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Treasury Laws Amendment (2018 Measures No. 4) Bill 2018

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2016-2017-2018

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Treasury Laws Amendment (2018 Measures No. 4) Bill 2018

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service, the Hon Kelly O’Dwyer MP)

 

 



Table of contents

Glossary............................................................................................................. 1

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

Chapter 1 ........... Directions and penalties in relation to superannuation guarantee charge         7

Chapter 2 ........... Disclosure of information about non-compliance...... 31

Chapter 3 ........... Single touch payroll reporting........................................ 37

Chapter 4 ........... Fund reporting.................................................................. 63

Chapter 5 ........... Compliance measures.................................................... 71

Chapter 6 ........... Amendments relating to employee commencement.. 85

Chapter 7 ........... Information sharing.......................................................... 89

Chapter 8 ........... Miscellaneous amendments.......................................... 95

Chapter 9 ........... Deductible gift recipients.............................................. 115

Chapter 10 ......... Statement of Compatibility with Human Rights........ 119

 

 



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

Abbreviation

Definition

ABN

Australian Business Number

APRA

Australian Prudential Regulation Authority

ATO

Australian Taxation Office

Bill

Treasury Laws Amendment (2018 Measures No. 4) Bill 2018

Commissioner

Commissioner of Taxation

DGR

Deductible Gift Recipient

GST

Goods and services tax

ITAA 1936

Income Tax Assessment Act 1936

ITAA 1997

Income Tax Assessment Act 1997

MYEFO

Mid-Year Economic and Fiscal Outlook

PAYG

Pay as you go

PRRT

Petroleum Resource Rent Tax

RSA Regs

Retirement Savings Accounts Regulations 1994

SGAA

Superannuation Guarantee (Administration) Act 1992

SIS Regs

Superannuation Industry (Supervision) Regulations 1994

SUMLMA

Superannuation (Unclaimed Money and Lost Members) Act 1999

TAA

Taxation Administration Act 1953

 

 



Schedules 1 to 6 - Superannuation Guarantee Integrity

This package implements several recommendations contained in the Superannuation Guarantee Cross-Agency Working Group’s report to strengthen compliance with taxation and superannuation guarantee obligations. The package contains amendments to:

•        allow the Commissioner in cases where employers fail to comply with their superannuation guarantee obligations, to issue directions to pay unpaid superannuation guarantee and undertake superannuation guarantee education courses;

•        allow the Commissioner to disclose more information about superannuation guarantee non-compliance to affected employees;

•        extend Single Touch Payroll reporting to all employers;

•        facilitate more regular reporting by superannuation funds;

•        improve the operation of the Commissioner’s collection and compliance measures; and

•        streamline employee commencement processes.

Date of effect :  1 July 2018.

Proposal announced 27 August 2017.

Financial impact

2016-17

2017-18

2018-19

2019-20

2020-21

-

-$7.5m

-$19.9m

$17.7m

$9.2m

The financial impact reflects the aggregated amounts of all of the measures contained in the Superannuation Guarantee Integrity package (including departmental expenses).

Human rights implications :  Schedules 1 to 6 do not raise any human rights issues. See Statement of Compatibility with Human Rights — in Chapter 10, at paragraphs 10.1 to 10.37.

Compliance cost impact Schedules 1 to 6 contain a combination of enforcement measures, which have no compliance cost impact, and reporting related measures that will reduce overall compliance costs.

Summary of regulation impact statement

Regulation impact on business

Impact The Regulation Impact Statement (RIS) for the extension of single touch payroll reporting to all employers (Chapter 3) finds that the recommended extension, once implemented, will result in reduced compliance costs for small business in complying with their employee tax and superannuation reporting obligations.

Main points :

•        Small business to undergo an initial upfront cost in order to implement the Single Touch Payroll reporting system.

•        It is expected that over time, small business will benefit from Single Touch Payroll with a significant reduction in compliance and reporting costs.

•        Businesses will be impacted through earlier detection of those employing small businesses that are not meeting their tax and superannuation obligations.

Schedule 7 - information sharing

Schedule 7 enables the sharing and verification of tax file numbers, which have been obtained in accordance with a Commonwealth law, between the Commissioner and Commonwealth Agencies.

Date of effect :  1 July 2018.

Proposal announced This has not been previously announced.

Financial impact Nil.

Human rights implications :  Schedule 7 does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 10, paragraphs 10.38 to 10.48.

Compliance cost impact Nil.

Schedule 8 - Miscellaneous amendments

Schedule 8 to this Bill makes a number of miscellaneous amendments to the taxation, superannuation and other laws. These amendments are part of the Government’s commitment to the care and maintenance of Treasury portfolio legislation including the taxation and superannuation systems.

These amendments make minor technical changes to correct spelling errors, bring provisions in line with drafting conventions, repeal inoperative provisions and update references in the tax law to reflect changes to the names of State and Territory legislation and specifically listed deductible gift recipients. The Schedule also makes consequential amendments as a result of other recent changes to the law, makes minor technical amendments to remove administrative inefficiencies, clarifies the law ensuring the law operates in accordance with the policy intent and rewrites certain provisions to standardise rules across various types of tax, improving efficiency, coherency and simplicity in tax administration.

Date of effect These amendments have various commencement and application dates. Most amendments commence from the first quarter beginning on or after the day this Bill receives Royal Assent. This explanatory memorandum details the commencement and application dates of amendments that commence or apply from a different time. Where amendments have retrospective application, the effect of that retrospectivity is also explained.

Proposal announced :  Most of these amendments have not been previously announced. The amendments relating to the rewrite of the offshore information notice regime were announced on the Treasury website on 21 January 2016, with the release of draft amendments for public consultation. 

The amendments in respect of reversionary transition to retirement income streams were announced and publicly consulted on in February 2018.

Financial impact These amendments are estimated to have a negligible impact on revenue over the forward estimates period.

Human rights implications :  This Schedule raises human rights issues. See Statement of Compatibility with Human Rights — Chapter 10, paragraphs 10.49 to 10.78.

Compliance cost impact Negligible.

Schedule 9 - Deductible gift recipients

Schedule 9 to this Bill amends the ITAA 1997 to allow the following entities to be DGRs under the income tax law:

•        Australian Philanthropic Services Limited;

•        Foundation 1901 Limited; and

•        Sydney Chevra Kadisha.

Date of effect The amendments apply to gifts made to Australian Philanthropic Services Limited on or after 1 July 2016.

The amendments apply to gifts made to Foundation 1901 Limited between 1 September 2016 and 31 August 2021 inclusive.

The amendments apply to gifts made to Sydney Chevra Kadisha between 1 January 2018 and 31 December 2019 inclusive.

