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Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017

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2016-2017

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

FAIR WORK LAWS AMENDMENT (PROPER USE OF WORKER BENEFITS) BILL 2017 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

(Circulated by authority of the Minister for Employment, Senator the Hon. Michaelia Cash)



 

 





FAIR WORK LAWS AMENDMENT (PROPER USE OF WORKER BENEFITS) BILL 2017 

 

OUTLINE

 

The Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017 (the Bill) will amend the Fair Work (Registered Organisations) Act 2009 (the RO Act) and the Fair Work Act 2009 (the FW Act) to protect workers through greater governance and transparency of worker entitlement funds consistent with recommendations made by the Royal Commission into Trade Union Governance and Corruption (the Royal Commission).

The Royal Commission was established on 13 March 2014 to inquire into governance and financial irregularities associated with the affairs ofregistered organisations. The Royal Commission provided a final report (the Report) to the Governor-General on 28 December 2015.

The Report examined in detail various case studies concerning misconduct and corruption within, and by parties associated with, registered organisations. On the basis of these case studies, the Report made 79 recommendations for law reform to address problems associated with the current regulation and transparency of registered organisations.

The examples of corruption, financial misconduct and mismanagement outlined in the Report have demonstrated that the existing regulatory framework is not satisfactory in preventing fraud and financial mismanagement, and promoting acceptable standards of democratic governance in the interests of members. A consistent theme in many of the case studies considered by the Royal Commission was a lack of transparency and accountability of the financial affairs of registered organisations and associated entities.

The Bill will ensure appropriate governance and transparency requirements are applied to related entities of registered organisations, in particular worker entitlement funds and other similar funds.

The Bill will amend the RO Act to apply  governance, financial reporting and financial disclosure requirements to worker entitlement funds (giving effect to recommendations 45 and 46 of the Report).

Supporting these amendments, the Bill will also amend the FW Act to:

·          prohibit terms of a modern award or an enterprise agreement requiring or permitting contributions for the benefit of an employee to be made to any fund other than a superannuation fund, a registered worker entitlement fund or a registered charity (giving effect to recommendation 49 of the Report);

·          require any term of a modern award or enterprise agreement that names a worker entitlement fund or insurance product to allow an employee to choose another fund or insurance product,

·          prohibit any term of a modern award, enterprise agreement or contract of employment permitting or requiring employee contributions to an election fund for an industrial association (giving effect to recommendation 43 of the Report); and

·          prohibit any action with the intent to coerce an employer to pay amounts to a particular worker entitlement fund, superannuation fund, training fund, welfare fund or employee insurance scheme (giving effect to recommendation 50 of the Report).

The Bill will also amend the RO Act to:

·          require registered organisations to adopt, and periodically review, financial management policies (giving effect to recommendation 9 of the Report);

·          require registered organisations to keep credit card records and to report certain loans, grants and donations (responding to recommendations 10 and 39 of the Report);

·          require specific disclosure by registered organisations and employers of the financial benefits obtained by them and persons linked to them in connection with employee insurance products (giving effect to recommendation 47 of the Report), welfare fund arrangements and training fund arrangements; and

·          introduce a range of new penalties to ensure compliance with financial management, disclosure and reporting requirements (giving effect to recommendations 9, 10, 17 and 45 of the Report).

The Bill also makes consequential amendments to the Fringe Benefits Tax Assessment Act 1986 , Income Tax Assessment Act 1997 and Taxation Administration Act 1953 .

 



FINANCIAL IMPACT STATEMENT

 

The Bill will have a minor financial impact.

 



REGULATION IMPACT STATEMENT

 

The Interim and Final reports of the Royal Commission into Trade Union Governance and Corruption have been certified by the Department of Employment as being informed by a process and analysis equivalent to a Regulation Impact Statement as set out in the Australian Government Guide to Regulation. The Office of Best Practice Regulation ID for this proposal is 19873. The Office of Best Practice Regulation does not assess independent reviews.

 

These Royal Commission reports can be accessed at:

 

http://www.tradeunionroyalcommission.gov.au/reports/Pages/default.aspx

 



STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

 

 

Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017

The Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017 (The Bill) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview of the Bill

The Bill will amend the Fair Work (Registered Organisations) Act 2009 (the RO Act) and the Fair Work Act 2009 (the FW Act) to ensure better financial governance and transparency of registered organisations and worker entitlement funds.

The Bill addresses Government and community concerns, highlighted by the Final Report of the Royal Commission into Trade Union Governance and Corruption (the Royal Commission), that the current regulation of registered organisations and their related entities is not satisfactory.

Consistent with recommendations made by the Royal Commission, the Bill will provide for increased transparency of the financial affairs of registered organisations and worker entitlement funds, thereby ensuring greater accountability of registered organisations and worker entitlement funds to their members.

In particular, the Bill will amend the RO Act to:

·          require registered organisations to adopt, and periodically review, financial management and accountability policies that are binding on all officers and employees (Recommendation 9);

·          introduce new and robust financial disclosure requirements (Recommendations 10 and 39);

·          deal comprehensively with the governance, financial reporting and financial disclosures required by worker entitlement funds (Recommendations 45 and 46);

·          require specific disclosure by registered organisations and employers of the direct and indirect financial benefits obtained by them and other linked persons in connection with employee insurance products, worker entitlement funds, training funds and welfare funds (Recommendation 47); and

·          introduce a range of new civil penalties to ensure compliance with the new financial management and disclosure requirements (Recommendations 9, 10, 17 and 47).

The Bill will also amend the FW Act to prohibit:

·          any term of a modern award, enterprise agreement or contract of employment requiring or permitting employee contributions to a fund established for the purpose of funding elections for offices of industrial associations (Recommendation 43);

·          any term of a modern award or contract of employment requiring or permitting employee contributions to an unregistered worker entitlement fund (to support Recommendsation 45);

·          any term of an enterprise agreement requiring or permitting contributions for the benefit of an employee to be made to any fund other than a superannuation fund, a registered worker entitlement fund or a registered charity (Recommendation 49); and

·          any action, other than protected industrial action, with intent to coerce a person to pay amounts to a particular worker entitlement fund, superannuation fund, training or welfare fund or employee insurance scheme (Recommendation 50).

Consequential amendments will also be made to the Fringe Benefits Tax Assessment Act 1986 and the Taxation Administration Act 1953 .

Human rights implications

The definition of ‘human rights’ in the Human Rights (Parliamentary Scrutiny) Act 2011 relates to the seven core United Nations human rights treaties. The Bill engages with the following rights:

·          rights in work in Article 22 of the International Covenant on Civil and Political Rights (ICCPR) and Articles 6 and 8(1)(a) of the International Covenant on Economic, Social and Cultural Rights (ICESCR) including:

o    the right to freedom of association;

o    the right to form and join trade unions; and

o    the right of trade unions to function freely;

The content of the rights to work and rights in work in the ICESCR can be informed by specific obligations in treaties of the International Labour Organization (ILO), such as the Freedom of Association and Protection of the Right to Organise Convention 1948 (No. 87) (ILO Convention 87), which provides employer and employee organisations with protection for their organisational autonomy.

The Bill also engages with:

·          the right to the presumption of innocence and the minimum guarantees in Article 14 of the ICCPR; and

·          the right to privacy and not to be subject to unlawful attacks on a person’s reputation in Article 17 of the ICCPR.

The Right to Freedom of Association

 

Article 22(1) of the ICCPR protects the right to freedom of association, including the right to form and join trade unions. Article 8(1)(a) of the ICESCR also provides for:

The right of everyone to form trade unions and join the trade union of his choice, subject only to the rules of the organization concerned, for the promotion and protection of his economic and social interests. No restrictions may be placed on the exercise of these rights other than those prescribed by law and which are necessary in a democratic society in the interests of national security or public order or for the protection of the rights and freedoms of others.

Article 8(1) of ILO Convention 87 provides that:

1.       In exercising the rights provided for in this Convention workers and employers and their respective organisations, like other persons or organised collectives, shall respect the law of the land.

2.       The law of the land shall not be such as to impair, nor shall it be so applied as to impair, the guarantees provided for in this Convention.

ILO Convention 87 also provides employer and employee organisations with protection for their organisational autonomy. Article 3 of Convention 87 provides:

1.       Workers’ and employers’ organisations shall have the right to draw up their constitutions and rules, to elect their representatives in full freedom, to organise their administration and activities and to formulate their programmes.

2.         The public authorities shall refrain from any interference which would restrict this right or impede the lawful exercise thereof.

The ILO Committee on Freedom of Association has made the following observations on the rights of organisations to organise their administration:

Legislative provisions which regulate in detail the internal functioning of workers’ and employers’ organizations pose a serious risk of interference by the public authorities. Where such provisions are deemed necessary by the public authorities, they should simply establish an overall framework in which the greatest possible autonomy is left to the organizations in their functioning and administration. Restrictions on this principle should have the sole objective of protecting the interests of members and guaranteeing the democratic functioning of organizations. Furthermore, there should be a procedure for appeal to an impartial and independent judicial body so as to avoid any risk of excessive or arbitrary interference in the free functioning of organizations. [1]

Amendments

 

On the basis of these observations, the following amendments in the Bill engage the right to freedom of association:

·          enhanced financial disclosure, record keeping and financial compliance (Recommendations 10, 39 and 47), and

·          prohibiting terms of industrial instruments requiring or permitting payments to election funds (Recommendation 43).

 

Where the provisions of the Bill engage the right to freedom of association they pursue a legitimate objective, are prescribed by law and are reasonable, necessary and proportionate. They have the sole objective of protecting the interests of members of organisations through enhanced financial transparency and accountability of registered organisations.

 

1.       Enhanced financial disclosure and record keeping (Recommendations 10, 39 and 47)

 

The Bill will enhance the current financial disclosure requirements by:

·          amending and expanding financial disclosure and record keeping requirements for registered organisations (responding to recommendations 10 and 39 of the Report), and

·          requiring specific disclosure of any direct or indirect financial benefits obtained by an organisation or employer or other linked persons in connection with employee insurance products, worker entitlement funds, training funds or welfare funds (Recommendation 47).

These new provisions engage the right to freedom of association and pursue a legitimate objective, are prescribed by law and are reasonable, necessary and proportionate. They pursue the legitimate objectives of improving the financial governance of registered organisations and protecting the interests of members. The enhancement of transparent disclosure requirements and obligations to maintin proper records are basic good governance measures. These measures are a necessary and proportionate means of improving the financial accountability and transparency of registered organisations to prevent financial abuses and the mismanagement of members’ funds .

Each of these amendments responds to findings of the Royal Commission demonstrating the ineffectiveness of the current financial expenditure provisions and the shortcomings of the current financial disclosure provisions. Consistent with the observations of the ILO Committee on Freedom of Association, these amendments establish a framework allowing organisations the autonomy to prepare and lodge their own  statements and to collect and store credit card statements in a manner suited to each organisation.

The provisions requiring specific disclosure of any direct or indirect financial benefits obtained by an organisation or employer or person linked to them in connection with employee insurance products, worker entitlement funds, training funds or welfare funds pursue the legitimate objective of protecting members’ interests by ensuring that members are fully informed about any financial benefits being received by organisations and employers. These provisions are reasonable and proportionate in that they do not prohibit or restrict organisations and employers from entering into the relevant arrangements but only require that such arrangements and any benefits obtained by them are disclosed.

2.       Prohibiting terms of industrial instruments requiring payments to election funds (Recommendation 43)

 

The Bill would amend the FW Act to prohibit any term of a modern award, enterprise agreement or contract of employment permitting or requiring employee contributions to an election fund (Recommendation 43).

The amendment seeks to remove any legal or practical compulsion on employees to contribute to election funds. The amendment does not prevent employees making genuine contributions voluntarily and independently of a relevant instrument. The amendment addresses the possibility of contributions made in accordance with  a relevant instrument being used to avoid the intent of the prohibition on organisations using their resources to favour a particular candidate in an election (section 190 of the RO Act). Section 190 prohibits any direct diversion of an organisation’s funds for the purposes of the election of a particular candidate and this amendment will ensure that organisations cannot achieve indirectly what they cannot do directly.

The Right to Work and the Right to Just and Favourable Conditions of Work

 

Article 6(1) of the ICESCR recognises the right to work and Article 7 requires that States Parties recognise the right of everyone to enjoy just and favourable conditions of work. These rights are informed by Article 4 of the ILO Right to Organise and Collective Bargaining Convention 1949 (No. 98) (ILO Convention 98), which protects the right of employees to bargain collectively for terms and conditions of employment.

 

Amendments

 

On the basis of these observations, the following amendments in the Bill engage the right to work and the right of everyone to enjoy just and favourable conditions of work:

·          Prohibiting terms of industrial instruments requiring or permitting payments to election funds (Recommendation 43);

 

·          Prohibiting terms of industrial instruments requiring or permitting contributions to unregistered worker entitlement funds and other funds (Recommendation 49). The Bill also prohibits terms of modern awards and enterprise agreements that limit employee choice to pay into these funds; and

 

  • Prohibiting any action, other than protected industrial action, with intent to coerce a person to pay amounts to a particular employee benefit fund, superannuation fund or employee insurance scheme (Recommendation 50). 

Where the provisions of the Bill engage the right to work and the right of everyone to enjoy just and favourable conditions of work, they pursue a legitimate objective, are prescribed by law and are reasonable, necessary and proportionate.

 

1.       Prohibiting terms of industrial instruments requiring or permitting payments to election funds (Recommendation 43)

 

The Bill would amend the FW Act to prohibit any term of a modern award, enterprise agreement or contract of employment permitting or requiring employee contributions to an election fund (Recommendation 43).

Any restriction on the content of an enterprise agreement engages with the right to negotiate terms and conditions of employment voluntarily. The amendment has two objectives.

First of all, the amendment seeks to remove any legal or practical compulsion on employees to contribute to election funds. The amendment does not prevent employees making genuine contributions voluntarily and independently of a relevant instrument. As noted above, compelling contributions to an election fund could be said to infringe basic principles of freedom of association and, by prohibiting mandatory contributions, the amendments  promote human rights. Further, requiring contributions to an election fund is unlikely to be a just or favourable condition of employment.

Secondly, the amendment addresses the possibility of contributions made in accordance with  a relevant instrument being used to avoid the intent of the prohibition on organisations using their resources to favour a particular candidate in an election (section 190 of the RO Act). Section 190 prohibits any direct diversion of an organisation’s funds for the purposes of the election of a particular candidate and this amendment will ensure that organisations cannot achieve indirectly what they cannot do directly.

In the circumstances, prohibiting mandatory employee contributions to an election fund is a necessary, reasonable and proportionate means of giving effect to both objectives.

2.       Prohibiting terms of industrial instruments requiring or permitting contributions to unregistered worker entitlement funds and other unregistered funds (Recommendation 49). Prohibiting terms of modern awards and enterprise agreements that limit employee choice

 

The Bill contains detailed provisions that deal comprehensively with the governance, financial reporting and financial disclosures required by worker entitlement funds (new Part 3C of Chapter 11). 

Worker entitlement funds are established for the purpose of funding employee entitlements such as redundancy pay and sick leave. Funds are typically established as ‘joint ventures’ between industry parties. These funds share many of the features of a managed investment scheme; however, worker entitlement funds are currently exempt from the regulatory requirements that apply to managed investment schemes and financial products under the Corporations Act 2001 .

