting from superannuation funds.

Main points :

·          This option will completely remove the compliance burden associated with SG reporting, as reporting under the SG arrangements will no longer be required.

·          Employees will obtain information relating to their superannuation from other sources, for example, the annual reports from their superannuation funds or from their employers reporting on payslips in accordance with Australian workplace legislation.

·          There will be no administrative burden on the Australian Taxation Office arising out of this measure.

There will be no significant compliance impact on superannuation fund providers other than a potentially slight increase in the frequency and level of enquiry from members.

 



C hapter 1  

Removal of the superannuation guarantee reporting requirement

Outline of chapter

1.1         Schedule 1 to this bill amends the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992) to reduce the compliance burden faced by employers in meeting their superannuation guarantee (SG) obligations. The amendments remove the requirement for employers to report superannuation contributions made to employees under the SG arrangements.

Context of amendments

1.2         The quarterly SG arrangements introduced in the Taxation Laws Amendment (Superannuation) Act (No. 2) 2002 included a requirement for employers to report to their employees the amount and destination of superannuation contributions when they were made on an employee’s behalf.

1.3         Employers have expressed concerns in relation to the cost of compliance of this measure. A key concern has been the time frame for reporting, with employers required to report within 30 days of a contribution actually being made.

1.4         Many employers report more frequently by including information on payslip advices pertaining to superannuation contributions. This obligation is contained throughout various Australian workplace legislation as well as State and Federal awards. As a result of the widespread requirements to report superannuation contributions on payslips, combined with the requirement for superannuation funds to report at least annually to their members on both employer and member contributions, it is unnecessary for employers to provide additional reporting.

Summary of new law

1.5         Employers will no longer be required to report to employees under the SG arrangements any superannuation contributions made on behalf of their employees. The requirement to report contributions will cease for all contributions made on or after 1 January 2005.

Comparison of key features of new law and current law

New law

Current law

No requirement under the SG arrangements to report contributions to employees made on or after 1 January 2005.

An employer who contributes to a complying superannuation fund or retirement savings account for the benefit of an employee must report that contribution to the relevant employee within 30 days of making the contribution.

An employer can only report contributions to an employee that have actually been made.

An employer commits an offence in relation to each employee in respect of whom the reporting requirements are not met for a particular contribution. The maximum penalty that is imposed for a particular breach is 30 penalty units.

Detailed explanation of new law

1.6         This amendment will repeal section 23A of the SGAA 1992, removing the need for an employer to report the relevant contribution information to the relevant employee within 30 days of making a contribution which reduces the employer’s SG obligation. [Schedule 1, item 1]

Application and transitional provisions

1.7         This measure will apply to contributions made on or after 1 January 2005. [Schedule 1, item 2]

REGULATION IMPACT STATEMENT

Background and problem

1.8         A key practical concern with the current reporting requirement has been the timing of the reporting obligation. Currently an employer is required to report within 30 days of making a contribution. Under the SG arrangements employers are required to make superannuation contributions for all eligible employees on at least a quarterly basis.

1.9         Many employers report to their employees more frequently by including information pertaining to superannuation contributions in regular payslips. However, as the contributions are often not actually made to a fund until after the pay advice is provided, employers are potentially required to confirm the information and report again after the contributions are actually made.

1.10       Reporting after contributions are made can be a particular issue for employers with a high turnover of employees, particularly casual and itinerant work forces such as those in the hospitality and horticultural industries. These employers have difficulty locating former employees for the purposes of reporting.

Objective

1.11       The objective is to reduce the compliance burden faced by many small businesses as a result of SG reporting while ensuring that employees remain informed about their superannuation entitlements.

Options

Option 1

1.12       Under this option the current arrangements to report within 30 days of making a contribution would be retained.

Option 2

1.13       Under this option employers would be required to report to employees on an annual basis, amounts contributed in order to reduce the employer’s liability to pay the SG charge.

Option 3

1.14       Under this option an employer would produce one consolidated report, detailing the employees, their contributions and the destination of contributions. This report would then be lodged with the Australian Taxation Office (ATO) on a quarterly basis.

Option 4

1.15       This option would remove the requirement for employers to report superannuation contributions from the SG arrangements. Employees would instead rely on a combination of reporting provisions in other Australian workplace relations legislation that require reporting on payslips. Annual reporting from superannuation funds would also assist to keep employees apprised of their entitlements.

Assessment of impacts

Impact group identification

1.16       The impact groups are:

·          employers (including small businesses);

·          employees;

·          the Australian Government; and

·          superannuation providers (this group is only indirectly affected by option 4).

Option 1

Benefits

Employees

1.17       Under option 1 employees will continue to have access to at least quarterly information relating to the amount and destination of any superannuation contribution their employer makes on their behalf.

Costs

Employers

1.18       Affected employers, particularly those in industries with a high turnover of employees, will continue to experience the same difficulties in meeting their compliance obligations as they currently face, as identified earlier.

Option 2

Benefits

Employers

1.19       Employers would experience a reduction in the compliance burden associated with the current arrangements as rather than being required to report at least four times a year, only one report would be required at the end of each year. The level and extent of the reduction is uncertain, but is expected to be significant.

Costs

Employees

1.20       Employees could experience a reduction of information relating to their superannuation as they would only receive information once a year. Employees currently receive annual information from their superannuation fund. The cost to employees is unquantifiable as there is no data available on the number of employees who currently receive more frequent superannuation contribution information on payslips, although the coverage is thought to be very widespread.