Proposal announced This Schedule partly implements the measure — “Philanthropy — updates to the list of specifically listed deductible gift recipients” which was announced in the 2017-18 MYEFO.

Financial impact The cost to revenue of this measure as recorded in the 2017-18 MYEFO is estimated to be $1.1m over the forward estimates period to 2020-21 comprising ($m):

2016-17

2017-18

2018-19

2019-20

2020-21

-

..

-0.4

-0.5

-0.2

- Nil

.. not zero but rounded to zero

The 2017-18 MYEFO measure, “Philanthropy — updates to the list of specifically listed deductible gift recipients”, included listing Australian Philanthropic Services Limited, Centre of Entrepreneurial Research and Innovation Limited, Foundation 1901 Limited, Melbourne Korean War Memorial Committee Incorporated and Sydney Chevra Kadisha as DGRs. The listing of Centre of Entrepreneurial Research and Innovation Limited as a DGR was separately enacted in Treasury Laws Amendment (2017 Measures No. 6) Act 2017 . The DGR listing of Melbourne Korean War Memorial Committee Incorporated is not included in this Bill. However, these changes from the announced 2017-18 MYEFO measure are estimated to have a negligible impact to the financial impact published in the 2017-18 MYEFO. It is expected that listing Australian Philanthropic Services Limited, Foundation 1901 Limited and Sydney Chevra Kadisha as DGRs will have a cost to revenue similar to the MYEFO measure’s estimated financial impact.

Human rights implications :  This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 10, paragraphs 10.79 to 10.82.

Compliance cost impact Nil.

 

 



Outline of chapter

1.1                   Schedule 1 amends the TAA to allow the Commissioner to issue directions to employers who fail to comply with statutory obligations under the SGAA or an obligation under the TAA as it relates to the SGAA (superannuation guarantee obligations).

1.2                   The Commissioner can direct an employer to pay unpaid and overdue superannuation guarantee charge liabilities. This is to address recalcitrant employers who intentionally and repeatedly disregard their obligations and continuously fail to pay their superannuation liabilities.

1.3                   The Commissioner can also direct employers to undertake an approved course relating to their superannuation guarantee obligations where the Commissioner reasonably believes there has been a failure by an employer to comply with those obligations.

1.4                   The purpose of these amendments is to enhance compliance with superannuation guarantee by employers.

1.5                   All legislative references in this Chapter are to the TAA unless otherwise stated.

Context of amendments

1.6                   The Superannuation Guarantee Cross-Agency Working Group was established in December 2016 to report on the operation, administration and extent of non-compliance in the superannuation guarantee system in Australia.

1.7                   In March 2017, the Superannuation Guarantee Cross-Agency Working Group released its final report, which contained its final recommendations on options to improve superannuation guarantee compliance.

1.8                   These amendments are one of several measures announced as part of the Government’s package of reforms to strengthen compliance with superannuation guarantee obligations by employers. The amendments are based on recommendation 6 contained in the Superannuation Guarantee Cross-Agency Working Group’s report.

1.9                   The SGAA sets out the circumstances in which an employer is liable to the superannuation guarantee charge and the obligations they have in respect of the charge. There are no provisions in the SGAA that place an obligation on an employer to make contributions on behalf of their employees.

1.10               The superannuation guarantee rules are designed to ensure that employees have at least a minimum level of superannuation support through contributions provided by their employer in respect of their employment. The rules achieve this by imposing a tax (the superannuation guarantee charge) on employers who fail to contribute an amount at least equivalent to the minimum percentage of their employee’s ordinary time earnings into superannuation. Employers can reduce the amount of superannuation guarantee charge payable by making contributions to their employee’s superannuation fund of choice before the quarterly due date (the 28 th day after the end of the quarter). If the minimum level of superannuation contribution is made in respect of the individual employee, then the superannuation guarantee charge is reduced to nil.

1.11               The superannuation guarantee charge is a tax related liability under Subdivision 255-A in Schedule 1, and once due and payable, becomes a debt due to the Commonwealth. Part 4-15 in Schedule 1 deals with the collection and recovery of tax related liabilities.

1.12               Currently, the failure to comply with a superannuation guarantee obligation under the SGAA can result in financial penalties for the employer. An employer who fails to lodge the superannuation guarantee statement on time is liable to pay additional superannuation guarantee charge (known as the ‘Part 7 penalty’) which can be up to 200 percent of the amount of the underlying superannuation guarantee charge. General interest charge is also imposed for late payments once a superannuation guarantee assessment has been made.

1.13               The TAA also imposes administrative penalties (for example in relation to false and misleading statements in relation to a superannuation guarantee statement under Division 284 in Schedule 1) and contains offences for failing to comply with tax related obligations.

1.14               An employer’s failure to comply with their superannuation guarantee obligations can occur for a variety of reasons. In particular, smaller employers may not be fully aware of their superannuation guarantee obligations under the SGAA. Employers may also misclassify payments which results in an underpayment of superannuation guarantee.

1.15               In other cases, there are recalcitrant employers who have intentionally failed to provide their employees with their superannuation guarantee entitlements and repeatedly disregarded their obligations and continuously failed to pay their superannuation liabilities.

Summary of new law

1.16               The amendments empower the Commissioner to issue directions to employers to undertake specific actions where the Commissioner is satisfied that there has been a failure to comply with an obligation or a failure to pay a charge. These directions are designed to enhance employer compliance with their superannuation guarantee obligations.

1.17               The key features of the direction to pay superannuation guarantee charge are as follows:

•        The Commissioner can issue a direction to an employer if the employer has failed to pay an amount of superannuation guarantee charge, or an estimate of superannuation guarantee charge, for a quarter.

•        The employer must ensure that the amount of the unpaid liability is paid within the period specified in the direction.

•        Failure to comply with the direction can result in criminal penalties.

1.18               The key features of the education direction are as follows:

•        The Commissioner can issue a direction to an employer if the Commissioner reasonably believes the employer has failed to comply with a superannuation obligation.

•        The employer who has received the direction must complete the approved course, or for non-individual employers, ensure an individual who participates in the decision making of the business completes the course.

•        The employer must provide proof of completion to the Commissioner.

•        Failure to comply with the direction can result in administrative and/or criminal penalties.

Comparison of key features of new law and current law

New law

Current law

The Commissioner can issue a direction to an employer to pay an outstanding superannuation guarantee liability or an estimate of the liability.

No equivalent.

The Commissioner can issue a direction to an employer to undertake an approved course, or for non-individual employers, the employer must ensure that an individual who participates in the decision making of the business undertakes the approved course, where that employer has failed to comply with their superannuation guarantee obligations under the SGAA or their obligations under the TAA as it relates to the SGAA.