The Royal Commission noted that worker entitlement funds invariably distribute the income generated on contributions received by the worker entitlement fund to industry parties to be used as the parties see fit rather than for the benefit of the employers who contribute to the fund or the employees who are ostensibly the intended beneficiaries of the fund.

The amendments contained in the Bill address a regulatory gap that has the potential to allow registered organisations to favour their own interests over those of their members.

As worker entitlement funds are separate from the industry parties that establish them, regulation of these funds does not engage the right to freedom of association. However, the new provisions in the Bill that prohibit any term of an enterprise agreement from requiring or permitting contributions for the benefit of employees being made to any fund other than a superannuation fund, a registered worker entitlement fund or a registered charity (Recommendation 49) engage with the right to work and the right to just and favourable conditions of work.

The Bill would amend the FW Act to prohibit any term of a modern award (section 151A) or an enterprise agreement (paragraphs 194(i)-(k)) requiring or permitting contributions to be made to any fund other than a superannuation fund, a registered worker entitlement fund or a registered charity or deductible gift recipient (Recommendation 49). This amendment complements other amendments to the RO Act that will require the registration of worker entitlement funds  to address the lack of prudential regulation of worker entitlement funds. Additionally, the amendments will require any term of a modern award or enterprise agreement that names a worker entitlement fund or insurance product, to not prohibit an employee from choosing another fund or insurance product.

These restrictions on the content of a modern award or enterprise agreement engage with the right to negotiate terms and conditions of employment voluntarily.

The legitimate objectives of this amendment are to address the potential for misappropriation of funds and avoid conflicts of interest and possible coercion. The Royal Commission recommended that where a fund controls workers’ entitlements it should be subject to appropriate regulation.

The amendments address the problems identified by the Royal Commission in a reasonable, necessary and proportionate manner. The amendments do not prohibit contributions to worker entitlement funds. Rather, they require such contributions to be made to registered worker entitlement funds that are subject to basic governance and disclosure requirements designed to address potential conflicts of interest, breaches of fiduciary duty and the potential for coercion. Furthermore, the amendments will provide employees with a guarantee that any contributions they voluntarily make to a worker entitlement fund is subject to appropriate scrutiny.

3.       Prohibiting any action, other than protected industrial action, with intent to coerce a person to pay amounts to a particular worker entitlement fund, superannuation fund, training fund, welfare fund or employee insurance scheme (Recommendation 50).

 

The amendments will prohibit any action, other than protected industrial action, with intent to coerce a person to pay amounts to a particular worker entitlement fund, superannuation fund, training fund, welfare fund or employee insurance scheme (Recommendation 50).

The amendment seeks to remove any legal or practical compulsion on employees to contribute to certain funds. The amendment does not prevent employees making genuine contributions voluntarily and independently into a worker entitlement fund, superannuation fund, training fund, welfare fund or an insurance scheme. Compelling contributions to such a fund or scheme could be said to infringe basic principles of freedom of association. By prohibiting mandatory contributions, the amendments  promote human rights. The amendments address the problems identified by the Royal Commission in a reasonable, necessary and proportionate manner.

Right to the presumption of innocence and other guarantees

 

Article 14(2) of the ICCPR provides that everyone charged with a criminal offence has the right to be presumed innocent until proved guilty according to the law.

 

Amendments

 

The Bill inserts two new offence provisions in the RO Act to ensure compliance with the new registration and disclosure requirements for worker entitlement funds including the following criminal offences:

 

·          operating an unregistered worker entitlement fund (section 329JA); and

 

·          failing to comply with a request for information from the Registered Organisations Commissioner (the Commissioner) in respect of breach of a condition by a worker entitlement fund (subsection 329NF(4)).

 

These provisions engage the right to the presumption of innocence and are consistent with that right. These offences pursue the legitimate objective of ensuring compliance with the new registration and disclosure requirements for worker entitlement funds under new Part 3C of Chapter 11. The need for the new provisions regulating worker entitlement funds was discussed at length above. These offences underpin a scheme of regulation of worker entitlement funds that, with the exception of operating an unregistered worker entitlement fund, are not punishable by a term of imprisonment.

 

Right to Privacy and the Right to, and Freedom from Unlawful Attacks Upon, Reputation

 

The right to privacy in Article 17 of the ICCPR prohibits unlawful or arbitrary interferences with a person's privacy, family, home and correspondence. It also prohibits unlawful attacks on a person's reputation.

Right to Privacy

Amendments

The following amendments in the Bill engage the right to privacy through proposed new requirements to disclose personal information:

·          Item 6 of Schedule 1 - disclosure to the Commissioner of loans, grants and donations.

·          Item 3 of Schedule 5 - disclosure of financial benefits in relation to certain disclosable arrangements.

These measures are permissible as they are necessary in order to ensure adequate financial transparency in relation to the affairs of registered organisations. It is also relevant to note that the Commissioner must omit any residential addresses disclosed and has a discretion to omit other personal information (subsection 237(4A) and section 329SB).

Right to, and Freedom from Unlawful Attacks Upon, Reputation

 

Amendments

 

Section 329LA of the Bill provides that the Commissioner cannot allow the registration, or continued registration, of a worker entitlement fund if any of the officers or staff of the operator who perform duties in relation to the fund are not of good fame or character (condition 8). Paragraph 329LE(c) provides that the Commissioner must have regard to any other matters, not otherwise mentioned in section 329LE, the Commissioner considers relevant when making an assessment as to whether an officer or staff member is of good fame or character.

 

In allowing the Commissioner to consider the reputation of an officer, sections 329LA and 329LE engage the right to protection from interference with, or attacks upon, reputation.

 

The Commissioner’s powers are prescribed by law and will not be arbitrarily imposed. The Commissioner is provided with this capacity as part of a reasonable and proportionate response to the concerns about the integrity of those who control worker entitlement funds.

 

Conclusion

The Bill is compatible with human rights because, to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate.

 

 

 

 

 



NOTES ON CLAUSES

In these notes on clauses, the following abbreviations are used:

2016 Amendment Act

Fair Work (Registered Organisations) Amendment Act 2016

AAT

Administrative Appeals Tribunal

Commission

Registered Organisations Commission

Commissioner

Registered Organisations Commissioner

Corporations Act

Corporations Act 2001

FBTA Act

Fringe Benefits Tax Assessment Act 1986

FW Act

Fair Work Act 2009

FWC

Fair Work Commission

ITA Act 1997

Income Tax Assessment Act 1997

Legislation Act

Legislation Act 2003

Regulatory Powers Act

Regulatory Powers (Standard Provisions) Act 2014

RO Act

Fair Work (Registered Organisations) Act 2009

Royal Commission

Royal Commission into Trade Union Governance and Corruption (2014 - 2015)

TA Act

Taxation Administration Act 1953

the Bill

Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017

the Report

The final report of the Royal Commission into Trade Union Governance and Corruption

 

Clause 1 - Short title

1.       This is a formal provision specifying the short title.

Clause 2 - Commencement

2.       The table in this clause sets out when the provisions of the Bill commence.

Clause 3 - Schedules

3.       Clause 3 of the Bill provides that an Act that is specified in a Schedule is amended or repealed as set out in that Schedule, and any other item in a Schedule has effect according to its terms.





Schedule 1 - Financial management and accountability

4.                   Schedule 1 of the Bill will introduce a number of new financial management obligations into the RO Act.

5.                   Part 1 contains the principal amendments to the RO Act which respond to Recommendations 9, 10, 17 and 39 of the Report.

6.                   Part 2 contains application and transitional provisions relating to the amendments contained in Part 1.

Part 1 - Amendments

Fair Work (Registered Organisations) Act 2009

Item 1 - Section 6

7.                   This item amends section 6 by inserting three new definitions related to the amendments made in this schedule.

8.                   The item inserts a new definition of ‘credit card’ for the purposes of new section 252A which will require that reporting units retain certain records relating to the use of credit cards. The new definition provides that ‘credit card’ has the meaning provided in subsection 252A(7).

9.                   The item also inserts new definitions of ‘reportable loan’ and ‘reportable grant or donation’ for the purposes of the amendments made to section 237. Section 237 concerns when a reporting unit must notify the Commissioner of loans, grants and donations. The new definitions provide that ‘reportable loan’ has the meaning provided in new subsection 237(1A) and ‘reportable grant or donation’ has the meaning provided in new subsection 237(1B).

Item 2 -Paragraph 141(1)(ca)

Item 3 - Section 142A

10.               These items repeal provisions that will no longer be required due to the amendments contained in new Division 5 of Part 2A of Chapter 9—see item 16 below.

11.               Item 2 repeals paragraph 141(1)(ca) of the RO Act which currently provides that the rules of an organisation must require the organisation and each of its branches to develop and implement policies relating to financial expenditure.

12.               Item 3 repeals section 142A of the RO Act which enables the Minister to make model rules for the purposes of paragraph 141(1)(ca).

13.               These provisions will be replaced by a direct statutory requirement that organisations and branches adopt financial management and accountability policies that are binding on all officers and employees—see new section 293N in item 16 below.  The Commissioner will also be able to publish model policies -  see new section 293R in item 16 below. 

14.               These amendments give effect to recommendation 9 of the Report.

Item 4 - Section 229

15.               This item amends the simplified outline of Chapter 8 contained in section 229 to take into account the amendments made to section 237 by items 5-10. Section 229 is amended to provide that the details of some types of loans, grants or donations made by, or to, an organisation must be provided to the Commissioner.

Item 5 - Subsection 237(1)

16.               This item repeals and replaces subsection 237(1) and inserts new subsections 237(1A) and 237(1B) to respond to recommendations 10 and 39 of the Report. Under amended section 237, organisations will have to provide the Commissioner with a statement including the details of each loan, grant or donation over $1,000 made by, or to, an organisation during a financial year. The statement must also include the details of each loan, grant or donation under $1,000 made by the organisation to a particular person or made to the organisation by a particular person if the total of those loans, grants and donations would together exceed $1,000 within a financial year.

17.               Currently, organisations must make statements under section 237 but these statements only concern loans, grants and donations over $1,000 made by the organisation. The Report recommended that the RO Act be amended so that the details of relevant loans, grants and donations made to the organisation must be provided.

18.               New subsection 237(1) provides that an organisation must, within 90 days of the end of a financial year (unless allowed a longer period by the Commissioner), lodge with the Commissioner a statement setting out the particulars of:

·                      any reportable loans made by the organisation during the financial year;

·                      any reportable grants or donations made by the organisation during the financial year;

·                      any reportable loans made to the organisation during the financial year; and

·                      any reportable grants or donations made to the organisation during the financial year.

19.               An organisation that contravenes subsection 237(1) by failing to provide the Commissioner with the reports in time will face a civil penalty of up to 100 penalty units.

20.               New subsection 237(1A) provides that a loan is a ‘reportable loan’ where:

·                      a loan is made to or from an organisation and exceeds $1,000; or

·                      a loan is made to the organisation by a particular person or is made by the organisation to a particular person if the total of all the loans, grants and donations made to or by the particular person would together exceed $1,000 within a financial year.

21.               New subsection 237(1B) provides that a grant or donation is a ‘reportable grant or donation’ where:

·                      a grant or donation is made to or from an organisation and exceeds $1,000; or

·                      a grant or donation is made to the organisation by a particular person or is made by the organisation to a particular person if the total of all the loans, grants and donations made to or by the particular person would together exceed $1,000 within a financial year.

Item 6 - After subsection 237(4)

22.               This item inserts new subsection 237(4A) providing that, when allowing a member of an organisation to inspect their organisation’s statements as provided for under current subsection 237(4), the Commissioner must omit residential addresses and may, at the Commissioner’s discretion, omit other personal information. This gives the Commissioner the necessary power to ensure that other personal or sensitive material can be redacted to protect the privacy of such information during an inspection.

Item 7 - Subsection 237(5)

Item 8 - Paragraph 237(5)(d)

23.               These items amend subsection 237(5) to take into account the fact that statements must now be prepared for loans made by or to an organisation. Item 7 replaces the phrase ‘relevant particulars, in relation to a loan made by’ with ‘particulars, in relation to a loan made by or to’. Item 8 repeals and replaces current paragraph 237(5)(d) with new paragraphs 237(5)(d) and 237(5)(e).

24.               New paragraph 237(5)(d) provides that a statement setting out the particulars of a reportable loan made by an organisation must set out the name and address of the person to whom the loan was made and the arrangements for repayment of the loan (unless the loan was made to relieve a member of the organisation, or a dependent of a member, from severe financial hardship). New paragraph 237(5)(e) provides that a statement setting out the particulars of a reportable loan made to an organisation must set out the name and address of the person who made the loan and the arrangements for repayment of the loan.

Item 9 - Subsection 237(6)

Item 10 - Paragraph 237(6)(c)

25.               These items amend subsection 237(6) to take into account the fact that statements must now be prepared for grants or donations made by or to an organisation. Item 9 replaces the phrase ‘relevant particulars, in relation to a grant or donation made by’ with ‘particulars, in relation to a grant or donation made by or to’. Item 10 repeals and replaces current paragraph 237(6)(c) with new paragraphs 237(6)(c) and 237(6)(d).

26.               New paragraph 237(6)(c) provides that a statement setting out the particulars of reportable grant or donation made by an organisation must set out the name and address of the person to whom the grant or donation was made (unless the grant or donation was made to relieve a member of the organisation, or a dependent of a member, from severe financial hardship). New paragraph 237(6)(d) provides that a statement setting out the particulars of reportable grant or donation made to an organisation must set out the name and address of the person who made the grant or donation.

Item 11 - Paragraph 252(1)(a)

27.               This item amends paragraph 252(1)(a) to take into account the insertion of new section 252A (see item 14, below) and the requirement it places on reporting units to retain certain records relating to credit card expenditure. The amendments to paragraph 252(1)(a) mean that a failure by a reporting unit to keep such financial records as required by new section 252A will be a contravention of a civil penalty provision, with a penalty of up to 100 penalty units (see also the amendments contained in item 12).

Item 12 - At the end of subsection 252(1)

28.               This item inserts new paragraph 252(1)(d) and a civil penalty for contraventions of subsection 252(1). Section 252 of the RO Act requires reporting units to keep proper financial records. Subsection 252(1) details the purposes for which financial records must be kept.

29.               New paragraph 252(1)(d) provides that a reporting unit must keep its financial records in a manner that will enable an officer and related party disclosure statement for the organisation to which the reporting unit relates or, if the reporting unit is made up of one or more branches, each such branch, to be prepared in accordance with section 293J. Section 293J was inserted into the RO Act by the 2016 Amendment Act and requires that organisations prepare officer and related party statements concerning the remuneration of the top five most highly remunerated officers and payments made to related parties and declared persons or bodies.

30.               Recommendation 17 of the Report was that there should be a civil penalty for failures to keep financial records in accordance with section 252. The new civil penalty inserted by this item for contraventions of subsection 252(1) provides for penalties of up to 100 penalty units. This new penalty will work to ensure greater compliance by providing consequences for failures to comply with record keeping requirements.

Item 13 - At the end of subsection 252(5)

31.               This item responds to recommendation 17 of the Report by inserting a new civil penalty of up to 100 penalty units for failures to comply with subsection 252(5). Subsection 252(5) requires that organisations keep the financial records required under subsection 252(1) for a period of at least seven years after the completion of the relevant transactions.