Government
Data matching

1.21       The ATO continually works on enhancements to their compliance activities. The ATO is already working on matching of data sourced from superannuation fund member contribution statements and income tax returns to identify high risk compliance areas.

1.22       This option reduces the opportunity for some employees to take ownership and responsibility for their superannuation accounts.

More intensive audit activity

1.23       In the 2004-2005 Budget the ATO was given additional funding to raise the level of voluntary compliance and to undertake additional compliance activities. One of the focus areas identified was superannuation and the need for effective compliance activity will be emphasised in an environment of reduced reporting.

1.24       Superannuation funds would not experience any impact as a result of this option being implemented.

Option 3

Benefits

Employers

1.25       This option may be preferable to employers who experience a high turnover of staff. While the proposed modified reporting arrangements will address the issue of locating former staff, it may also be attractive to provide one consolidated report directly to the ATO to cover all employees for a particular quarter. This is expected to substantially reduce compliance costs but the level and extent of the reduction is uncertain.

Cost

Employers

1.26       While this option may be preferable to some employers (e.g. those with a high staff turnover) it is likely to increase compliance requirements for others.

1.27       This option would see every employer in Australia interface with the ATO on SG issues as opposed to only those who have identified an SG shortfall. This would be contrary to the principles of self assessment which underpin the SGAA 1992 .

1.28       Information likely to be required would include;

·          the amount of contributions;

·          the total payroll; and

·          the number of employees and names of providers the contributions were made to.

1.29       The level and extent of these costs is uncertain.

Employees

1.30       Employees may not receive information from employers on a quarterly basis, rather they would be disengaged from the reporting process. The majority of employees would, however, still receive information reported to them on payslips, in accordance with other Australian workplace legislation.

Government

1.31       This option would have significant administrative costs for the ATO due to the need to develop systems and devote other resources to analysing the information. It would also mean that every employer interfaced with the ATO on superannuation issues. The level and extent of these costs is uncertain.

Option 4

Benefits

Employers

1.32       This option would completely remove the compliance burden associated with SG reporting as reporting under the SG arrangements would no longer be required. This option would involve repealing section 23A from the SGAA 1992 .

Government

1.33       There would be no administration cost associated with this option for the ATO. However, as discussed in relation to option 2 the need for effective compliance activity will be emphasised in an environment of reduced reporting.

Costs

Employees

1.34       This option would mean that employees would have to rely on information from other sources in relation to SG contributions paid for their benefit.

Superannuation funds

1.35       This option may result in an increase in costs for superannuation funds as they may experience an increase in inquiries occurring sporadically from members. The level and extent of these costs is uncertain but they are expected to be minimal.

Consultation

1.36       The Departments of Industry, Tourism and Resources, Treasury and Prime Minister and Cabinet have been consulted on this issue. Employer groups such as the National Farmers Federation and the Council of Small Business of Australia have also been consulted on options 2 and 4. This consultation commenced in July of 2003 and has been ongoing from that time. Consultation has involved meetings and ongoing correspondence from interested parties. Individual employers and employer groups support removing the SG employer reporting requirement.

Conclusion and recommended option

1.37       Option 1, (retaining the current arrangements), would fail to meet the objective of reducing the compliance impact for employers. However, it would ensure that employees remained informed about their superannuation entitlements.

1.38       Option 2, (annual reporting by employers), would meet the objective to a small degree but would add little or no value to the information of employees. Employees currently receive information from their superannuation fund provider on at least an annual basis.

1.39       Option 3, (consolidated reporting to the ATO), would meet the objective of reducing compliance costs to a greater degree, however, the cost to Government would be significant.

1.40       It is recommended that option 4 be implemented, removing the requirement for employers to report superannuation contributions to employees under the SG arrangements. This option will provide the most significant improvement in compliance for small business.

1.41       If this option is implemented employees would not be left without access to timely information relating to their superannuation contributions. Provisions in Australian workplace legislation requires employers in Victoria, Queensland, South Australia, the Australian Capital Territory and the Northern Territory to report information about employer contributions on payslips. Similarly employers in Western Australia and Tasmania with employees subject to federal awards, Australian workplace agreements or certified agreements. Numerous awards also require reporting of superannuation contributions on payslips.

1.42       As superannuation providers currently report to members on an annual basis there would seem to be little value in employers duplicating this process. A dual annual reporting regime involving superannuation funds and employers may facilitate employees identifying any discrepancies in the reports but this result would probably only be achieved through aligning reporting dates.

1.43       Superannuation funds are required to report to their members on at least an annual basis and fund members can contact their superannuation fund to make queries at any time.

Implementation and Review

1.44       The change will be implemented from 1 January 2005. The Australian Government supports an ATO review of the impact of the amendments to the SG legislation on levels of compliance.

1.45       The review, to be conducted by the ATO three years after the introduction of the quarterly SG regime, will evaluate the effect on compliance levels in general. This time frame was outlined in the regulation impact statement covering the introduction of the quarterly SG regime.

1.46       In the 2004-2005 Budget the Australian Government allocated additional funding to the ATO to undertake increased compliance activity. One of the identified areas for increased compliance activity was the quarterly SG arrangements.

 



I ndex         

Schedule 1: Superannuation reporting requirements

Bill reference

Paragraph number

Item 1

1.6

Item 2

1.7