No equivalent.

Detailed explanation of new law

1.19               The amendments insert a new Subdivision 265-C in Schedule 1 which provides the Commissioner with the power to issue a direction to an entity to pay an unpaid and overdue superannuation guarantee liability.

1.20               The amendments also insert a new Division 384 in Schedule 1 which provides the Commissioner with the power to issue a direction to an employer to complete an approved course. Such directions can be issued where the Commissioner reasonably believes that there has been a failure by an employer to comply with a superannuation guarantee obligation.

Direction to pay superannuation guarantee charge

1.21               The Commissioner can issue a written direction to an employer requiring that it pay an amount of superannuation guarantee charge that is payable by the employer under the SGAA or an amount of an estimate of the superannuation guarantee charge that is in force under Division 268 in Schedule 1. [Schedule 1, item 1, subsection 265-90(1) in Schedule 1]

1.22               An amount of superannuation guarantee charge becomes payable where:

•        A superannuation guarantee statement is lodged;

•        The Commissioner makes a default assessment of superannuation guarantee charge; or

•        The Commissioner amends an assessment of superannuation guarantee charge.  

1.23               As the liabilities to which this direction relates must already exist before a direction to pay can be issued, the direction operates in conjunction with the existing collection and recovery rules that apply in respect of tax related liabilities under the TAA. The extension of the direction to estimates that are in force under Division 268 in Schedule 1 reflects that the liability to the estimate, although a separate liability, is imposed as a method for collecting unpaid superannuation guarantee charge. There can only be one estimate that is in force at one time in respect of a liability to superannuation guarantee charge.

1.24               The purpose of the direction is to provide the Commissioner with an additional tool to enforce compliance with the existing obligations to pay amounts in respect of the superannuation guarantee.

Requirements of the direction

1.25               If the Commissioner decides to give a direction to an employer to pay an amount of superannuation guarantee charge or a related estimate of the charge, the direction must contain a number of particulars. These particulars are required for employers who receive a direction to be made fully aware their rights and obligations in respect of the direction, as well as the consequences that apply if they do not comply with the direction.

1.26               The direction must set out:

•         The amount that the employer is required to pay and the quarter to which the amount relates. [Schedule 1, item 1, paragraphs 265-90(3)(a) and (b) in Schedule 1]

•         The consequences of failing to comply with the direction and explain the review rights available to the employer. [Schedule 1, item 1, paragraphs 265-90(3)(d) and (e) in Schedule 1]

•         Specify the period within which the employer must comply with the direction. This period must be at least 21 days after the day that the direction is given. [Schedule 1, item 1, paragraph 265-90(3)(c) in Schedule 1]

1.27               This minimum period provides a minimum amount of time for an employer to comply with the direction. However, the Commissioner is free to specify a longer period of time in the direction where it is appropriate to do so.

1.28               A direction can relate to part of a liability to pay an amount of superannuation guarantee charge or a part of a liability to pay an estimate of the charge. If the Commissioner has issued a direction for a specified amount of unpaid superannuation guarantee charge for a particular quarter but later the quantum of the liability is found to have increased, the Commissioner can either:

•        revoke the original direction and reissue a new direction for the full amount of the liability; or

•        issue a separate direction for the remaining balance that is still outstanding and not referrable to the original direction.

Offence

1.29               An employer commits an offence if they are given a direction to pay the amount of an outstanding liability and the amount of the liability is not discharged within the period specified in the direction. The maximum penalty for the offence is 50 penalty units, imprisonment for 12 months, or both. [Schedule 1, item 1, subsection 265-95(1) in Schedule 1]

1.30               This is a separate offence provision that is distinct from the offence provisions provided in section 8C.

1.31               While it is the employer that will commit an offence if the relevant liability is not discharged within the necessary period, the employer can avoid committing an offence if another entity discharges the liability on their behalf. This could occur where a third party pays the amount of the outstanding liability to the Commissioner at the request or direction of the employer.

1.32               Applying criminal sanctions to failures to comply with a direction to pay an outstanding liability in respect of superannuation guarantee charge reflects that, unlike other debts owed to the Commonwealth, amounts of superannuation guarantee charge are paid to the Commissioner and then distributed to the superannuation funds of employees who did not receive the minimum level of contributions from their employer. The additional penalties that can apply through this new direction provide additional incentives to employers to ensure that they are fully compliant with their existing obligations under the SGAA and related obligations under the TAA.

1.33               The penalties are also subject to section 4D of the Crimes Act 1914 , meaning that the specified amounts are the maximum penalties that can be imposed.

1.34               A failure to comply with the direction is an offence of strict liability. [Schedule 1, item 1, subsection 265-95(2) in Schedule 1]

1.35               This means that it is not necessary to establish fault if a person has failed to comply with a direction to pay an outstanding amount. Applying strict liability is appropriate because the sole reason for the direction being issued is to ensure that the amount of the existing outstanding liability is actually discharged.

1.36               The offence of strict liability and the amount of the related penalty is consistent with the existing offences that apply to other failures to comply with taxation obligations (see for example, section 8C creates an offence of absolute liability for failures to comply with requirements under the taxation law).

1.37               Although the offence is an offence of strict liability, a defence is available to ensure that individuals do not commit an offence where they have not complied with the direction in appropriate circumstances. This defence is explained in further detail below and applies in conjunction with the general defence to strict liability offences for honest mistakes of fact under section 9.2 of the Criminal Code contained in Schedule 1 to the Criminal Code Act 1995 .

1.38               The offence has been imposed through a directions power framework as an alternative to applying criminal sanctions directly to the failure to pay the liabilities in respect of superannuation guarantee. This approach narrows the scope of employers that are potentially subject to criminal sanctions for non-payment by requiring that the Commissioner take into account all relevant facts and circumstances in working out whether to issue a direction to a particular employer.

1.39               It is intended that the Commissioner only issue directions in relation to serious contraventions of the obligations to pay superannuation guarantee related liabilities by employers whose actions are consistent with an ongoing and intentional disregard of those obligations.

1.40               To achieve this outcome, the Commissioner is required to consider the following matters in deciding whether to give a direction to an employer:

•        The employer’s history of compliance with obligations to pay liabilities related to the superannuation guarantee charge;

•        The employer’s history of compliance with other obligations under the taxation law;

•        Whether the amount of the unpaid liability is substantial, having regard to the size and nature of the employer’s business;

•        Any steps that the employer had taken to discharge the unpaid liability or to dispute that it exists; and

•        Any other matters that the Commissioner considers relevant.