Item 14 - After section 252

32.               This item responds to recommendation 10 of the Report. It inserts new section 252A which provides that statements or records relating to certain credit card expenditure must be retained by reporting units. Requiring that reporting units retain records relating to credit card expenditure will ensure that relevant records are available if ever they should be needed for the purpose of an investigation. Failure to keep the specified records will be a contravention of a civil penalty provision with a penalty of up to 100 penalty units.

33.               New subsection 252A(1) states that section 252A sets out the credit card records that must be kept by reporting units for the purposes of paragraph 252(1)(a).

34.               New subsection 252A(2) provides that a reporting unit must keep credit card statements or copies of those statements provided by the issuer of a credit card where the reporting unit is the holder of the relevant credit card account.

35.               New subsection 252A(3) provides that, where the reporting unit does not hold the account for a credit card, the reporting unit must keep records of a particular use of that credit card in accordance with subsection 252A(4). This subsection will apply if:

·                      the organisation to which the reporting unit relates or a branch that is, or is part of, the reporting unit, is obliged to make a payment to the credit card account in relation to that use; and

·                      the user of the credit card was an officer of the organisation to which the reporting unit relates, or an officer of a branch that is or is part of the reporting unit; and

·                      the use of the credit card was on behalf of, or purportedly on behalf of the reporting unit in the course, or purported course of, performing the officer’s duties in relation to the reporting unit.

A reporting unit is not obliged to keep the actual credit card statement in situations where it is not the holder of the relevant credit card account to avoid the reporting unit being required to keep personal information that is not relevant to the transaction it is obliged to make a payment in relation to.

36.               New subsection 252A(4) sets out that the record of a particular use of a credit card for the purposes of subsection 252A(3) must, at a minimum, include the information on the credit card statement about the use. This subsection does not preclude the actual credit card statement from being retained with information that is not relevant to the transaction that the reporting unit is obliged to make a payment in relation to being redacted.

37.               New subsection 252A(5) provides that the payment made by the reporting unit, organisation or branch where the credit card is not held by the reporting unit may be made by payment to the relevant credit card account or by reimbursement to the holder of the account or another person who pays, or is obliged to pay, an amount to the credit card account.

38.               Subsection 252A(6) clarifies that records relating to credit card expenditure incurred by officers in the manner described above in subsection 252(3) must be retained whether or not the credit card account is held by the officer  or any other period and whether or not the credit card is also used in other manners. This subsection also clarifies that subsection 252A(3) does not require a reporting unit to keep records of a particular use of a credit card if that use is not covered by subsection 252(3).

39.               Subsection 252A(7) provides that a credit card is any of:

·                      an article of a kind commonly known as a credit or charge card;

·                      any similar article intended for use in obtaining cash, goods or services on credit; or

·                      an article of a kind that persons carrying on business commonly issue to their customers or prospective customers for use in obtaining goods or services from those persons on credit.

40.               This definition of ‘credit card’ has been adapted from the definition provided in subsection 39(5) of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 ).

Item 15 - Section 293A

41.               This item amends the simplified outline of Part 2A of Chapter 9 to include reference to the requirement for organisations and branches to maintain approved binding policies in relation to financial management and accountability, as required by new Division 5 of Part 2A (see item 16, below).

Item 16 - At the end of Part 2A of Chapter 9

42.               This item inserts a new Division 5 in Part 2A of Chapter 9 requiring registered organisations and branches to have binding financial management and accountability policies. These provisions give effect to recommendation 9 of the Report.

43.               The RO Act was amended in 2012 to require each organisation to have rules requiring the organisation and each of its branches to develop and implement policies relating to their financial expenditure (paragraph 141(1)(ca)). However, evidence before the Royal Commission demonstrated the ineffectiveness of those amendments, which did nothing to alleviate financial mismanagement of members’ funds.

44.               The Royal Commission expressed concern that there is very little detail concerning what topics should be covered by financial expenditure policies, even if the model rules created under section 142A of the RO Act are taken into account. The Royal Commission also noted that there is no requirement that policies relating to financial expenditure be in writing and that this makes it hard to find evidence of whether an organisation has financial expenditure policies, let alone if an officer or employee has acted in accordance with those policies.

45.               The Bill replaces the 2012 provisions with a statutory obligation in new Division 5 requiring organisations and branches to adopt, periodically review and lodge, specified financial management and accountability policies that would be binding on all officers and employees.

Division 5 - Policies in relation to financial management and accountability

46.               Division 5 is entitled ‘Policies in relation to financial management and accountability’ and contains new sections 293N, 293P, 293Q and 293R.

New section 293N - Organisations and branches to have policies in relation to financial management and accountability

47.               New subsection 293N(1) requires organisations and branches to have written policies dealing with specified financial management and accountability matters that are binding on all officers and employees. These policies must be approved by the committee of management and a failure to have such policies will attract a maximum civil penalty of 100 penalty units.

48.               Organisations and branches will be required to have policies relating to each of the following matters:

·                      financial decision-making;

·                      receipts;

·                      levels of authorisation of expenditure;

·                      credit cards;

·                      procurement;

·                      hospitality and gifts;

·                      the establishment, operation and governance of related parties; and

·                      any other matters prescribed by the regulations.

49.               New subsection 293N(2) provides that organisations and branches must ensure that policies developed in accordance with subsection 293N(1) are not inconsistent with the RO Act. Subsection 293N(2) is a civil penalty provision with a maximum penalty of 100 penalty units.

50.               New subsection 293N(3) provides that policies developed in accordance with subsection 293N(1) must be reviewed at least once in the four years after it is approved by the committee of management and at least once in the four years after the completion of the last review. Subsection 293N(3) is a civil penalty provision with a maximum penalty of 100 penalty units.

51.               New section 293P provides that regard may be had, when determining whether an officer or employee of an organisation or branch has contravened a provisions of Division 2 of Part 2 of Chapter 9 (general duties in relation to the financial management of organisations), to whether the officer or employee has acted in compliance with policies created in accordance with subsection 293N(1).

52.               New subsection 293Q(1) provides that organisations and branches must provide a copy of each financial management and accountability policy created in accordance with section 293N to the Commissioner within 28 days after the creation and approval, or a review or material change, of the policy is complete. A failure to do so will attract a maximum civil penalty of 100 penalty units.

53.               Subsection 293Q(2) provides that policies provided to the Commissioner in accordance with subsection 293Q(1) must be made available on the website of the organisation or branch (if it has one) or given to each member of the organisation or branch. The option of giving a copy triggers section 11 of the Electronic Transactions Act 1999 which allows the copy to be given electronically if consent to do so has been given.

54.               New section 293R provides that the Commissioner may publish on the Commissioner’s website one or more model policies relating to the matters set out in subsection 293N(1). These model policies may be adopted by an organisation or branch in whole or in part and with or without modification.

55.               Model policies created by the Commission may provide guidance to organisations seeking to develop their own policies.

Part 2 - Application and transitional provisions

Item 17 - Application of amendments of section 237

56.               This item provides that the amendments made by this Schedule to existing section 237 will apply in relation to financial years commencing on or after the day this item commences.

Item 18 - Application of section 293N

57.               Sub-item 18(1) delays the operation of new section 293N by six months. Registered organisations and branches will have six months from the date upon which this item commences within which to develop financial management and accountability policies in accordance with new section 293N.

58.               Sub-item 18(2) continues paragraph 141(1)(ca) in effect during that six months. This means that organisations and branches must continue to develop and implement policies relating to the expenditure of the organisation or the branch in accordance with their rules in that period.



Schedule 2 - Regulation of worker entitlement funds

59.               Schedule 2 of the Bill is divided into five parts.

60.               Part 1 contains the principal amendments to the FW Act and the RO Act which give effect to Recommendations 45, 46 and 49 of the Report.

61.               Part 2 contains application and transitional provisions relating to the amendments to the FW Act.

62.               Part 3 contains application and transitional provisions (other than those relating to the FW Act) arising from the amendments made in Part 1. Parts 3 also contain application and transitional provisions relating to transitioning funds. The application and transitional provisions in Part 3 commence on Proclamation. Part 4 contains provisions to allow applications for registration of a worker entitlement fund to be made prior to the main commencement time. The provisions in Part 4 commence the day after Royal Assent.

63.               Part 4 contains provisions allowing for applications to register a worker entitlement fund to be made prior to the commencement of the Schedule.

64.                Part 5 contains contingent amendments dependant on the commencement of other Acts.

Part 1 - Amendments

Fair Work Act 2009

Item 1 - Paragraph 5(8)(b)

65.               This item amends the summary of Chapter 2 of the FW Act provided in section 5 to take into account the amendments provided in this Schedule. Paragraph 5(8)(b) will be amended to provide that Part 2-9 of the FW Act deals with, amongst other things, when certain terms of an agreement have no effect.

Item 2 - Section 12

66.               This item amends section 12 of the FW Act to insert three new definitions, ‘registered charity’, ‘registered worker entitlement fund’ and ‘worker entitlement fund’.

67.               The new definition of ‘registered charity’ will provide that a registered charity is a charity registered under the Australian Charities and Not-for-profits Commission Act 2012 as the type of entity mentioned in column 1 of item 1 of the table in subsection 25-5(5) of that Act. This new term is relevant to the amendments made to sections 194 and 333B of the FW Act and new section 329HC of the RO Act.

68.               The new definition of ‘registered worker entitlement fund’ will provide that a registered worker entitlement fund is a worker entitlement fund that is registered under new Part 3C of Chapter 11 of the RO Act (see item 13, below).

69.               The new definition of ‘worker entitlement fund’ will provide that the term has the same meaning as in the RO Act - see new section 329HC (item 13 below). The term is used in new section 151A (see item 3 below), new paragraph 194(i) (see item 4 below) and new section 333B (see item 8 below).

Item 3 - After section 151

70.               Subdivision D of Division 3 of Part 2-3 of the FW Act sets out terms that must not be included in modern awards. This item inserts a new section 151A to prohibit a modern award including a term that requires or permits, or has the effect of requiring or permitting, a payment being made to a worker entitlement fund that is not registered under new Part 3C of Chapter 11 of the RO Act. This item would also prohibit a modern award including a term that would prevent each employee from choosing the worker entitlement fund into which payments are to be made on their behalf. New section 151A will cover payments made by deduction or any other means.

71.          This amendment complements amendments to the RO Act requiring the registration of worker entitlement funds (see item 13 below).

Item 4 - At the end of section 194

72.               Under subsection 186(4) of the FW Act, before approving an enterprise agreement, the FWC must be satisfied that an agreement does not include any unlawful terms. The term ‘unlawful term’ is defined in section 194.

73.               This item amends the definition of ‘unlawful term’ in section 194 by inserting new unlawful terms in new paragraphs 194(i), 194(j) and 194(k).

74.               Paragraph 194(i) prohibits an enterprise agreement from including a term that requires or permits a payment to be made to an unregistered worker entitlement fund. It further prohibits a term of an enterprise agreement requiring payment to a registered worker entitlement fund unless each employee can choose the worker entitlement fund into which payments are made on their behalf.  

75.               Paragraph 194(j) prohibits an enterprise agreement from including a term that requires or permits a payment to be made for a kind of insurance cover unless each employee can choose the insurance product offering that kind of insurance for which the payments are to be made.

76.               Paragraph 194(k) prohibits an enterprise agreement from including a term that requires or permits a payment to be made to a fund that provides training or welfare or makes payments in relation to training or welfare unless the fund:

·                      is a superannuation fund;

·                      is a registered worker entitlement fund

·                      is a registered charity;

·                      is a deductible gift recipient within the meaning of the ITA Act 1997; or

·                     is operated by an entity endorsed as a deductible gift recipient within the meaning of the ITA Act 1997 for the operation of the fund.        

77.          This amendment gives effect to recommendation 49 of the Report. The amendment complements amendments to the RO Act requiring the registration of worker entitlement funds (see item 13 below).

Item 5 - at the end of section 321

78.          This item amends the guide to Part 2-9 of the FW Act provided in section 321 to reflect the creation of new Division 4 concerning terms relating to worker entitlement funds that will have no effect (see item 8 below).

Item 6 - Subsection 324(1) (note 2)

Item 7 - Paragraph 327(b)

79.          These items make minor technical amendments to reflect the creation of new section 333B (see item 8 below). Subsection 324(1) provides when an employer may make a permitted deductions and note 2 is amended to reflect that fact new section 333B will mean that contractual terms relating to worker entitlement funds will have no effect.

80.          Item 7 amends paragraph 327(b) to provide that, in proceedings for recovery of an amount payable to an employee in relation to the performance of work, any amount the employer has been required to spend in contravention of new section 333B will be taken to never have been paid to the employee.

Item 8 - At the end of Part 2-9

81.          This item inserts new Division 4 of Part 2-9 comprising new section 333B.

82.           New section 333B provides that any terms in a contract of employment that would require or permit payments to be made to a worker entitlement fund or a fund that provides training or welfare or makes payments in relation to training or welfare will have no effect unless the fund is:

·          registered under Part 3C of Chapter 11 of the RO Act; or

·          a fund that provides or makes payments in relation to training or welfare and is a superannuation fund, a registered charity, a deductible gift recipient or a fund operated by a deductible gift recipient.

83.          New section 333B is also intended to address the issues outlined in Item 4 relating to recommendation 49.

Item 9 - At the end of subparagraph 604(1)(b)(ii)

84.          This item amends section 604 of the FW Act to remove the process of appeals from the Commissioner to the FWC for decisions in respect of worker entitlement funds, as the Bill provides for appeals to the AAT in respect of such decisions.

Fair Work (Registered Organisations) Act 2009

Item 10 - Section 6

85.               This item amends section 6 of the RO Act by inserting 15 new definitions of terms that are used in new Part 3C of Chapter 11 (see item 13 below). The definitions consist of references to other Acts or references to new sections in which the term is defined.

Item 11 - At the end of subsection 154B(2)

86.          Subsection 154B(2) provides for the creation of branch funds and what may constitute a branch fund. This item inserts a new note after subsection 154B(2) stating that worker entitlement funds will now be regulated by new Part 3C of Chapter 11.

Item 12 - Section 317

87.          This item amends the simplified outline of Chapter 11 provided by section 317 to include a reference to new Part 3C (see item 13 below).

Item 13 - After Part 3B of Chapter 11

88.          This item inserts a new Part 3C, entitled ‘Registration of worker entitlement funds’ in Chapter 11 of the RO Act. New Part 3C provides for the registration of worker entitlement funds and deals comprehensively with the governance, financial reporting and financial disclosures required by registered worker entitlement funds.

89.          This amendment gives effect to recommendation 45 of the Royal Commission and is intended to provide for the transparent operation of worker entitlement funds.

Part 3C - Registration of worker entitlement funds

Division 1 - Preliminary

New section 329HA - Guide to this Part

90.               New section 329HA contains a simplified outline of new Part 3C to note that it provides that worker entitlement funds may be registered by application to the Commissioner, with conditions for registration that must continue to be met once a worker entitlement fund is registered and penalties that may apply for operating or contributing to an unregistered worker entitlement fund.

New section 329HB - Worker entitlements

91.               New subsection 329HB defines a ‘worker entitlement’ to mean any payment in respect of or in lieu of leave (however described), employment termination payments, any other payment in relation to termination of employment and entitlements payable by an employer to an employee under a fair work instrument or contract of employment.