[Schedule 1, item 1, subsection 265-90(2) in Schedule 1]

1.41               The list of matters provides an assessment of things for the Commissioner to consider. Each factor does not need to be present or present to a particular degree. While these factors must be taken into account, no single matter is wholly determinative of whether or not a determination may be issued.

1.42               Instead, the various matters provide guidance to the Commissioner about the circumstances in which a direction to pay can be issued. In this respect, the direction is intended to be issued to employers with a history of serious non-compliance, rather than those that inadvertently breach their obligations to pay the amounts that are relevant to the direction or that have minor or isolated breaches.

1.43               While a direction can only be issued in respect of amounts that become payable after 1 July 2018, an employer’s history of compliance with other taxation and superannuation obligations prior to 1 July 2018 is relevant and can be taken into account.

Defence for reasonable steps

1.44               If the liability that is identified in a direction is not discharged within the required period, the employer that was issued with the direction will not commit an offence if they took all reasonable steps within the required period to both comply with the direction and to ensure that the original liability was discharged before the direction was given. [Schedule 1, item 1, subsection 265-95(3) in Schedule 1]

1.45               This defence ensures that employers are not subject to criminal charges for failing to comply with a direction to pay an outstanding liability where they are genuinely unable to do so.

1.46               To be covered by the defence, an employer must have taken all reasonable steps that were available to discharge the liability identified in the direction. These steps are not limited to the period from which the direction was issued to reflect the fact that the direction relates to an obligation that the employer had prior to the direction being issued. The employer has the burden of proof of establishing that the defence is available to them.

1.47                 In determining whether all reasonable steps have been taken, it is also relevant to consider whether the employer took steps to avoid paying the liability, or otherwise manufactured a situation which resulted in the employer being unable to discharge its liabilities.

1.48               Actions of this kind would be inconsistent with an employer taking all reasonable steps to discharge their superannuation guarantee liabilities, irrespective of whether the actions occurred prior to the direction being issued.

1.49               The defence is framed as an offence-specific defence, which means that the evidential burden for proving that such reasonable steps were taken is placed on the employer. This approach is justified on the basis that the actions that an employer took to discharge its own liabilities are peculiarly within the knowledge of the defendant and would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish.

1.50               A similar approach is adopted in subsection 8C(1B), which provides that a failure to comply with a requirement under the taxation law does not amount to an offence under subsection 8C(1) to the extent that a person is not capable of complying with the relevant obligation. However, as the defence for this direction is also required to refer to the underlying obligation to discharge the liability to which the direction relates, the defence is framed in terms of discharging that liability (rather than simply complying with the direction).

Interaction with the insolvency and bankruptcy laws

1.51               The direction to pay superannuation guarantee charge or an estimate of superannuation guarantee charge does not create a separate liability and operates concurrently with the existing corporate insolvency and bankruptcy laws. The current insolvency regime as it applies to superannuation guarantee charge remains unchanged.

1.52               The direction to pay an outstanding liability is not intended to be issued to entities that are insolvent or on the brink of becoming insolvent. When issuing the direction, the Commissioner must take into account any other relevant factor and should take into account the entity’s financial position and their capacity to pay the liability if the Commissioner has knowledge of this. The Commissioner should not issue these directions where the Commissioner is aware that the entity is insolvent or on the brink of insolvency.

1.53               The reasonable steps defence protects employers from criminal charges for failing to comply with a direction to pay where they are genuinely unable to do so.

1.54               A company may be faced with competing obligations of potentially committing an offence for failing to comply with the direction. At the same time, the director of the company may be faced with committing an offence of causing the company to become insolvent by incurring the debt arising from the direction to pay. If the directors of the company can show that they have taken all reasonable steps in relation to the direction to pay, such as evidence that they intend to place the company into liquidation, the defence of reasonable steps should apply to ensure that the company can rely on the defence in these types of situations.

1.55               Where a company who has paid the amount in the direction to discharge their obligation, but the amount is unwound as an unfair preference payment by a liquidator at a later time, the clawback of the payment in accordance with the preference rules would be an appropriate application of those rules. The company will also be able to rely on the defence of reasonable steps in respect of any potential issues with the direction to pay and potential offences. This is because the company has taken all reasonable steps in relation to complying with the direction by paying the unpaid amount specified. The unwinding of the payment would be circumstances that are outside of their control. In these situations the entity has taken all reasonable steps in relation to the liability.

Effect of underlying liability being reduced or ceasing to exist

1.56               If the liability to which a direction relates is reduced before the end of the period in which an employer is required to comply with the direction, the amount that an employer is required to pay under the direction is also reduced. In such circumstances, the amount of the reduction is equal to the reduction in the liability. [Schedule 1, item 1, subsection 265-105(1) in Schedule 1]

1.57               Additionally, a direction is taken to be revoked if the underlying liability ceases to exist before the end of the period in which the employer was required to comply. [Schedule 1, item 1, subsection 265-105(2) in Schedule 1]

1.58               These rules ensure that certain changes in respect of the underlying liability are automatically taken into account in working out an employer’s obligations in respect of a direction. The relevant changes are all ones that are ultimately beneficial to the employer in the sense that they reduce the obligations that an employer has under a direction, or remove those obligations altogether.

1.59               Such changes could occur where the liability is partially discharged through payments made by the employer or another entity. A reduction to a liability, or its cessation, could also occur where the employer successfully objects to the underlying liability itself. In such cases, an employer is still required to pay any remaining amount of the liability.

1.60               The reduction or cessation must occur within the period in which the employer is required to comply with the direction. This means that an employer may still commit an offence for not complying with a direction even where the related liability is reduced or ceases to exist after the period in which they were required to comply. [Schedule 1, item 1, subsection 265-105(3) in Schedule 1]

1.61               This approach is consistent with the general position that an entity is required to discharge its liabilities within the necessary timeframe, even where they dispute the fact that the liability exists. Importantly, the amendments also provide for automatic extensions of the period in which an employer is required to comply where they object to the amount of the liability (these rules are explained in further detail below). The combination of these rules protects employers that legitimately dispute the amount of a liability while providing a clear incentive for employers to raise any such disputes in a timely manner.

Example 1.1 - when an assessment of superannuation guarantee charge liability decreases

Tony is a sole trader with a history of not making superannuation guarantee contributions for his employees.

On 22 June 2019, the Commissioner gives Tony a direction to pay his unpaid superannuation guarantee charge of $10,000 for the quarter ending 31 March 2019. The direction must be complied with by 31 July 2019. 

On 30 June 2019, Tony requests that the Commissioner amend his superannuation guarantee charge assessment to reduce the $10,000 to $8,000 on the basis that the amount of salary used in calculating his superannuation guarantee charge was higher than the actual salary paid. The Commissioner amends Tony’s assessment to $8,000.

As a result of the amendment, the amount Tony is required to pay under the direction is automatically reduced to $8,000. Tony must pay the $8,000 by 31 July 2019 to avoid committing an offence.

1.62               While these adjustment rules do not apply in respect of increases to an underlying liability, the Commissioner is still able to revoke a direction and issue a new direction in respect of such increases or alternatively, the Commissioner can issue a second direction for the additional amount payable. These rules are also explained below.

Automatic variations and revocations

1.63               The Commissioner may vary a direction to reduce the amount required to be paid by an employer or to extend the period within which the employer must comply. Such variations must be made before the end of the period in which the employer must comply with the original variation. [Schedule 1, item 1, paragraphs 265-100(1)(a) and (b) in Schedule 1]

1.64               This variation power can only be applied in ways that are beneficial to an employer. Such variations might be made where the Commissioner is provided with additional information about the employer’s circumstances after a direction is given and considers that it is appropriate to reduce the amount of the underlying liability that must be paid in order for the employer to avoid criminal sanctions.

1.65               Similarly, the Commissioner might consider it appropriate to extend the period in which the employer is required to pay the amount specified in the direction based on a commitment by the employer to discharge the liability over a longer time period.

1.66               The Commissioner may also revoke a direction at any time before the end of the period in which an employer was required to comply with the direction. [Schedule 1, item 1, paragraph 265-100(1)(c) in Schedule 1]

1.67               This revocation power could be used where the Commissioner no longer considers it appropriate for an employer to be subject to the direction.

1.68               The Commissioner may also choose to revoke a direction where the amount of the liability originally identified in the direction was too low. Because a direction cannot be varied to increase the amount that must be paid by an employer in respect of a liability, the Commissioner would need to revoke the original direction and issue a new direction that identifies the higher amount (if it was appropriate to do so). Alternatively, the Commissioner could issue a second direction for the additional amount payable, while keeping the first direction on foot. This ensures that any increases to the obligations imposed on an employer under a direction are subject to the minimum timeframes and other procedural matters that must be adhered to. It also provides employers with clear objection rights in respect of any new directions that are issued.

Example 1.2 - when an assessment of superannuation guarantee charge liability increases

Nadia is a sole trader with a history of not making superannuation contributions for her employees.

On 9 July 2019, the Commissioner gives Nadia a direction to pay her unpaid superannuation guarantee charge of $9,000 for the quarter ending 31 March 2019. The direction must be complied with by 31 July 2019.    

On 23 July 2019, the Commissioner amends Nadia’s assessment to increase the superannuation guarantee charge to $12,000.

The Commissioner can either revoke the direction issued on 9 July 2019 and issue a new direction for the full $12,000, or alternatively, the Commissioner can leave the existing direction in place and choose to issue a second direction to pay the additional $3,000 with a minimum of 21 days from the day the second direction is issued in which Nadia must comply.

1.69               The amendments also clarify that a decision by the Commissioner to vary or revoke a direction to pay a superannuation guarantee liability does not affect the employer’s liability to pay the liability. [Schedule 1, item 1, subsection 265-100(2) in Schedule 1]

1.70               Although the direction to pay an outstanding amount is based on the existence of an underlying liability, the decision to vary or revoke a direction could be justified by circumstances unrelated to the existence of the liability. Indeed, because the amendments include specific rules that apply where a liability is reduced or ceases to exist, there is no need for the Commissioner to make a decision to vary or revoke a direction in those circumstances.

Objection rights

1.71               An employer that is dissatisfied with a decision of the Commissioner to give a direction to pay an unpaid liability may object to the decision in the manner specified in Part IVC. Such objections must be made before the end of the period specified in the direction by the Commissioner. [Schedule 1, items 1 and 7, paragraph 14ZW(1)(bi) and section 265-110 in Schedule 1]

1.72               The requirement that the objection be made within the period specified in the determination ensures that employers raise any objections they have in a timely manner.

Extension of period to comply if taxation objection is made

1.73               The period in which an employer must comply with a direction is automatically extended if the employer objects to the direction being issued or objects to the taxation decision related to the underlying liability in the manner set out in Part IVC. [Schedule 1, item 1, paragraphs 265-115(1)(a) and (b) in Schedule 1]

1.74               Although entities are generally required to discharge their tax liabilities irrespective of whether they dispute the existence of the liability, in most cases the consequences for failing to discharge a disputed liability within the necessary time period are limited to interest charges.

1.75               In contrast, a failure to comply with direction to pay a liability in respect of superannuation guarantee charge or a related estimate can result in criminal sanctions. Because these consequences are intentionally far greater than the general approach to liabilities, the rules about extensions are required to ensure that employers do not commit an offence for failing to comply with a direction where they have made a legitimate objection in respect of the decision to issue the direction.

1.76               As noted above, if an employer successfully objects to the decision to issue a direction, or to the amount or existence of the underlying liability, the rules about automatic reductions or revocations of the direction will apply. For example, if the result of the objection is that the underlying liability is reduced, the amount that the employer is required to pay under the direction will be similarly reduced. If an employer unsuccessfully objects to a decision, they will still be required to comply with the direction but will be able to do so under the extended compliance period.

1.77               For the extension to apply, the relevant objection must be made before the end of the period in which the employer was required to comply with the direction. [Schedule 1, item 1, paragraph 265-115(1)(c) in Schedule 1]

1.78               An employer could object to the decision to issue a direction or to the underlying liability after the direction has been issued. In addition, an employer that has already objected to the underlying liability before the direction is issued will have the period in which to comply with the direction automatically extended.

1.79               If an employer has made one of the relevant objections, the period in which it is required to comply with the direction is extended by a period equal to the number of days starting from the time the objection was made and ending 21 days after the Commissioner notifies the employer of the decision in relation to the objection. [Schedule 1, item 1, paragraph 265-115(2)(a) in Schedule 1]

1.80               However, if the employer applies to the Administrative Appeals Tribunal or the Federal Court for a review of the Commissioner’s decision in respect of the objection, the period in which to comply is instead extended by a period equal to the number of days starting from the time the objection was made and ending on the day the review or appeal is finally determined. This includes all further appeals to the Full Federal Court or the High Court. [Schedule 1, item 1, paragraph 265-115(2)(b) in Schedule 1]

1.81               These extensions effectively pause the period in which the employer is required to comply with the direction over the time that an objection is being resolved. The additional 21 day period from the time that the Commissioner notifies an employer of the decision about the objection provides an employer with minimum of 21 days in which to decide whether to appeal or seek a review of the decision. A similar extension is not required where the review or appeal is finally determined.