New section 329HC -Worker entitlement funds

92.               New section 329HC provides a definition of ‘worker entitlement fund’. This is a key term that determines the scope of the registration scheme as well as the core offences of operating, or contributing to, unregistered funds.

93.               A ‘worker entitlement fund’ is a fund whose purposes are or include paying worker entitlements to fund members. Fund members are those workers in respect of whom contributions are made or in respect of whom transfers from other funds of amounts that relate to worker entitlements are made. A worker entitlement fund also includes funds whose purposes include paying worker entitlements to the dependants (in the event of the worker’s death) or legal representatives of fund members. The question of a fund’s purpose is a question of fact to be determined in light of evidence such as the fund’s constituting documents.

94.               New paragraph 329HC(1)(b) enables the worker entitlement fund rules to prescribe additional funds for the purpose of this definition. Providing for the worker entitlement fund rules to do so is necessary as the Royal Commission did not deal comprehensively with all types of funds. It is important and appropriate to provide scope to add to the definition as the need arises to address any gaps or attempts to circumvent the intent of the registration provisions.

95.               New subsection 329HC(2) describes who are fund members as persons in respect of whom amounts are paid to the fund in the form of contributions or transfers from other funds of amounts that relate to contributions for worker entitlements.

96.               New subsection 329HC(3) clarifies the types of funds (superannuation funds, registered charities, discretionary mutual funds, statutory funds and funds controlled by a fund member) that are excluded from the basic definition.

97.               New subsection 329HC(4) excludes single-employer funds from the definition of ‘worker entitlement fund’ unless an election for the fund under new section 329HD is in effect.

New section 329HD - Single-employer funds

98.               New section 329HD provides a definition of ‘single-employer fund’. A ‘single-employer fund’ (including trusts where the employer is or appoints the trustee) is a fund that has purposes that include paying worker entitlements to fund members or their death benefits dependants or legal personal representatives, is controlled by a single employer and to which all contributions are made in respect of employees of the employer.

99.               Subsection 329HD(3) provides that the operator of a single-employer fund may elect for the fund to be a worker entitlement fund.

100.           Subsections 329HD(3) to 329HD(7) provide for the form of elections and revocation of elections for a single-employer fund to be a worker entitlement fund.

New section 329HE - Operator of worker entitlement fund

101.           New subsection 329HE(1) defines the ‘operator’ of a worker entitlement fund that is a trust to be the trustee, or each trustee, of the fund. The note to this subsection points to condition 1 in new section 329LA that makes it a condition for registration of a worker entitlement fund that the fund has no more than one operator.

102.           New subsection 329HE(2) provides that a person is not the ‘operator’ of a worker entitlement fund merely because the person acts as an agent or employee of another person or takes steps in accordance with a constitution that complies with condition 5 in new section 329LA to wind up the fund or remedy a defect that led to the fund being deregistered.

103.           New subsection 329HE(3) exempts an operator body corporate from the operation of new subsection 344(2), which provides that a body corporate is taken to have engaged in conduct that was engaged in by a person on behalf of a body corporate, if the operator establishes that it took reasonable precautions and exercised due diligence to avoid conduct engaged in by a person on behalf of an operator. This concurs with the approach taken in s 338 of the Superannuation Industry (Supervision) Act 1993 , which requires a closer connection between the conduct of the agent (or other) and the conduct of the responsible constitutional corporation.

104.           New subsection 329HE(4) makes clear that the provisions in new Subdivision A of Division 5 (non-compliance with conditions) and new section 329NC (final reports after deregistration) do not apply unless the operator of the fund is a constitutional corporation.

Division 2 - Penalties in relation to unregistered worker entitlement funds

New section 329JA - Offence of operating an unregistered worker entitlement fund

105.           New section 329JA provides for an offence in relation to operating an unregistered worker entitlement fund. The offence does not apply to single-employer funds.

106.           This offence is modelled on the substantially similar offence provision in subsection 601ED(5) of the Corporations Act of operating an unregistered management investment scheme. The penalty for operating an unregistered fund is 200 penalty units or imprisonment for five years or both. This aligns with the penalty for a contravention of subsection 601ED(5) of the Corporations Act (see item 163 of Schedule 3 to that Act).

107.           The prosecution will be required to establish either that the fund operator is a constitutional corporation or that the purpose of the fund includes payment of worker entitlements by or on behalf of one or more federal system employers to or in relation to one or more federal system employees.

108.           The offence also relies on definitional concepts (‘worker entitlement’ and ‘worker entitlement fund’). While additional funds can be prescribed for the purpose of the term ‘worker entitlement fund’, this is to address any gaps or attempts to circumvent the intent of the registration provisions which would otherwise undermine the entire registration scheme. As worker entitlement fund rules are legislative instruments, they are subject to the usual Parliamentary scrutiny and disallowance processes.

New section 329JB - Civil penalty for contributing to an unregistered worker entitlement fund

109.           New section 329JB provides for a civil penalty where a person contributes to a worker entitlement fund that is not registered under the RO Act. This penalty provision is intended to ensure that only registered worker entitlement funds operate after the enactment of the new regime. It will also serve the legitimate policy purpose of ensuring that employers and other fund contributors take sufficient care to ensure that they are making payments only to registered worker entitlement funds. The penalty for contributing to an unregistered worker entitlement fund is 100 penalty units. The provision does not apply to contributions to single- employer funds as, if a single-employer fund is not registered, it is not a worker entitlement fund.

110.           This penalty provision relies on available Commonwealth’s legislative powers to impose a civil penalty where the fund operator or contributor is a constitutional corporation or resident of a Territory or that the contribution to the fund is in relation to a worker entitlement payable by a federal system employer to or in relation to a federal system employee.

111.           This provision relies on a definitional concept (‘worker entitlement fund’). While additional funds can be prescribed for the purpose of the term ‘worker entitlement fund’, this is to address any gaps or attempts to circumvent the intent of the registration provisions which would otherwise undermine the entire registration scheme. As worker entitlement fund rules are legislative instruments, they are subject to the usual Parliamentary scrutiny and disallowance processes.

Division 3 - Registration of worker entitlement funds

New section 329KA - Application for registration of worker entitlement fund

112.           New section 329KA sets out the application requirements for the registration of a worker entitlement fund and the time limits within which the Commissioner must decide the application. The Commissioner may request further information or invite the applicant to make submissions in relation to the application and the Commissioner must decide the application as soon as practicable and no later than 40 days after the date of the application or the deadline provided for further information or written submissions.

113.           New subsection 329KA(3) provides that the Commissioner must publish on the Commission’s website details of applications for registration, including the name of the fund and its operator and any other details the Commissioner considers appropriate.

114.           New subsection 329KA(6) provides that the Commissioner must remove the details of applications for registration from the website after the application is decided. The note to this subsection reminds the reader that details of registered funds are included on the register maintained under new section 329KD.

New section 329KB - Registration of worker entitlement fund

115.           New section 329KB requires the Commissioner to register a fund and add the name of the fund to the register maintained under new section 329KD where the application requirements have been met and the Commissioner is satisfied that the fund and the operator satisfy the initial conditions for registration applicable to the fund in new section 329LA at the time the fund becomes registered. The Commissioner is also required to notify in writing the operator of the fund of the successful application.

New section 329KC - Refusal of application for registration of worker entitlement fund

116.           New section 329KC requires the Commissioner to refuse an application for registration where an applicant fails to meet the application requirements or fails to satisfy the Commissioner that the fund and operator satisfy the initial conditions for registration in new section 329LA. Where the Commissioner refuses an application, the Commissioner is required to give the applicant a notice in writing and provide reasons within 14 days of the refusal.

New section 329KD - Register of worker entitlement funds

117.           New section 329KD requires the Commissioner to maintain a public, website-based register of registered worker entitlement funds and sets out the matters that must be included on the register. The operator of a fund is required to notify the Commissioner of any changes to the details required for the register (see condition 14A in the table at new section 329LA) and the Commissioner must correct or update a detail on the register after becoming aware that the detail is incorrect or has changed.

New section 329KE - When a worker entitlement fund is registered

118.           New section 329KE provides that a worker entitlement fund is registered under the RO Act if the Commissioner has granted an application for registration of the fund and, since the application was granted, the fund has not been deregistered (unless the registration has since been reinstated).

Division 4 - Conditions for registration of worker entitlement funds

New section 329LA - Conditions for registration of worker entitlement fund

119.           New section 329LA sets out the initial and ongoing conditions for registration of a worker entitlement fund. Only specified conditions are applicable to single-employer funds.

120.           Condition 1 of the table sets out that an initial and ongoing condition for registration is that a fund has only one operator. This requirement is also applicable to single-employer funds and is based on the requirement in s 601FA of the Corporations Act for a managed investment scheme to have only one operator.

121.           Condition 2 of the table sets out the threshold requirement that the fund operator must be a constitutional corporation. Similar provision is made in the Superannuation Industry (Supervision) Act 1993 in relation to superannuation funds.

122.           Condition 3 of the table is an initial condition and is also applicable to single-employer funds. It requires that the Commissioner is satisfied that the operator, and other persons likely to be involved in the operation of the fund, will conduct the fund’s affairs in a way that meets the ongoing conditions. This condition will allow the Commissioner to refuse an application for registration on the basis of past conduct and to prevent phoenix arrangements.

123.           Condition 4 of the table is an ongoing condition for registration that is also applicable to single-employer funds. It sets out that a fund must treat members equally. If there are different classes of fund members, then the fund must treat the members of a class equally with other members of that class and the different classes must be treated without discrimination on the basis of membership of an organisation. This requirement adapts the requirement in section 601FC(1)(d) of the Corporations Act in relation to equal treatment.

124.           Condition 5 of the table is an ongoing condition for registration that is also applicable to single-employer funds. It sets out that fund members are not to be classed on the basis of membership of an organisation. This requirement is based on the recommendation of the Royal Commission.

125.           Condition 6 of the table is both an initial and ongoing condition for registration that is also applicable to single-employer funds. It sets out that a fund must have a written constitution that complies with the requirements set out in new subsection 329LB(1) and the worker entitlement fund rules.

126.           Condition 7 of the table is an ongoing condition for registration that is also applicable to single-employer funds. It sets out that a fund must be administered in accordance with its constitution.

127.           Condition 8 of the table is an initial and ongoing condition for registration. It sets out that a fund may only be registered or retain registration if the Commissioner has no reason to believe that any of the officers of the fund operator working on the fund or staff members who perform duties in relation to the fund are not of good fame or character. This requirement is based on subparagraph 913B(3)(a)(i) and subsection 913B(4) of the Corporations Act and the requirements for holding a Australian Financial Services Licence.

128.           Condition 9 of the table is an initial and ongoing condition for registration. It sets out that at least one of the voting directors of a fund operator must be independent of, and have no material relationship with, the operator of the fund other than in the role as director. This item is intended to prevent deadlocks on the board of a fund operator. Whether a voting director has a ‘material relationship’ will depend on the particular facts. ‘Voting director’ is defined by item 10 of this Schedule, by reference to the definition of ‘director’ in section 9 of the Corporations Act, to be a director of the operator who is entitled to vote at meetings of the operator’s directors.

129.           Condition 10 of the table is an initial and ongoing condition for registration. It sets out that at least one of the voting directors of a fund operator must be independent of, and have no material relationship, with any associate of the operator. A ‘material relationship’ will depend on the particular facts. ‘Associate’ is defined by item 10 of this Schedule to have the same meaning as in section 318 of the ITA Act 1997 and includes relatives, partners and related companies. This item also sets out for voting directors similar requirements with any:

·                     contributor to the fund or associates of contributors to the fund;

·                     organisation that has a member, or associate of a member, who is a fund contributor; or

·                     organisation that has a member, or associate of a member, who is a fund member.

130.           Condition 11 of the table is an initial and ongoing condition for registration. It sets out that the fund, including its investments, must be managed at arm’s length from the contributors to the fund and their associates, and fund members. It is modelled on section 58PB(4)(a) of the FBTA Act (noting that this section of the FBTA Act is repealed by item 18 of this Schedule).

131.           Condition 12 of the table is an ongoing condition for registration. It sets out that arrangements must be in place in relation to a fund to ensure that new subsections 329LC(2) and 329LD(3) (contributions and income retain their character) are given effect. This is to prevent the operator converting contributions into capital.

132.           Condition 13 of the table is an ongoing condition for registration. It sets out that a fund must comply with any requirements in relation to capital adequacy, governance and liquidity that are prescribed by the worker entitlement fund rules.

133.           Condition 14 of the table is an ongoing condition for registration. It sets out that an operator must give the Commissioner audited annual reports for a fund in accordance with new section 329LF.

134.           Condition 15 of the table is an ongoing condition for registration. It sets out that the operator must notify the Commissioner in writing of any change in a detail included on the register under new section 329KD.

135.           Condition 16 of the table is an ongoing condition for registration. It sets out that an operator must give the contributors to a fund the information prescribed by the worker entitlement fund rules, at the time or at the intervals prescribed by the rules.

136.           Condition 17 of the table is an ongoing condition for registration. It sets out that the operator must, as soon as practicable after the end of a financial year, give each fund member for whom contributions to the fund were made in relation to the financial year, a statement setting out those contributions made and the person who made the contributions.

137.           Condition 18 is an ongoing condition for registration. It sets out that the operator of a fund must, as soon as practicable, give the Commissioner, contributors and fund members information about any change to the constitution of the fund and any change to the operation of the fund affecting payments to fund members as soon as practicable.

138.           Condition 19 is an ongoing condition for registration. It sets out the information that a fund operator must give a person before the person becomes a fund member or as soon as practicable after the person becomes a fund member. The information must be provided in a statement setting out:

·                     the amount of any fees and administrative expenses charged by the operator in relation to the fund; and

·                     eligibility and process information for claims for a fund payment.

139.           Condition 20 is an ongoing condition for registration. It sets out that the operator of a fund must, on request, give a copy of the constitution of the fund to any contributor to the fund, must give a copy of that constitution to each person who may become a fund member, and ensure that each fund member has a copy of the constitution or has access to the constitution on the fund’s website.

140.           Condition 21 is an ongoing condition for registration. It sets out that, if the income of the fund is used to make training or welfare payments of type covered by new subsection 329LD(2), the operator of the fund must notify each member of the fund, as soon as is practicable after the payment is approved, who the payment will be made to and what training and welfare services will be provided. Alternatively, the operator of the fund can ensure that each member has access to such information on the website of the fund.

141.           Condition 22 is an ongoing condition for registration. It sets out that the training requirements set out in new section 329LG must be met.

142.           Requirements in these table conditions that an operator ‘gives’ a certain thing, may be met by emailing the relevant person, including emailing a link to the prescribed information.

143.           The conditions in the table provide for the worker entitlement fund rules to be able to prescribe:

·                      other requirements for a written constitution (item 6(b));

·                      requirements in relation to capital adequacy, governance and liquidity (item 13);

·                      information to be given to contributors (item 16); and

·                      the time and intervals for information to be given to contributors (subitems 16(a) and 16(b)).

144.            Including initial and ongoing condition content in the worker entitlement fund rules as provided by the table in new section 329LA is necessary as the Royal Commission did not deal comprehensively with the criteria with which registered worker entitlement funds would be required to comply. It is important and appropriate to provide scope to add to these requirements as the need arises.

New section 329LB - Constitution of fund (condition 5)

145.           New section 329LB sets out the requirements for a registered worker entitlement fund’s constitution. These requirements are modelled on the requirements that currently apply to ‘approved worker entitlement funds’ in subsection 58PB(4) of the FBTA Act.

146.           New paragraph 329LB(1)(a) specifies that the constitution must require that the operator of the fund must be a constitutional corporation and must not be an organisation.

147.           New paragraph 329LB(1)(b) requires that the constitution specifies that no more than five per cent of the assets of the fund may be invested in an entity controlled by a contributor to the fund or an associate of a contributor.

148.           New paragraph 329LB(1)(c) requires that the constitution specifies that the assets of the fund are not to be used in relation to financial assistance to a contributor, member or associate of a contributor or member of the fund.

149.           New paragraph 329LB(1)(d) requires that under the constitution, contributions to the fund may only be used for purposes authorised by new section 329LC.

150.           New paragraph 329LB(1)(e) requires that under the constitution, income of the fund may only be used for purposes authorised by new section 329LD.

151.           New paragraph 329LB(1)(f) requires that the constitution does not allow contributions or income of the fund to be used to make a payment to an employee relating to periods of industrial action.

152.           New paragraph 329LB(1)(g) requires that the constitution provides that unclaimed or forfeited money, or is treated as such under the constitution, must not be paid to an industrial association or related party of an industrial association. New subsection 329LB(3) applies the definition of ‘related party’ in section 9B to industrial associations and their officers for the purposes of new paragraph 329LB(1)(g) (in relation to unclaimed or forfeited money).

153.           New paragraph 329LB(1)(h) specifies that the constitution requires that a separate account be kept for each fund member in a way that enables the member’s entitlements to be calculated.

154.           New subsection 329LB(2) provides that paragraph 329LB(1)(g) (in relation to unclaimed or forfeited money) does not limit paragraph 329(1)(d) or 329(1)(e) (in relation to the use of contributions and income). This makes clear that unclaimed money must still be dealt with in accordance with the rules in sections 329LC and 329LD for authorised uses of income and contributions.

New section 329LC - Authorised uses of contributions

155.           New subsection 329LC(1) limits the purposes for which a constitution complying with new section 329LB can allow contributions to a registered worker entitlement fund to be used. These authorised uses are adapted from the requirements in section 58PB(4)(c) of the FBTA Act.

156.           New paragraph 329LC(1)(a) provides that an authorised use of contributions is to pay a kind of worker entitlement to fund members for whom contributions have been made for that kind of entitlement. Payments may also be made to death benefits dependants or legal personal representatives of those fund members.

157.           New paragraph 329LC(1)(b) provides that contributions may be used to make investments to generate income from the assets of the fund.

158.           New paragraph 329LC(1)(c) provides that contributions may be used to reimburse contributors to the fund who have paid entitlements directly to fund members in circumstances where the contributor was under an obligation or permitted to pay those entitlements.

159.           New paragraph 329LC(1)(d) provides that contributions may be used to return contributions to contributors to the fund.

160.           New paragraph 329LC(1)(e) provides that contributions may be used to pay for insurance cover to make payments for worker entitlements mentioned in new section 329LC(1)(a).

161.           New paragraph 329LC(1)(f) provides that contributions may be used to transfer contributions to another registered worker entitlement fund.

162.           New paragraph 329LC(1)(g) allows the fund to use contributions to pay the reasonable administrative expenses of the fund. This would include paying administrative costs to the trustee of the fund and board fees to directors of the operator of the fund. Whether a payment is reasonable will depend on the particular facts and circumstances.

163.           New paragraph 329LC(1)(h) provides that contributions that would otherwise be payable to a contributor may be used to pay amounts to an external administrator of the contributor.

164.           New paragraph 329LC(1)(i) allows the fund to use contributions to pay interest on or repay money lent to the fund.

165.           New subsection 329LC(2) clarifies that, for the purposes of new Part 3C of Chapter 11, a contribution to a fund continues to have the character of a contribution while held by the fund.

New section 329LD - Authorised uses of income

166.           New subsection 329LD(1) limits the purposes for which a constitution complying with new section 329LB can allow income of a registered worker entitlement fund to be used. These purposes are:

·                      those purposes specified in new subsection 329LC(1) in relation to authorised uses of contributions;

·                      payments other than worker entitlements to fund members or their death benefits dependants or legal personal representatives;

·                      payments to a contributor to the fund whose contributions are in respect of employees or former employees of the contributor; and

·                      payments for training and welfare purposes.

167.           Payments for training and welfare purposes can only be made when they satisfy specific criteria in subsection 329LD(2). A fund may only use income to make a payment for the sole purpose of providing training or welfare services to either or both of participants or former participants in any industry in which fund members participate and the spouses or dependents of such participants or former participants (paragraph 329LD(2)(a)).

168.           If the training or welfare services are not provided by the operator, the services must be provided at market value and on commercial terms and negotiated at arm’s length from any director with a material personal interest in the provider of the service (paragraph 329LD(2)(b)).

169.           Irrespective of who provides the services, such services must not unfairly discriminate between members of the fund and the payment must be approved by the voting directors of the operator including by at least one voting director who is idepedent per condition 9 and one voting director is independent per condition 10 before it is made (paragraphs 329(LD(2)(c) - (e)).

170.           Under new paragraph 329LF(3)(g) funds are required to report specifically on training and welfare payments in their annual reports, including by giving details of who the payments are to, the service being provided or the purpose of the payment and the amount spent.

171.            Under new section 329LA, condition 21, funds are also required to notify each member of the fund, as soon as is practicable after the payment is approved, who a payment made in accordance with section 329LD will be made to and what training and welfare services will be provided. Alternatively, the operator of the fund can ensure that each member has access to such information on the website of the fund.

172.           Penalties for non-compliance with conditions 6 and 7 (and hence sections 329LC and 329LD are civil penalties of 100 penalty units (either via an infringement notice or court ordered) and deregistration. The Commissioner may also issue a direction to a fund to comply with an ongoing condition (section 329MA). Failure to comply with the direction is a civil liability contravention with a maximum penalty of 60 penalty units.

173.           The Commissioner may also seek an injunction from the Federal Court under existing section 308 of the RO Act in relation to a breach of a civil penalty provision.

174.           New subsection 329LD(3) clarifies that, for the purposes of new Part 3C, income of the fund while registered continues to have the character of income of the fund while held in the fund. This provision is intended to address the problem identified by the Royal Commission that some fund operators treat prior years’ income as capital which is then distributed to the industry parties.

New section 329LE - Good fame or character (condition 8)

175.           New section 329LE provides for the matters that the Commissioner must have regard to in considering whether there is a reason to believe at a time that a person is not of good fame or character. These are: convictions in the previous 10 years for an offence involving dishonesty where punishable by imprisonment for at least three months; and ineligibility because of a conviction to be a candidate, elected or appointed to an office in an organisation or otherwise disqualified from holding such an office. The Commissioner may also take into consideration any other matters the Commissioner considers relevant.

176.            The note to new section 329LE points to Part VIIC of the Crimes Act 1914 in relation to the application of the spent convictions scheme.

New section 329LF - Audited annual reports (condition 14)

177.           New section 329LF provides that, for the purposes of condition 14 of the table of initial and/or ongoing conditions of registration in section 329LA, annual reports for registered worker entitlement funds must be prepared in relation to a financial year and in accordance with any applicable Australian Accounting Standards and be provided to the Commissioner within three months after the end of the financial year. Annual reports must include a range of specified statements. These are:

·                      a profit and loss statement;

·                      a financial position statement;

·                      a statement of benefits paid to fund members;

·                      a statement in relation to insurance premiums paid that includes details of persons for whom the premiums were paid, nature of insurance cover and commissions or benefits received by the operator or associated entity of the operator;

·                      a statement in relation to management or administration fees paid;

·                      a statement of the number and total value of any benefits forfeited during the financial year; and

·                      a statement in relation to payments made for training and welfare purposes.

178.           New subsection 329LF(3)(h) provides that the worker entitlement fund rules may prescribe other matters that must be dealt with by annual reports. Consequent to the table of conditions in new section 329LA, and the scope to add to those requirements as the need arises, the content of annual reports also needs to the flexibility to add additional reporting content.

179.           New subsection 329LF(4) requires the annual report to be audited and the auditor’s report to be attached to and form part of the annual report.

180.           New subsection 329LF(5) provides for a range of matters that the auditor’s report must set out and allows for the worker entitlement fund rules to prescribe other matters that must be set out.

181.           New subsection 329LF(6) requires the audit and auditor’s report to be completed in accordance with applicable Australian Accounting Standards.

182.           New subsection 329LF(7) sets out when a person is a related party of the operator for the purposes of the reporting in relation to payments for insurance cover.

New section 329LG - Training requirements (condition 22)

183.           New section 329LG provides for training requirements for operators of registered worker entitlement funds and exemptions from those training requirements.

184.           New subsection 329LG(1) provides that training requirements for the purposes of condition 22 of the table in section 329LA are met if the officers and staff members of an operator of a worker entitlement fund and entity involved in operating the fund whose duties relate to the financial management of the fund have undertaken training approved by the Commissioner.

185.           New subsection 329LG(2) provides that, where training is required, it must be completed within six months of assuming duties that relate to the financial management of a fund.

186.           New subsection 329LG(3) provides that the Commissioner may approve training for the purposes of new subsection 329LG(1) that covers any of the duties of officers and staff members that relate to the financial management of a fund and that is provided by an organisation, peak council or other body or person that the Commissioner is satisfied has the appropriate skills and expertise to provide the training.

187.           It is intended that under new section 329LG the Commissioner will be able to approve a range of training of different formats, styles and lengths in recognition of the different significance that financial management duties have to the roles of different officers and staff as well as their backgrounds, experience and qualifications. Similarly, it is intended that the Commissioner will be able to approve general training that covers a range of financial management duties as well as more specific training that is tailored to a particular are or areas of financial management. As a result, such approvals go to the manner or method and the specific circumstances in which the requirement to undertake training would apply.

188.           New subsection 329LG(4) provides that if the Commissioner approves training in writing, the approval is not a legislative instrument. This new subsection has been included to assist readers by making clear that an approval of training by the Commissioner that is made in writing is not a legislative instrument within the meaning of section 8 of the Legislation Act.

189.           New subsection 329LG(5) provides for an operator or other entity to apply to the Commissioner for an officer or staff member to be exempted from the training requirements.

190.           New subsection 329LG(6) allows the Commissioner to grant such an exemption if satisfied that the officer or staff member has a proper understanding of their duties relating to the financial management of the fund as a result of company director or registered organisation officer experience or other professional qualifications and experience.

191.           New subsection 329LG(7) clarifies that the training requirements in new subsection 329LG(1) do not apply in relation to an officer or staff member who is exempt under new subsection 329LG(6).

Division 5 - Consequences of non-compliance with ongoing conditions for registration of worker entitlement fund

Subdivision A - Consequences other than deregistration

New section 329MA - Direction to comply with ongoing condition

192.           To ensure compliance with an ongoing condition of registration or to ensure that a report, information or statement given in accordance with condition 14, 15, 16, 17, 18 or 19 is not false or misleading in a material particular, and as an alternative to deregistration, new section 329MA empowers the Commissioner to give a fund operator of a registered worker entitlement fund that is not a single-employer fund a written notice directing the operator to take, or stop taking, one or more actions specified in the notice, provided that the Commissioner is satisfied that giving the notice is in the best interests of the fund’s contributors or members.

193.           Failure to comply with a direction is a civil liability contravention with a maximum penalty of 60 penalty units.

New section 329MB - Infringement notices for civil penalties in relation to conditions 6, 14, 15, 16, 17, 18, 19, 20 and 21

194.           New section 329MB provides that each of the civil penalty provisions in new sections 329ME (constitution) and 329MF (giving information etc.) that may apply to operators of registered worker entitlement funds that are not single-employer funds are subject to the infringement notice framework established under Part 5 of the Regulatory Powers Act.

195.           New paragraph 329MB(2)(b) and subsection 329MB(3) empower the Commissioner to authorise the staff assisting the Commissioner to be infringement officers who can issue infringement notices.

196.           New subsections 329MB(4) to (6) provide that the Commissioner is the relevant chief executive in relation to the infringement notices provisions and may delegate the powers and functions of the chief executive to extend a period for the payment of an infringement notice and withdraw an infringement notice. Persons exercising powers or performing functions under such a delegation must comply with any directions of the Commissioner.

197.           In practice, the class of persons who can be authorised as infringement officers or be delegated powers and functions of the chief executive in relation to infringement notices is a small group of persons with particular expertise in the regulation of registered organisations and their associated entities.

New section 329MC - Civil penalty in relation to condition 4 (equal and non-discriminatory treatment)

198.           New section 329MC provides that it is a civil penalty contravention for the operator of a registered worker entitlement fund that is not a single-employer fund to discriminate against a member as prohibited by condition 3 in the table at section 329LA, with a maximum penalty of 100 penalty units.

New section 329MD - Civil penalty in relation to condition 5 (classes of membership)

199.           New section 329MD provides for a civil penalty of up to 100 penalty units for an operator of a registered worker entitlement fund that is not a single-employer fund where its actions result in different classes of fund members being identified by reference to membership of an organisation.

New section 329ME - Civil penalty in relation to condition 6 and aspects of condition 7(constitution)

200.           Conditions 6 and 7 require that for registration a fund has a written constitution that complies with certain specified requirements, and that the fund is administered in accordance with that constitution. New section 329ME provides that any act or omission, by an operator of a registered worker entitlement fund that is not a single-employer fund, that results in a breach of the requirements for the constitution, including the requirements of new section 329LB and the requirements specified in the worker entitlement fund rules to be a requirement to which new subsection 329ME(1)(c) applies, is a civil penalty contravention, with a maximum penalty of 100 penalty units.

201.           Including the possibility of civil penalty content in the worker entitlement rules as provided by new paragraph 329ME(c) is necessary in this instance as the Royal Commission did not deal comprehensively with the required content for the constituting documents of worker entitlement funds. It is limited in scope to address the serious issue of non-compliance with requirements in relation to the constitution of a fund. It is important and appropriate to provide scope to add these requirements as the need arises. As worker entitlement rules are legislative instruments, they are subject to the usual Parliamentary scrutiny and disallowance processes.

New section 329MF - Civil penalty in relation to conditions 14, 15, 16, 17, 18, 19, 20 and 21 (giving information etc.)

202.           New subsection 329MF(1) provides that failure by an operator of a worker entitlement fund that is not a single-employer fund to provide a report, information, statement or document mentioned in conditions 14, 15, 16, 17, 18, 19, 20 and 21 of the table in new section 329LA to the persons mentioned in those items is a civil penalty contravention, with a maximum penalty of 100 penalty units.

203.           New subsection 329MF(2) provides that the report, information or statement given to the person must not be false or misleading in a material particular. This is a civil penalty provision with a maximum penalty of 100 penalty units.

Subdivision B - Deregistration

New section 329MG - Notice of deregistration for non-compliance with ongoing condition

204.           New section 329MG sets out the process for deregistration of a worker entitlement fund where there has been or there is a failure to comply with an ongoing condition of registration.

205.           In summary, the Commissioner must give the fund operator a show-cause notice setting out the grounds for the proposed deregistration and the proposed date of effect (which must be at least 56 days after the day the notice was given), invite submissions on the proposed deregistration within a specified time-frame of at least 28 days after the notice was given, and publish that notice on the Commission’s website.