Example 1.3 - extension of period to comply with direction

On 13 September 2019, the Commissioner gave Chapman Co a direction to pay superannuation guarantee charge of $5,000 for the quarter ending 31 March 2019, by 5 October 2019.

On 30 September 2019, Chapman Co objects to that assessment. The objection is disallowed on 22 October 2019. Chapman Co decides not to seek further review of this decision.

The period in which Chapman Co must comply with the direction to pay is extended by 38 days to 12 November 2019.

Application and transitional provisions

1.82               The amendments to insert Subdivision 265-C in Schedule 1 (direction to pay superannuation guarantee charge) apply in relation to an amount of superannuation guarantee charge or an estimate of superannuation guarantee charge that first becomes payable on or after 1 July 2018. [Schedule 1, item 2]

1.83               This is justified because of the severe criminal penalties that can occur for failing to comply with the direction to pay. It is necessary to provide reasonable notice of the application of the amendments for employers to undertake any necessary actions before the amendments become effective.

Consequential amendments

1.84               Schedule 1 also makes an amendment to ensure that the decisions of the Commissioner of Taxation to issue or vary a direction to pay superannuation guarantee charge are exempt from the operation of the Administrative Decisions (Judicial Review) Act 1977 . [Schedule 1, item 6]

1.85               The decisions made under the directions do not fall within the general exemption provided in paragraph (ga) in Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977 because these decisions do not relate to assessments or calculations of tax, charge or duty. This amendment aligns the judicial review processes available for a decision to issue or vary a direction with those available for other taxation assessments and ensure that these decisions are subject to the same judicial review processes as other taxation decisions by the Commissioner of Taxation. Taxpayers are provided with full review rights under Part IVC which is a well-established and comprehensive review scheme for taxation decisions. Part IVC review is equally as accessible and effective as review under the Administrative Decisions (Judicial Review) Act 1977 .

Education directions

1.86               The Commissioner can issue an education direction to an entity if the Commissioner reasonably believes that the entity has failed to comply with one of the following obligations in relation to a specified tax-related liability or under a specified taxation law:

•        Failing to pay an amount of a tax-related liability;

•        Failing to comply with an obligation to give a statement or information to the Commissioner under a taxation law;

•        Failing to comply with an obligation to keep records under a taxation law;

•        Failing to comply with an obligation under the TAA that relates to a taxation law; and

[Schedule 1, item 4, subsection 384-10(1) in Schedule 1]

1.87               The education direction applies to failures to comply with obligations arising from the payment of superannuation guarantee charge that is payable under the SGAA or related estimates of the charge that is payable under the TAA. The education direction also applies to failures to comply with other obligations imposed under the SGAA or an obligation under the TAA as it relates to the SGAA. [Schedule 1, item 4, subsections 384-10(2) and (3) in Schedule 1]

1.88               Under the direction, an individual who makes management decisions of the business must undertake an approved course of education and provide the Commissioner with evidence of completion of the course by the individual. [Schedule 1, item 4, subsections 384-15(1)) in Schedule 1]

1.89               It is expected that an education direction would commonly be issued to an employer where the employer’s lack of knowledge or understanding of their obligations has contributed to a failure to comply with their obligations under the SGAA or the TAA.

1.90               The purpose of the Commissioner issuing directions to employers to undertake an approved course is to address knowledge gaps and reduce future cases of non-compliance through entities gaining a better understanding about their ongoing superannuation obligations and liabilities.

Failure to comply with obligations under the SGAA or the TAA

1.91               Employers are subject to obligations imposed under the SGAA. There is no obligation in the SGAA for employers to make superannuation contributions on behalf of employees. This is usually governed by the employment arrangements (e.g. enterprise agreements or awards). However if the minimum superannuation guarantee contribution is not made by an employer for a quarter, they are liable to pay the superannuation guarantee charge equal to the total of the amount of the superannuation guarantee shortfalls, nominal interest and administrative components for the quarter.

1.92               The Commissioner must have reasonable belief that the entity has failed to comply with an obligation listed in the table in subsection 384-10(1) in Schedule 1. This could be a failure to pay a listed tax-related liability (including a superannuation guarantee charge and an estimate of an amount of superannuation guarantee charge) or a failure to comply with other obligations under the SGAA or the TAA. [ Schedule 1, item 4, subsections 384-10(1) to (3) in Schedule 1]

1.93               The Commissioner must have evidence of the employer’s failure to comply with the superannuation guarantee obligation. The level of evidence does not need to amount to an actual failure to comply with an obligation by an entity. However, the Commissioner must be able to reasonably conclude that there has been a failure to comply with one of the following obligations: 

•         Failing to pay the amount of superannuation guarantee charge that is payable (section 16 of the SGAA). This includes failing to pay any superannuation guarantee charge arising from a default assessment (section 36 of the SGAA) [Schedule 1, item 4, item 1 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

•        Failing to pay a liability arising from an estimate the Commissioner makes of an unpaid superannuation guarantee charge by the time it is due and payable (subsection 268-20(1)(b) in Schedule 1) [Schedule 1, item 4, item 1 to the table in subsection 384-10(1)  and item 1 to the table in subsection 384-10(2) in subsection 384-10(1)  in Schedule 1]

•         Failing to lodge a superannuation guarantee statement for the quarter on or before the ‘lodgement day’, being the 28 th day of the second month after the quarter end (section 33 of the SGAA) [Schedule 1, item 4, item 2 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

•        Failing to provide the Commissioner with any information that is requested (section 34 of the SGAA) [Schedule 1, item 4, item 2 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

•         Failing to comply with an obligation to keep records as required under the SGAA (section 79 of the SGAA) [Schedule 1, item 4, item 3 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

•        Failing to comply with any other obligation under the TAA that relates to the SGAA [Schedule 1, item 4, item 4 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

Example 1.4 - failure to comply with an obligation under the SGAA by an individual

Chloe is a sole trader who owns and operates her own business making and supplying wholesale jewellery. Chloe has three wage earning employees, Christine, Jo and Mike. As an employer, Chloe has failed to pay superannuation contributions for all of her employees for four quarters in the 30 June 2017 year and therefore has four superannuation guarantee shortfalls. Chloe lodges her superannuation guarantee statements for one of the four quarters and only pays the superannuation guarantee charge for that quarter. 



Chloe, as an employer, has failed to comply with her obligations in her failure to lodge a superannuation guarantee statement for three quarters (under section 33 of the SGAA) and her failure to pay the superannuation guarantee charge liability for those quarters (under section 49 of the SGAA).

Example 1.5 - failure to comply with a related obligation under the TAA

Chloe is a sole trader who makes and supplies expensive jewellery. She has been operating her business for four years. Chloe has failed to pay superannuation guarantee contributions for all three of her employees. The Commissioner is aware that Chloe has not lodged any superannuation guarantee statements for any of the quarters.