206.           New subsection 329MG(3) requires that, in exercising power under new section 329MG, the Commissioner must consider the seriousness of the non-compliance, any previous non-compliance with ongoing conditions in relation to the fund, whether deregistration would be in the best interests of the fund members and whether action other than deregistration, as provided for in new Subdivision A (consequences of non-compliance other than deregistration), would be more appropriate in the circumstances.

207.           New subsection 329MG(4) provides that the Commissioner may consider other matters in deciding whether to exercise the power in subsection 329MG(1).

New section 329MH - Mandatory deregistration for non-compliance with condition 1 or 2

208.           New section 329MH provides that where the grounds for deregistration in a notice of proposed deregistration include non-compliance with condition 1 or 2 and the Commissioner remains satisfied after considering any submissions made that the condition has not been or is not being complied with, the Commissioner must deregister the fund by written notice to the operator. Conditions 1 and 2 require a fund to have one operator, that is a constitutional corporation and not a registered organisation.

209.           New subsection 329MH(2) provides that deregistration under this section takes effect from the day proposed for deregistration in the notice of proposed deregistration.

210.           New subsection 329MH(3) provides that the Commissioner is required to remove details of the deregistered fund from the register maintained under section 329KD as soon as practicable.

New section 329MI - Deregistration for non-compliance with other conditions

211.           New section 329MI provides that where the grounds for deregistration in a notice of proposed deregistration do not include non-compliance with condition 1 or 2 and the Commissioner remains satisfied after considering any submissions made that a specified ongoing condition has not been or is not being complied with, the Commissioner may deregister the fund by written notice to the operator.

212.           New subsection 329MI(2) provides that deregistration under this section takes effect from the day proposed for deregistration in the notice of proposed deregistration or a later day determined by the Commissioner.

213.           New subsection 329MI(3) provides that the Commissioner is required to remove details of a fund deregistered under this section from the register maintained under section 329KD as soon as practicable.

214.           New subsection 329MI(4) requires that, in exercising power under new section 329MI, the Commissioner must consider the seriousness of the non-compliance, any previous non-compliance with ongoing conditions in relation to the fund, whether deregistration would be in the best interests of the fund members and whether action other than deregistration, as provided for in new Subdivision A, would be more appropriate in the circumstances.

215.           New subsection 329MI(5) provides that the Commissioner may consider other matters in deciding whether to deregister a fund under this section

New section 329MJ - Decision not to deregister

216.           New section 329MJ requires the Commissioner to provide a written notice within 14 days of a decision not to deregister a fund to the operator of the fund and to publish the notice on the Commission’s website.

New section 329MK - Natural justice

217.           New section 329MK clarifies that the show-cause process exhaustively deals with the procedural fairness requirements applicable to the deregistration process in this new Subdivision.

Division 6 - Other matters

New section 329NA - Deregistration of worker entitlement fund on request

218.           New section 329NA provides a mechanism for the deregistration of a worker entitlement fund where the fund operator applies for deregistration and the Commissioner is satisfied that it is appropriate to deregister the fund.

219.           If the Commissioner decides not to deregister the fund the Commissioner must provide reasons for the decision within 14 days after the decision.

220.           If this fund is deregistered, this takes effect from the day specified by a notice of deregistration issued by the Commissioner, who is required to remove details of a deregistered fund from the register maintained under section 329KD as soon as practicable.

New section 329NB - Deregistration because worker entitlement fund has ceased to exist

221.           New section 329NB provides a mechanism for the deregistration of a worker entitlement fund where the Commissioner is satisfied that the fund has been wound up or has otherwise ceased to exist.

222.           Deregistration takes effect from the day specified in the Commissioner’s written notice to the last-known operator or, if not practicable to provide such a notice, published on the Commission’s website and the Commissioner is required to remove details of a deregistered fund from the register maintained under section 329KD as soon as practicable.

New section 329NC - Final reports after deregistration

223.           New section 329NC provides that a former operator of a deregistered worker entitlement fund must, within 90 days following the deregistration day, provide a final annual report, final information for contributors and final information for fund members. Each requirement is a civil penalty provision with a maximum penalty of 100 penalty units. The requirements do not apply if the registration of the fund is reinstated before the end of the 90-day period following the deregistration day and do not apply to single-employer funds.

New section 329ND - Reinstatement of registration of worker entitlement fund

224.           New section329ND empowers the Commissioner to reinstate a fund’s registration if satisfied that the fund should not have been deregistered or that the conditions that led to deregistration are now being complied with. The Commissioner must include the details of the reinstated worker entitlement fund on the register of funds as soon as practicable.

New section 329NE - Automatic deregistration of single-employer fund on revocation of election

225.           New section 329NE provides that if the operator of a registered worker entitlement fund that is a single-employer fund revokes an election for the fund under section 329HD, the fund is taken to be deregistered with effect from the day specified in the revocation for deregistration. When deregistration occurs, the Commissioner must remove the details of the fund from the register as soon as practicable.

New section 329NF - Information gathering

226.           New subsection 329NF(1) provides for information gathering powers that may be exercised if the Commissioner believes on reasonable grounds that a person has information or a document relevant to determining whether an ongoing condition applicable to a registered worker entitlement fund has been or is being complied with or whether new section 329NC in relation to final reports after deregistration has been complied with.

227.           New subsections 329NF(2) to (6) provide that the Commissioner may require a person to give the Commissioner specified information or documents or a specified kind of information or documents. The Commissioner must provide a written notice that specifies a time at least 14 days after the notice was given for compliance with such a requirement by the Commissioner. A civil penalty of 30 penalty units applies if a person who is given a notice does not comply with the notice except where the person has a reasonable excuse, including that to answer a question or produce a document may tend to incriminate the person or expose the person to a penalty. This defence is included as the defences of general application in Part 2.3 of the Criminal Code do not apply in relation to civil penalty provisions.

228.           New section 329NF does not abrogate the right to legal professional privilege or the privilege against self-incrimination.

229.           The existing inquiry and investigations powers in Divisions 3-8 of Part 4 of Chapter 11 may also be utilised by the Commissioner in relation to investigations and inquiries into registered worker entitlement funds.

New section 329NG - Publication of annual reports

230.           New section 329NG provides that the Commissioner must publish the annual reports of registered worker entitlement funds on the Commission’s website.

New section 329NH - Sharing information with Commissioner of Taxation

231.           New section 329NH requires the Commissioner to provide to the Commissioner of Taxation a copy of constitutions of registered worker entitlement funds and funds for which an application for registration has been made. The Commissioner must also provide to the Commissioner of Taxation information about changes to the constitutions of registered worker entitlement funds.

New section 329NI - Review by Administrative Appeals Tribunal

232.           New section 329NI provides for certain decisions of the Commissioner to be subject to review by the AAT. These are decisions to:

·                      refuse an application for registration of a worker entitlement fund (new section 329KC);

·                      deregister a worker entitlement fund (new sections 329MH, 329MI and 329NB);

·                      not to deregister a worker entitlement fund (new section 329NA); and

·                      reinstate the registration of a worker entitlement fund (new section 329ND).

233.           The note to new section 329NI reminds readers that other decisions made under this Part are not subject to review by the FWC.

234.           Precluding decisions of the Commissioner from review, other than those for which review by the AAT is specifically provided for in new section 329NI, is warranted on the basis of the principles developed by the Administrative Review Council. The relevant principles are where decisions have such limited impact that the costs of review cannot be justified (new section 329KB - Registration of worker entitlement funds and new section 329LG—approving training or exempting persons from training requirements) or are of a law enforcement nature (new section 329MA—directing an operator to take or stop taking an action and new section 329MB—issuing an infringement notice). In particular, a decision to register a worker entitlement fund is not likely to directly affect the interests of a person other than the successful applicant. A decision not to register a worker entitlement fund is reviewable.

New section 329NJ - Worker entitlement fund rules

235.           New section 329NJ empowers the Minister to make rules prescribing matters required or permitted to be prescribed by the worker entitlement fund rules or necessary or convenient to be prescribed for carrying out or giving effect to new Part 3C. Rules made under new section 329NJ will be legislative instruments for the purposes of the Legislation Act. Any worker entitlement rules made by the Minister will be subject to the usual Parliamentary scrutiny and disallowance processes.

236.           Subsection 329NJ(3) provides that, despite subsection 14(2) of the Legislation Act, the worker entitlement rules may apply, adopt or incorporate matters contained in an accounting standard formulated by the Australian Accounting Standards Board or an auditing and assurance standard formulated by the Auditing and Assurance Standards Board as in force from time to time. Section 14 of the Legislation Act is designed to facilitate access to justice by ensuring that legislative instruments do not make reference to documents that are not publically available for free or at a minimal cost.

237.           Australian Accounting Standards and Australian Auditing Standards are disallowable legislative instruments, as are the worker entitlement rules created under new section 329NJ. As such, they are freely and publically accessible at the Federal Register of Legislation (www.legislation.gov.au).

238.           New subsection 329NJ(4) provides, for the avoidance of doubt, that the worker entitlement rules may not: create an offence or civil liability; provide powers of arrest, detention, entry, search or seizure; impose a tax; set an amount to be appropriated from the Consolidated Revenue Fund; or directly amend the text of the RO Act.

239.           New subsection 329NJ(5) provides that rules that are inconsistent with the regulations have no effect to the extent of the inconsistency, but are taken to be consistent to the extent they are capable of operating concurrently with the regulations.

Item 14 - At the end of subsection 330(1)

240.      This item amends section 330 (Commissioner may make inquiries) to empower the Commissioner to make inquiries as to whether an ongoing condition applicable to a registered worker entitlement fund is being complied with.

Item 15 - At the end of subsection 331(1)

241.      This item amends section 331 (Commissioner may conduct investigations) to empower the Commissioner to conduct investigations as to whether an ongoing condition applicable to a registered worker entitlement fund is being or has been complied with.

Item 16 - At the end of subsection 344(2)

242.      This item adds a note to the end of subsection 344(2) in relation to circumstances in which a body corporate is an operator of a worker entitlement fund. Subsection 344(2) provides that a body corporate is taken to have engaged in conduct that was engaged in by a person on behalf of a body corporate, if the operator establishes that it took reasonable precautions and exercised due diligence to avoid conduct engaged in by a person on behalf of an operator. This concurs with the approach taken in s 338 of the Superannuation Industry (Supervision) Act 1993, which requires a closer connection between the conduct of the agent (or other) and the conduct of the responsible constitutional corporation.

 Fringe Benefits Tax Assessment Act 1986

Item 17 - Paragraph 58PA(a)

Item 18 - Section 58PB

Item 19 - Subsection 136(1) (definition of approved worker entitlement fund )

243.      Worker entitlement funds are subject to indirect regulation under the FBTA Act. Employer contributions to a worker entitlement fund would ordinarily be liable to taxation as a ‘fringe benefit’. At the same time, a payment from the fund may be taxed in the employee’s hands as ordinary income or as an employment termination payment. To prevent the possibility of double taxation, section 58PA of the FBTA Act exempts from fringe benefits tax liability employer contributions made to an ‘approved worker entitlement fund’. Currently, a fund may apply to the Commissioner of Taxation to be an ‘approved worker entitlement fund’ (approval function) provided the fund satisfies certain governance requirements and the fund’s constituting documents limit the uses to which contributions to the fund and the income of the fund may be used.

244.      These items make a number of consequential amendments to the FBTA Act to ensure consistency with the amendments to the RO Act providing for the registration of worker entitlement funds. The amendments give effect to recommendation 46 of the Report. This includes transferring the approval function from the Commissioner of Taxation to the Registered Organisations Commissioner.

245.      Section 58PA of the FBTA Act exempts from liability to pay fringe benefit tax employer contributions made under an industrial instrument to an ‘approved worker entitlement fund’ to make leave payments or redundancy payments. For this purpose, worker entitlement funds were prior to these amendments approved by the Commissioner of Taxation, but will now be approved by the Commissioner.

246.      Item 17 amends paragraph 58PA(a) of the FBTA Act to cover contributions by a registered worker entitlement fund registered under the RO Act and statutory long service leave funds.

247.      Item 18 repeals section 58PB which defined ‘approved worker entitlement fund’ for the purposes of the FBTA Act but, following the changes to the approval function is now no longer required.

248.      Item 19 is a consequential amendment to repeal the definition of ‘approved worker entitlement fund’ in subsection 136(1) of the FBTA Act as it is no longer required.

Income Tax Assessment Act 1997

Item 20 - Paragraph 126-130(2)(b)

249.      This item makes a consequential amendment to section 126-130 of the ITA Act 1997.

250.      Section 126-130 of the ITA Act 1997 provides for there to be a capital gains tax roll-over event if a fund’s trust deed changes for the purpose of having the fund endorsed by the Commissioner of Taxation as an ‘approved worker entitlement fund’ under the FBTA Act. This item repeals and replaces paragraph 126-130(2)(b) of the ITA Act 1997 to reflect the abolition of the FBTA Act approval process and its replacement by the RO Act registration process.

Taxation Administration Act 1953

Item 21 - Subsection 355-65(8) in Schedule 1 (after table item 5)

251.      This item amends the table in subsection 355-65(8) of Schedule 1 to the TA Act to authorise the Commissioner of Taxation to disclose information to the Registered Organisations Commissioner for the purpose of allowing the Registered Organisations Commissioner to perform their functions or to exercise their powers under the RO Act.

Item 22 - Paragraph 426-5(ba) in Schedule 1

Item 23 - Paragraph 426-55(1) in Schedule 1 (paragraph (b) of the note)

Item 24 - Paragraphs 426-65(1)(ba) and (bb) in Schedule 1

252.      These items repeal a number of provisions that are redundant as a consequence of the amendments to the FBTA Act in items 17, 18 and 19.

Part 2 - Application and transitional amendments

Fair Work Act 2009

Item 25 - In the appropriate position in Schedule 1

253.           This item inserts a new Part 7 in Schedule 1 of the FW Act to deal with transitional matters arising from the amendments to the FW Act made by Part 1 of this Schedule, that is, the prohibitions on any term of a modern award, enterprise agreement or contract of employment requiring or permitting contributions to an unregistered worker entitlement fund (see items 1-9, above).

254.           The transition period for a worker entitlement fund approved for the purposes of subsection58PB(2) of the FBTA Act or that has applied for approval is until the later of 1 July 2018 or 6 months from commencement. This period is intended to give existing funds sufficient time to take the steps necessary to become compliant with the new regime.

Part 7 - Amendments made by the Fair Work Laws Amendment (Proper Use of Worker Benefits) Act 2017

Division 1 - Amendments made by Schedule 2

Clause 31 - Definitions

255.      Clause 31 defines the terms ‘commencement’, ‘RO Commissioner’, ‘transitioning approved fund’ and ‘transitioning non-approved fund’ for the purposes of this Part.

Clause 32 - Application of amendments

256.      Subclause 32(1) provides that the amendments apply to a modern award made or varied after commencement or an enterprise agreement or a contract of employment made after commencement.

257.      Subclause 32(2) provides that the amendments do not apply in relation to a transitioning approved fund or transitioning non-approved fund, as defined by clause 31. This means a transitioning approved fund or a transitioning non-approved fund can be named in a modern award or enterprise agreement.