The Commissioner issues a notice pursuant to Division 268 of estimates for the superannuation guarantee charge payable by Chloe for the quarters in the four years that she has been operating. After being given the notice of estimate, Chloe fails to engage with the Commissioner and does not discharge any of the estimated superannuation guarantee charge liabilities.

Chloe has failed to comply with the company’s obligations under the TAA by failing to pay the estimates of superannuation guarantee charges for those quarters.

Requirements of the direction

1.94               If an employer has failed to comply with its obligations under the SGAA or related obligations under the TAA, the Commissioner may issue a written direction to the entity requiring them to take the following actions.

1.95               Firstly, the employer must ensure that an individual undertakes a specified approved course of education provided by the Commissioner or another entity. If the employer is an individual, then the individual is required to attend the course. In all other cases, the employer must ensure that an individual who makes or participates in making decisions that affect the whole or a substantial part of their business attend the course. [Schedule 1, item 4, paragraph 384-15(1)(a) in Schedule 1]

1.96               This requirement captures any person who is in an executive decision making position of any type of employer entity. For example the following individuals would be appropriate to undertake the specified approve course:

•        If the employer is a company - a director or public officer of the company;

•        If the employer is an unincorporated association or body of entities - a member of the committee of management of the association or body; or

•         If the employer is a partnership - a partner in the partnership.

1.97               Secondly, the employer must provide the Commissioner with evidence that the individual has completed the course. [Schedule 1, item 4, paragraph 384-15(1)(b) in Schedule 1]

1.98               The written education direction must specify the period within which the employer must comply with the direction. The period specified must be a timeframe which is reasonable based on the circumstances of the employer. [Schedule 1, item 4, subsection 384-15(2) in Schedule 1]

1.99               An employer must comply with the direction before the end of the specified period provided on the written direction. [Schedule 1, item 4, subsection 384-15(3) in Schedule 1]

1.100           An employer has complied with a direction if the relevant individual (either the employer itself or an individual who participates in making decisions of the business) undertakes the specified course and provides evidence to the Commissioner of completion of the course within the required time period. [Schedule 1, item 4, subsection 384-15(4) in Schedule 1]

1.101           The amendments make it clear that an education direction given by the Commissioner is not a legislative instrument within the meaning of section 8 of the Legislation Act 2003. [Schedule 1, item 4, subsection 384-15(6) in Schedule 1]

Consequences of not complying with the direction

1.102           An employer who fails to comply with the direction within the specified time period is liable to an administrative penalty of 5 penalty units. [Schedule 1, items 4 and 8, paragraph 298-5(c) and subsection 384-15(5) in Schedule 1]

1.103           An entity/employer who has ensured the approved course was undertaken but fails to provide evidence of completion of the course has failed to comply with the direction and is liable to an administrative penalty. This administrative penalty is automatically imposed but can be remitted by the Commissioner.

1.104           The amendments also list a failure to comply with an education direction as an additional circumstance in which a person commits an offence under section 8C. [Schedule 1, item 3, paragraph 8C(1)(fa)]

1.105           Section 8C applies to failures to comply with certain requirements that are imposed under or pursuant to a taxation law. These currently include requirements to provide information to the Commissioner or another person, to notify the Commissioner or another person of a particular matter or thing, and to attend before the Commissioner or another person.

1.106           The offence in section 8C is an offence of absolute liability. However, subsection 8C(1B) provides a defence for persons who are unable to comply with the relevant requirement.

1.107           Tiered penalties apply to offences under section 8C. These penalties are provided for by section 8E and apply different penalties to first, second, and third or subsequent offences. A person who commits a first offence is liable to a fine of up to 20 penalty units, is liable to a fine of up to 40 penalty units for a second offence, and is liable to a fine of up to 50 penalty units and/or imprisonment of 12 months for a third or subsequent offence.

1.108           Adding compliance with an education direction to the circumstances specified in section 8C means that a failure to comply with such a direction is an offence of absolute liability. This means that it is not necessary to establish fault if an employer has failed to comply with the written direction before the end of the specified period.

1.109           Extending the existing offence of absolute liability and the tiered penalties in section 8E to failures to comply with an education direction is appropriate as it maintains consistency with the other failures that are already covered by section 8C. All of the circumstances relate to requirements that are imposed under the taxation law to take particular actions and a failure to comply with an education direction is directly comparable to the existing requirements to notify the Commissioner of particular matters or attend before the Commissioner or another person.

1.110           The existing defence for being unable to comply with a requirement also applies to failures to comply with an education direction, meaning that an employer who is genuinely incapable of complying with the direction will not commit an offence.

1.111           Applying the existing section 8C penalty framework to education directions ensures that the consequences of not complying with a direction are consistent with the existing framework for other failures. The existing penalties will assist in ensuring that employers who have already failed to comply with their obligations under the SGAA and the TAA face appropriate sanction for not fulfilling the further obligation under the TAA in respect of education courses.

Approval of course

1.112           The Commissioner may, in writing, approve one or more courses of education for the purpose of the education direction. A course that is approved by the Commissioner may be provided by the Commissioner or another entity and is likely to be a training course.   [Schedule 1, item 4, subsections 384-20(1) and (2) in Schedule 1]

1.113           The amendments make it clear that an approval of a course given by the Commissioner is not a legislative instrument within the meaning of section 8 of the Legislation Act 2003. [Schedule 1, item 4, subsection 384-20(3) in Schedule 1]

Course fees

1.114           An entity providing an approved course of education may charge fees for the course. [Schedule 1, item 4, subsection 384-25(1) in Schedule 1]

1.115           Any fees that are charged must not amount to taxation. [Schedule 1, item 4, subsection 384-25(2) in Schedule 1]

1.116            An entity has the discretion whether to choose to charge fees for the approved course or not. For providers who do charge fees, there must be a nexus between the course fees and the provision of the service that is being provided. It is appropriate that the fees remunerate the course providers for facilitating the education courses.

1.117           The amendments include a savings provision that imposes an obligation on education providers to ensure that any course fees that are charged must not amount to taxation. This approach puts beyond doubt any question about the type of fees that can be charged, and is necessary because of the Constitutional requirement that taxes be imposed in separate legislation. In the event that a fee for an approved course of education purported to amount to taxation, the Commissioner would not be authorised to approve such a course.

1.118           The fees which service providers of the approved courses charge are expected to have the following characteristics:

•        The fees generally have a discernible relation with the value of the provision of the approved course being provided;

•        The fees do not necessarily have to equal precisely or directly with the cost of providing the service;

•        The fees do not have a revenue raising purpose. In the case of a third party enterprise seeking to provide the course, it would be expected that they would have a commercial reason to provide the course and generate profits;

•        The fees can be fixed by reference to the costs of delivering the services to all users, rather than to a particular user, provided there is a rational basis for determining the level of funding between users.