Clause 33 - Funds that have a transition period

258.      Clause 33 identifies two types of transitioning funds that will have a transition period. The first type is an approved fund within the meaning of subsection 58PB(2) of the FBTA Act (endorsed fund) and the second type is a fund or entity that has applied for such an approval before this Bill was introduced into the Parliament and has not been refused (funds that have applied for endorsement).

259.      The notes to subclauses 33(1) and 33(2) draw the reader’s attention to the transitional provisions in Part 3 of this Schedule that require the Commissioner to include details of these transitional funds in the register of worker entitlement funds.

Clause 34 - End of transition period for certain funds

260.      Clause 34 provides that, as a general rule, the transition period for a transitional fund covered by clause 33 (endorsed funds and funds that have applied for endorsement) is until the later of 1 July 2018 or 6 months from commencement. However, there are a number of exceptions to this general rule.

261.      Sub-paragraph 34(b)(i) provides that the transition period ends if the Commissioner grants an application for registration and the transitioning fund becomes a registered worker entitlement fund.

262.      Sub-paragraph 34(b)(ii) provides that where a fund has applied for approval for the purposes of the FBTA Act before commencement and, after commencement, the Commissioner of Taxation does not give that approval, the transition period ends on the date of the Commissioner of Taxation’s decision.

263.      Sub-paragraph 34(b)(iii) provides that where a fund that was an approved fund for the purposes of the FBTA Act before commencement subsequently has that approval revoked, the transition periods ends on the revocation date.

Clause 35 - Disclosure of information for purposes of transition periods

264.      Clause 35 provides that a taxation officer may disclose information to the Commissioner if the information is notice of a decision of the Commissioner of Taxation to approve or revoke approval of a fund for the purposes of the FBTA Act.

Clause 36 - References to industrial instruments to approved worker entitlement funds

265.      Clause 36 provides that references in an industrial instrument to an approved worker entitlement fund within the meaning of the FBTA Act is taken to include a reference to a worker entitlement fund registered under Part 3C of Chapter 11 of the RO Act.

Clause 37 - Application of section 604 to certain decisions made under Part 3 of Schedule 2

266.      Clause 37 provides that section 604 of the FW Act in relation to the appeal of decisions of the Commissioner under this Part to the FWC, do not apply in relation to decisions made under Part 3 of Schedule 2 to the Fair Work Laws Amendment (Proper Use of Worker Benefits) Act 2017 .

267.      This clause relates to decisions of the Commissioner to include the details of transitioning funds on the register of worker entitlement funds and to remove those details. Precluding such decisions from review is justified, with reference to the principles developed by the Administrative Review Council, on the basis that these decisions can be properly characterised as automatic or mandatory decisions such that there is nothing on which merits review can operate. In addition, inclusion or removal of a fund from the register would not have the effect of registration and therefore would not have any substantive effect on the status of the fund.

Clause 38 - Transitioning non-approved funds

268.      Clause 38 allows existing funds that have not been approved for the purposes of the FBTA Act to have a six month period within which they can seek registration under the new scheme.

269.           A fund is covered by this period if:

·                      the fund was established before commencement;

·                      the fund is not a transitioning fund as defined in clause 33; and

·                      the fund or entity has never applied for endorsement in accordance with Division 426 in Schedule 1 to the TA Act as an approved worker entitlement fund.

270.      Subclause 38(3) provides that a fund ceases to be a transitioning non-approved fund either at the end of six months beginning on commencement or when the Commissioner grants an application for registration as a worker entitlement fund before the end of that period

Part 3 - Application and transitional provisions commencing on Proclamation

271.      Part 3 deals with transitional matters arising from the amendments made by Part 1 of this Schedule (other than amendments to the FW Act—see Part 2 above).

Item 26 - Definitions

272.      This item defines terms ‘commencement’, ‘RO Act’, ‘RO Commissioner’, ‘transitioning approved fund’ and ‘transitioning non-approved fund’ as used in Part 3.

Item 27 - Inclusion of transitioning approved funds on register of worker entitlement funds

273.      Sub-item 27(1) item requires the Commissioner to register a transitioning fund that, immediately before commencement, was either an approved fund for the purposes of the FBTA Act or a fund or entity that had applied for such approval and, as at commencement, the application had not been refused. These are ‘transitioning approved funds’ provided that the transition period has not ended under clause 34 (see Part 2).

274.      Sub-item 27(2) requires the Commissioner to remove the details of a transitioning fund from the register as soon as practicable after the transition period for the fund ends in accordance with clause 34 (see Part 2 of this Schedule, above).

275.      Sub-item 27(3) clarifies that transitioning funds are not registered for the purposes of new Part 3C of Chapter 11 of the RO Act.

Item 28 - Application of certain amendments of the Fair Work (Registered Organisations) Act 2009

276.      Sub-item 28(1) applies the definition of ‘worker entitlement’ in new section 329HB to payments made before or after commencement.

277.      Sub-item 28(2) provides that for the purpose of the definition of ‘worker entitlement fund’ amounts paid as contributions or transfers from other funds include a reference to amounts paid or transferred before commencement. This ensures that a fund is still a worker entitlement fund if it received contributions or transfers before commencement.

278.      Sub-item 28(3) provides that the offence in relation to operating an unregistered worker entitlement fund in new section 329JA and the civil penalty provision for contributing to an unregistered worker entitlement fund in new section 329JB do not apply in relation to a transitioning approved fund or a transitioning non-approved fund.

279.      Sub-item 28(4) provides that the training requirement in condition 22 of the table in new section 329LA does not apply until the day after the end of the period of six months starting on the day this item commences.

280.      Sub-item 28(5) provides that if, on the day the condition starts to apply in accordance with sub-item 3, a person is required to undertake training under subsection 329LG(1), that training must be undertaken within six months of the day the condition starts to apply.

Item 29 - Application of amendments of section 58PA of the Fringe Benefits Tax Assessment Act 1986

281.      This item provides that the amendments to section 58PA of the FBTA Act apply to contributions made after commencement of Schedule 2 and the reference in new paragraph 58PA(a) of the FBTA Act to a worker entitlement fund registered under new Part 3C of Chapter 11 of the RO Act includes a transitioning approved fund.

Item 30 - Application of other amendments of tax-related legislation

282.      Sub-item 30(1) provides that the amendments made to the FBTA Act by this Schedule, other than of section 58PA, and to the TA Act do not apply in relation to transitioning approved funds.

283.      Sub-item 30(2) provides that section 126-130 of the ITA Act 1997 as amended by this Schedule applies to any fund from commencement.

284.      Sub-item 30(3) provides that section 126-130 of the ITA Act 1997 also has the effect that it would have had in relation to a transitioning approved fund had it not been amended by this Schedule.

285.      Section 126-130 of the ITA Act 1997 provides for there to be a capital gains tax roll-over event if a fund’s trust deed changes for the purpose of having the fund endorsed by the Commissioner of Taxation as an ‘approved worker entitlement fund’ under the FBTA Act. This Schedule repeals and replaces paragraph 126-130(2)(b) of the ITA Act 1997 to reflect the abolition of the FBTA Act approval process and its replacement by the RO Act registration process.

286.      Sub-item 30(4) provides that the amendment to the confidentiality of taxpayer information provisions in the TA Act applies in relation to records and disclosures of information made at or after the commencement of this Schedule, whether the information was obtained before, at or after the commencement of this Schedule to the Bill.

Item 31 - Modification of conditions for certain funds

287.      This item provides that the Commissioner may, by legislative instrument, modify the operation of a provision of new Division 4 of Part 3C of Chapter 11 (conditions of registration of worker entitlement funds) without amending its text, for a specified transitioning fund covered by subclause 33(1) or (2) of Schedule 1 to the FW Act (as inserted by Part 2 of this Schedule). A modification ceases to have effect at the end of the period of two years from the end of the transition period for the fund as provided by clause 34 of Schedule 1 to the FW Act (as inserted by Part 2 of this Schedule) or the time specified in the instrument of modification.

288.      Providing this power to the Commissioner is necessary in case a fund attempts to and does everything practically it is able to adjust to the new provisions but has difficulty adopting the new requirements and needs a limited extension of time to ensure full compliance. This clause is narrow in its application to technical modifications in relation to specified transitioning funds. It is necessary to allow such funds to continue to operate lawfully while adopting the new requirements. 

Part 4 - Application and transitional provisions commencing day after Royal Assent

289.      Part 4 allows a person to apply to the Commissioner to register a worker entitlement fund prior to the main commencement time of schedule 2, but after Royal Assent.

Item 32 - Pre-commencement applicatiosn for registration

290.      This item allows the following provisions to apply in the pre-commencement period as if they had already commenced:

·                      the provision that defines ‘worker entitlement’

·                      the provisions defining ‘worker entitlement fund’ and ‘operator of a worker entitlement fund’

·                      provisions allowing application for registration of worker entitlement funds, registration of worker entitlement funds and refusals to register

·                      the provision allowing the AAT to review certain decisions, and

·                      the provision to allow the Commissioner to share certain information with the Commissioner of Taxation.

291.      The purpose of the part is to allow funds that are not approved funds under the FBTA Act to apply for registration by the Commissioner before commencement to enable them to operate lawfully from commencement.

Part 5 - Contingent amendments

292.      Part 5 deals with contingent amendments that depend on the commencement of the Fair Work (Registered Organisations) Amendment (Ensuring Integrity) Act 2017 .

Fair Work (Registered Organisations) Act 2009

Item 33 - Paragraph 329LE(b)

293.      This item repeals and replaces paragraph 329LE(b) in relation to the factors that the Commissioner must have regard to in considering the good fame or character conditions of the table in new section 329LA to reflect the new term of being disqualified from holding office in an organisation’ inserted by item 9 of Schedule 1 to the Fair Work (Registered Organisations) Amendment (Ensuring Integrity) Act 2017 . If that Act commences before this Schedule, this amendment will commence immediately on commencement. If that Act has not commenced by the time this schedule commences, the amendment will commence when that Act commences.

Item 34 - Subsection 343B(2A)

Item 35 - At the end of subsection 343B(2A)

294.      These items provide for contingent amendments to the delegation power of the Commissioner in section 343B.

295.      Item 34 does not commence if item 12 of Schedule 5 to the Fair Work (Registered Organisations) Amendment (Ensuring Integrity) Act 2017 commences before Parts 1 to 3 of this Schedule. It replaces subsection 343B(2A) to provide that, in addition to the existing ability for the Commissioner to delegate registration of auditors functions or powers, the Commissioner may delegate functions and powers relating to training requirements in relation to registered worker entitlement funds to a member of the staff assisting the Commissioner who is an SES employee or an acting SES employee .

296.      Item 35 adds new paragraph 343B(2A)(c) to add training requirements in relation to registered worker entitlement funds to the list of functions and powers that the Commissioner may delegate to a member of the staff assisting the Commissioner who is an SES employee or an acting SES employee.



Schedule 3 - Election payments

1.                   Schedule 3 implements recommendation 43 of the Royal Commission to prohibit a term of a modern award, enterprise agreement or contract of employment permitting an employer to deduct, or require an employee to pay, from an employee’s salary an amount to an election fund in relation to elections for office in industrial associations.

Fair Work Act 2009

Item 1 - Section 12

2.                   This item inserts a definition of ‘regulated election purpose’ into the dictionary. A ‘regulated election purpose’ is a purpose that includes the purpose of funding, supporting or promoting the election of a candidate or group of candidates for an election or elections to an office in an industrial association, including in a future election or elections. The term ‘industrial association’ is also defined in section 12.

Item 2 - At the end of section 194

3.                   This item inserts new paragraph 194(l) which provides that a term of an enterprise agreement that requires or permits a payment to be made for a regulated election purpose is an unlawful term.

Item 3 - Subsection 324(1) (note 2)

Item 4 - Paragraph 327(b)

4.                   These items are consequential to new section 333C (see item 5, below). Item 3 inserts a reference to new section 333C in note 2 to subsection 324(1) which deals with permitted deductions.  Item 4 inserts a reference to new section 333C in paragraph 327(b) which deals with the treatment of amounts an employee has been required to spend in contravention of Division 2 of Part 2-9.

Item 5 - At the end of Division 4 of Part 2-9

5.                   This item adds new section 333C which provides that a term of a contract of employment has no effect to the extent that it would require or permit a payment to be made for a regulated election purpose.

Item 6 - At the end of Part 7 of Schedule 1

Division 2 - Amendments made by Schedule 3

6.                   This item adds new Division 2 ‘Amendments made by Schedule 3’ to Part 7 of Schedule 1 to the FW Act. New Division 2 comprises new clause 39 ‘Amendments made by Schedule 3’. This clause provides that the amendments of the FW Act made by Schedule 3 to the Fair Work Laws Amendment (Proper Use of Worker Benefits) Act 2017 apply in relation to an enterprise agreement or a contract of employment made after commencement.



Schedule 4 - Prohibiting coerced payments to employee benefit funds

7.                   Schedule 4 amends the FW Act to prohibit coerced payments to certain employee benefit funds. These amendments give effect to recommendation 50 of the Royal Commission.

Fair Work Act 2009

Item 1 - After section 355

8.                   This item inserts a new section 355A which prohibits a person from organising or taking, or threatening to organise or take, any action (other than protected industrial action) against another person with intent to coerce that other person (or a third person) to make payments to certain employee benefit funds.

9.                   New subsection 355A(1) outlines the basic prohibition, which is a civil remedy provision (see item 3, below).

10.               New subsection 355A(2) clarifies that the basic prohibition does not apply to protected industrial action.

11.               New subsection 355A(3) outlines the types of employee benefit funds to which the basic prohibition applies. These are certain: superannuation funds; training funds; welfare funds; life or disability insurance cover funds; and, funds for certain managed investment schemes.

Item 2 - After paragraph 355A(3)(d)

12.               This item amends new section 355A (see item 1 above) to include a reference to a worker entitlement fund. A worker entitlement fund is defined in new section 329HB as inserted by item 13 of Schedule 2 of this Bill. New paragraph 355A(3)(d) is included in a separate item in this schedule in the event that the various schedules of the Bill commence at different times, most particularly the provisions concerning the registration of worker entitlement funds in schedule 2.

Item 3 - Subsection 539(2) (after table item 11)

13.               This item inserts item 11A to the table in subsection 539(2) to include a reference to new section 355A. The effect of this amendment is to make new section 355A a civil remedy provision with a maximum penalty of 60 penalty units.



Schedule 5 - Disclosable arrangements

14.               Schedule 5 amends the RO Act to respond to recommendation 47 of the Report and is intended to address concerns identified by the Royal Commission about the non-disclosure, or improper disclosure, to employers and employees of financial benefits, such as commissions, paid to registered organisations involved in income protection and other arrangements. 

Fair Work (Registered Organisations) Act 2009

Item 1 - Section 6

15.               This item amends section 6 of the RO Act to insert a number of new definitions for terms that are used in new Part 3D of Chapter 11 (see item 3 below).

Item 2 - Section 317

16.               This item amends the simplified outline of chapter 11 to include a reference to new Part 3D (see item 3 below).

Item 3 - Before Part 4 of Chapter 11

Part 3D Disclosable arrangements

Division 1 Preliminary 

New section 329PA - Simplified outline of this Part

17.               New section 329PA contains a simplified outline of new Part 3D.

New section 329PB - Application of this Part to branches

18.               New section 329PB provides that in new Part 3D a reference to an organisation includes a reference to a branch of an organisation.

New section 329PC - Financial benefits

19.               New section 329PC provides that new Part 3D does not apply in relation to a financial benefit prescribed by the disclosable arrangements rules for the purposes of this section.

New section 329PD - Person linked to an organisation or federal system employer

20.               New section 329PD defines who is a person linked to an organisation or federal system employer for the purpose of new Part 3D. A person is linked to an organisation if the person is a related party of the organisation. Related party is defined in section 9B of the RO Act. A person is linked to a federal system employer if the person is an associated entity of the employer within the meaning of section 50AAA of the Corporations Act.

New section 329PE - Disclosable arrangements

21.               New section 329PE defines what is a ‘disclosable arrangement’.

22.               A disclosable arrangement is:

·            an arrangement (whether or not in writing and whether formal or informal) between an organisation, or a person linked to an organisation, and a federal system employer for:

o       insurance promoted or arranged by the organisation or a person linked to the organisation to be offered or provided to the employer’s employees; or

o       for the organisation or person linked to the organisation to refer the employer to an insurer or insurance intermediary for the purposes of employees of the employer being offered or provided insurance (new subsection 329PE(2));

 

·            an arrangement (whether or not in writing and whether formal or informal) for a federal system employer to become a member of, or make payments in relation to, a managed investment scheme (within the meaning of the Corporations Act) that is promoted or arranged by an organisation or a person linked to an organisation and that is for the purposes of (or for purposes that include) managing financial risk and from which employees of the employer benefit or may benefit if specified events occur in relation to the employees (new subsection 329PE(3));

·            an arrangement (whether or not in writing and whether formal or informal) between an organisation, or a person linked to an organisation, and a federal system employer for the employer to become a member of or make payments to a training fund or a welfare fund that is for the benefit of the employer’s employees, if the fund is arranged or promoted by the organisation or a person linked to the organisation (new subsection 329PE(4)); or

·            an arrangement whether or not in writing and whether formal or informal) between an organisation, or a person linked to an organisation, and a federal system employer that is prescribed by the disclosable arrangements rules (new subsection 329PE(5)).

New section 329PF - Disclosable arrangements rules

23.               New subsection 329PF(1) provides that the Minister may make rules prescribing matters required or permitted to be prescribed, or necessary or convenient to be prescribed, to give effect to new Part 3D. Rules made under new subsection 329PF(1) will be legislative instruments for the purposes of the Legislation Act.

24.               New subsection 329PF(2) specifies certain matters that may not be included in the disclosable arrangements rules.

25.               New subsection 329PF(3) provides that rules that are inconsistent with the regulations have no effect to the extent of the inconsistency, but are taken to be consistent to the extent they are capable of operating concurrently with the regulations.

Division 2 - Disclosure by organisations to employers

New section 329QA - Disclosure by organisations to employer

26.               New subsection 329QA creates an obligation for an organisation to disclose to employers any financial benefits it or persons linked to it might receive or obtain in connection with a disclosable arrangement.

27.               New subsection 329QA(1) concerns disclosure before entering into an arrangement. Under new subsection 329QA(1) if an organisation or a person linked to the organisation proposes to enter into a disclosable arrangement with a federal system employer and the organisation or person linked will, or can reasonably be expected to, receive or obtain (directly or indirectly) a financial benefit in connection with the arrangement, the organisation must, before entering into the arrangement, give the employer a document in accordance with new subsection 329QA(3). New subsection 329QA(1) is a civil penalty provision with a maximum penalty of 60 penalty units.

28.               New subsection 329QA(2) concerns disclosure after entering into an arrangement. If a disclosable arrangement is in effect between an organisation or a person linked to the organisation and a federal system employer and at the time the arrangement was entered into no financial benefit was expected to be received, but as a result of a change to the arrangement, the organisation or person will or can reasonably be expected to receive or obtain (directly or indirectly) a financial benefit, the organisation must, before the change takes effect, give the employer a document in accordance with new subsection 329QA(3). New subsection 329QA(2) is a civil penalty provision with a maximum penalty of 60 penalty units

29.               New subsection 329QA(3) provides that the document to be provided to the employer must describe the connection between the arrangement and the financial benefits that will or can reasonably be expected to be received or obtained in connection with it by the organisation or persons linked to the organisation (the expected recipients ), describe the nature and (as far as reasonably practicable) amount of those financial benefits in relation to each expected recipient, name each expected recipient, be in accordance with any other requirements prescribed by the disclosable arrangements rules, and be given in a manner (if any) prescribed by the disclosable arrangements rules.

30.               New subsection 329QA(4) applies where an organisation or an officer of an organisation will, or can reasonably be expected to, receive consideration from the managed investment scheme or fund to which an arrangement in new subsections 329PE(3) or (4) relates for services provided by an officer of the organisation. In these circumstances, the consideration is taken for the purposes of Part 3D to be a financial benefit that the organisation will, or can reasonably be expected to, receive in connection with the arrangement.

31.               New subsection 329QA(5) provides that new subsection 329QA(4) does not limit the circumstances in which an organisation will, or can reasonably be expected to, receive or obtain a financial benefit in connection with a disclosable arrangement.

New section 329QB - Keeping disclosures up to date

32.               New section 329QB requires organisations to keep disclosures up to date. If an organisation has given an employer a document under new section 329QA or this section in relation to a disclosable arrangement and either:

·          the organisation will or can reasonably be expected to receive a financial benefit as a result of a change proposed to the arrangement; or

·          the organisation becomes aware that the document is, or knows that the document will become, inaccurate or misleading in a material particular,

the organisation must, as soon as practicable and in accordance with new subsection 329QB(2), give the employer a document in accordance with new subsection 329QB(2).

33.               New subsection 329QB(2) sets out the requirements for a document to be provided under new subsection 329QB(1).

34.               New subsection 329QB(1) is a civil penalty provision with a maximum penalty of 60 penalty units.

New section 329QC - Civil penalty for false or misleading disclosures

35.               New section 329QC provides that a person must not make a statement for inclusion in a document under new section 329QA or 329QB if the person knows, or is reckless as to whether, the statement is false or misleading. New section 329QC is a civil penalty provision with a maximum penalty of 60 penalty units.

New section 329QD - Alternative disclosure under section 179 of the Fair Work Act

36.               New section 329QD provides that an organisation is taken to have complied with new section 329QA or 329QB, in relation to a financial benefit that an organisation or person linked to an organisation will or can reasonably be expected to receive or obtain in connection with a disclosable arrangement if:

·            the organisation gives the employer a document under section 179 of the Fair Work Act that meets the requirements of new section 329QA in relation to the arrangement (other than any requirements in relation to manner and form); and

·            the organisation gives the document to the employer by the time required under section 329QA or 329QB.

If an organisation has disclosed under section 179 of the Fair Work Act, an organisation must still comply with subsections 329QB(1) (keeping disclosures up to date) and 329SA(2) (giving copies to Commissioner) as if the document were a document given under new section 329QA (new subsection 329QD(2)).

New section 329QD is intended to prevent an organisation from having to disclose the same financial benefits under the RO Act and Fair Work Act.

Division 3 - Disclosure by employers to employees

New section 329RA - Employer must notify employees of organisation’s disclosure

37.               New section 329RA requires an employer to whom a document is given under new section 329QA or 329QB in relation to a disclosable arrangement to take all reasonable steps to ensure that the employees who are or will be covered by the arrangement are given a copy of, or access to a copy of, the document as soon as practicable. New section 329RA is a civil penalty provision with a maximum penalty of 60 penalty units.

New section 329RB - Disclosure by employers before entering into disclosable arrangements

38.               New section 329RB creates an obligation for an employer to disclose to employees any financial benefits it, or a person linked to it, might receive or obtain in connection with a disclosable arrangement with an organisation or person linked to an organisation.

39.               New subsection 329RB(1) concerns disclosure before entering into an arrangement. If an employer proposes to enter into a disclosable arrangement with an organisation or person linked to an organisation and the employer or person will, or can reasonably be expected to, receive or obtain (directly or indirectly) a financial benefit in connection with the arrangement, the employer must, before entering into the arrangement, give the relevant employees a document in accordance with new subsection 329RB(3). New subsection 329RB(1) is a civil penalty provision with a maximum penalty of 60 penalty units.

40.               New subsection 329RB(2) concerns disclosure after entering into an arrangement. If a disclosable arrangement is in effect between an employer and an organisation or person linked to an organisation and at the time the arrangement was entered into no financial benefit was expected to be received, but as a result of a change to the arrangement, the employer or a person linked to the employer will or can reasonably be expected to receive or obtain (directly or indirectly) a financial benefit, the employer must, before the change takes effect, give the relevant employees a document in accordance with new subsection 329RB(3). New subsection 329RB(2) is a civil penalty provision with a maximum penalty of 60 penalty units.

41.               New subsection 329RB(3) sets out the requirements for a disclosure under new subsections 329RB(1) and 329RB(2).

42.               New subsection 329RB(4) provides that financial benefits received or obtained in the ordinary course of the expected recipient’s business or a financial benefit provided directly to the employer’s employees are exempt from disclosure.

43.               New subsection 329RB(5) applies where an employer or an officer (within the meaning of the Corporations Act) of an employer will, or can reasonably be expected to, receive consideration from the managed investment scheme or fund to which an arrangement in new subsections 329PE(3) or (4) relates for services provided by an officer of the organisation. In these circumstances, the consideration is taken for the purposes of Part 3D to be a financial benefit that the employer will, or can reasonably be expected to, receive in connection with the arrangement. 

44.                New subsection 329RB(6) provides that new subsection 329RB(5) does not limit the circumstances in which a federal system employer will, or can reasonably be expected to, receive or obtain a financial benefit in connection with a disclosable arrangement.

New section 329RC - Keeping employer’s disclosures up to date

45.               New section 329RC requires employers to keep disclosures up to date. If an employer has given employees a document under new section 329RB or new section 329RC in relation to a disclosable arrangement and either:

·          the employer or person linked to the employer will, or can reasonably be expected to receive a financial benefit (that is not exempt under new subsection 329RB(4)) in connection with the arrangement; and/or,

·          the employer becomes aware that the document is, or knows that the document will become, inaccurate or misleading in a material particular,

the employer must, as soon as practicable and in accordance with new subsection 329RC(2), give the employees a document. New subsection 329RC(1) is a civil penalty provision with a maximum penalty of 60 penalty units.

46.               New subsection 329RC(2) sets out the requirements for a document under new subsection 329RC(1).

New section 329RD - Civil penalty for false or misleading disclosures

47.               New section 329RD provides that a person must not make a statement for inclusion in a document under new section 329RB or 329RC if the person knows, or is reckless as to whether, the statement is false or misleading. New section 329RD is a civil penalty provision with a maximum penalty of 60 penalty units.

New section 329RE - Alternative disclosure under section 179A of the Fair Work Act

48.               New subsection 329RE(1) provides that an employer is taken to have complied with new section 329RB or 329RC, in relation to a financial benefit that an employer or person linked to the employer will or can reasonably be expected to receive or obtain (directly or indirectly) in connection with a disclosable arrangement if:

·            the employer gives the employees a copy of, or access to, a document under section 180(4B) of the Fair Work Act that meets the requirements of new section 329RB or 329RC in relation to the arrangement (other than any requirements in relation to manner and form); and

·            the employer gives the document to the employees by the time required under section 329RB or 329RC.

49.               New subsection 329RE(2) provides that if an employer has disclosed under section 179A of the Fair Work Act, it must still comply with subsections 329RC(1) (keeping disclosures up to date) and 329SA(2) (giving copies to Commissioner) as if the document were a document given under new section 329RB.

50.               New section 329RE prevents an employer from having to disclose the same financial benefits under the RO Act and Fair Work Act.

Division 4 - Notice of disclosures to be given to Commissioner

New section 329SA - Organisation and employer must notify Commissioner

51.               New subsections 329SA(2) and 329SA(3) place obligations on an organisation that gives a document under section 329QA or 329QB or an employer that gives a document under section 329RB or 329RC (defined as ‘disclosers’) to provide copies of these documents to the Commissioner and notify the Commissioner of the end of an arrangement.

52.               New subsection 329SA(2) requires disclosers to give to the Commissioner a copy of the relevant document no later than 28 days after the later of the day the arrangement to which the document relates is entered into and the day the document is given to the employer (in the case of the organisation) and employees (in the case of the employer). New subsection 329SA(2) is a civil penalty provision with a maximum penalty of 60 penalty units.

53.               New subsection 329SA(3)provides that if an organisation or employer has given the Commissioner a copy of a document in relation to an arrangement and the arrangement comes to an end, the organisation or employer must, as soon as practicable and in accordance with new subsection 329SA(4), give the Commissioner notice of the end of the arrangement. New subsection 329SA(3) is a civil penalty provision with a maximum penalty of 60 penalty units.

54.               New subsection 329SA(4) provides that the notice under new subsection 329SA(3) must be in writing, include any details prescribed by the disclosable arrangements rules and comply with any other requirements prescribed by the disclosable arrangements  rules.

New section 329SB - Civil penalty for false or misleading notice

55.               New section 329SB provides that a person must not make a statement for inclusion in a notice under subsection 329SA(3) if the person knows, or is reckless as to whether, the statement is false or misleading. New section 329SB(3) is a civil penalty provision with a maximum penalty of 60 penalty units.

New section 329SC - Publication by Commissioner

56.               New subsection 329SC(1) requires the Commissioner to publish on the Commission’s website copies of documents given to the Commissioner under new subsection 329SA(2), as soon as practicable. New subsection 329SC(2) provides that the Commissioner must omit any residential addresses and may, at the Commissioner’s discretion, omit other personal information. It is expected that only information that is required to provide the necessary level of transparency of disclosable arrangements will be published.

57.               New subsection 329SC(3) provides that new subsection 329SC(1) does not prevent the Commissioner from removing from the Commission’s website documents that have been replaced or which relate to arrangements for which notices of their end have been given under new subsection 329SA(3).

Item 4 - At the end of paragraph 329PE(4)(a)

58.               This item adds ‘worker entitlement funds’ to the definition of disclosable arrangements in section 329PE.

Item 5 - Application of amendments

59.               Subsection (1) of this item provides that new Part 3D applies in relation to disclosable arrangements entered into on or after the commencement of that Part. 

60.               Subsection (2) of this item provides that the disclosure obligations in new Part 3D also apply to arrangements entered into before the commencement of that part, as if:

·          the arrangement had been entered into on the day this item commences;

·          the references in sections new section 329QA and new section 329RB to a ‘financial benefit that will or can reasonably be expected to be received or obtained in connection with the arrangement’ were references to financial benefits that ‘will or can reasonably be expected to be received or obtained on or after that day’ ; and

·          the time by which a document must be given under new sections 329QA or 329RB in relation to the arrangement was 6 months after the commencement of Item 5.  

61.               Subsection (3) of this item provides that for arrangements where subsection (2) of this item applies, a discloser is taken to comply with new subsection 329SA(2) (which requires a copies of documents to be given to the Commissioner) if the discloser gives the Commissioner a copy of the document no later than 28 days after giving the document to the employer under new section 329QA or the employees under new section 329RB.




[1] ILO, Freedom of Association: Digest of decisions and principles of the Freedom of Association Committee of the Governing Body of the ILO Geneva , Fifth (revised) Edition, 2006, para 369.