1.119           The course fees are payable by the employer. It is likely the fees are deductible for the employer as they are necessarily incurred in carrying on a business.

Variation of direction by the Commissioner

1.120           The Commissioner can, at any time, make its own variation of the direction, or revoke the direction. [Schedule 1, item 4, section 384-30 in Schedule 1] 

Variation of direction at the request of the recipient of the direction

1.121           The recipient of the direction can request that a direction be varied. The request must be in writing, must set out the reasons for the variation and must be provided to the Commissioner before the end of the period specified in the direction. [Schedule 1, item 4, subsections 384-35(1), (2) and (3) in Schedule 1]

1.122           The reasons for variation may include why the recipient cannot comply with the direction within the specified time period, or seek an extension for the timeframe and include the reasons why an extension is required in their specific circumstances.

1.123           The Commissioner must make a decision in relation to the request to:

•        vary the direction otherwise than in accordance with the request;

•        vary the direction that would otherwise be in accordance with the request; or

•        refuse to vary the direction. 

[Schedule 1, item 4, subsection 384-35(4) in Schedule 1]

1.124           The decision must be made within 28 days from receipt of the request. If 28 days passes and the Commissioner has not made a decision, the Commissioner is taken to have refused the variation request. [Schedule 1, item 4, subsection 384-35(5) in Schedule 1]

1.125           Where the variation decision is made within the timeframe specified in the direction, the Commissioner must provide notification to the employer of the decision that is being taken. The Commissioner must provide a copy of the varied direction and written reasons for the decision in relation to the request if the decision is to refuse the request or to vary the request that is different to what was requested by the employer. [Schedule 1, item 4, subsection 384-35(6) in Schedule 1]

1.126           Those who make a request to vary a direction receive automatic extensions for the date specified in the direction in which they must comply with the education direction. The extension is limited to the period starting from the day the Commissioner receives the request and ends on the day the Commissioner provides notification of the decision in relation to the request. [Schedule 1, item 4, subsection 384-35(7) in Schedule 1]

Objection rights

1.127           The recipient of a direction can object to a decision of the Commissioner to issue a direction, vary a direction or refuse to vary a direction in accordance with a request under the taxation laws set out in Part IVC of the TAA. [Schedule 1, items 4 and 7, paragraph 14ZW(1)(bj) and section 384-40 in Schedule 1]

Application and transitional provisions

1.128           The amendments to insert Division 384 in Schedule 1 (education directions) apply in relation to a failure to comply with a superannuation guarantee obligation that occurs on or after 1 July 2018. [Schedule 1, item 5]

1.129           This includes a failure to pay an amount of superannuation guarantee charge or an estimate of a superannuation guarantee charge that became payable before 1 July 2018 and remains payable on or after 1 July 2018. This is justified because the failure to pay an amount of superannuation guarantee charge that is due and payable would still have occurred if the amount is an existing unpaid amount that is not settled by the employer.

Consequential amendments

1.130           Schedule 1 also makes an amendment to ensure that the decisions of the Commissioner of Taxation to issue or vary an education direction are exempt from the operation of the Administrative Decisions (Judicial Review) Act 1977 . [Schedule 1, item 6]

1.131           The decisions made under the directions do not fall within the general exemption provided in paragraph (ga) in Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977 because these decisions do not relate to assessments or calculations of tax, charge or duty. This amendment aligns the judicial review processes available for a decision to issue or vary a direction with those available for other taxation assessments and ensure that these decisions are subject to the same judicial review processes as other taxation decisions by the Commissioner of Taxation. Taxpayers are provided with full review rights under Part IVC which is a well-established and comprehensive review scheme for taxation decisions. Part IVC review is equally as accessible and effective as review under the Administrative Decisions (Judicial Review) Act 1977 .



Outline of chapter

2.1                   Schedule 2 to the Bill amends the TAA to provide the Commissioner with the ability to disclose information that relates to a failure or a suspected failure by an individual’s employer or former employer to comply with their obligations under the SGAA or related obligations under the TAA.

2.2                   All legislative references in this Chapter are to the TAA unless otherwise stated.

Context of amendments

2.3                   The Superannuation Guarantee Cross-Agency Working Group was established in December 2016 to report on the operation, administration and extent of non-compliance in the superannuation guarantee system in Australia.

2.4                   In March 2017, the Superannuation Guarantee Cross-Agency Working Group released its final report, which contained its final recommendations on options to improve superannuation guarantee compliance.

2.5                   This amendment is one of several measures announced as part of the Government’s package of reforms to strengthen compliance with superannuation guarantee obligations by employers. The amendment is based on recommendation 3 contained in the Superannuation Guarantee Cross-Agency Working Group’s report.

2.6                   Division 355 in Schedule 1 contains the taxpayer confidentiality rules. Subject to certain exceptions, it is an offence for taxation officers to disclose or make a record of ‘protected information’ in respect of an entity if the information is acquired in their capacity as a taxation officer.

2.7                   Protected information is information that is disclosed or obtained under or for the purposes of a taxation law. The information must relate to the affairs of the entity (although not limited to their taxation affairs) and it must identify, or be reasonably capable of being used to identify the entity.

2.8                   The prohibition on disclosure does not apply where an exception to the offence applies. These exceptions include disclosures for other Government purposes.

2.9                   One of the exceptions for other Government purposes is contained in item 7 to table 2 in section 355-65(3) in Schedule 1 which provides a specific exception allowing a taxation officer to make a record or advise employees and former employees who have made a complaint about a failure by their employer or former employer to comply with their superannuation guarantee obligations. Under this exception, a taxation officer is permitted to make a record or disclose information relating to the Commissioner’s response to the complaint with respect to the employee who made the complaint.

2.10               The exception does not cover information relating to the general financial affairs of the employer.

2.11               Where an employee has not made a complaint about their employer or former employer’s failure to comply with their superannuation obligations, a taxation officer cannot disclose information about that failure to the employee as it is protected information. This is because the exception in item 7 of table 2 in section 355-65(3) of Schedule 1 does not apply to this situation. This can occur in circumstances where the Commissioner initiates an investigation or where another employee has complained about the individual’s employer.

2.12               Once a liability for superannuation guarantee charge is established through the lodgment of a superannuation guarantee statement or the making of a default assessment, the taxation officer can tell an employee when payments for superannuation guarantee charge are distributed to the employee’s superannuation fund.

Summary of new law

2.13               A taxation officer is permitted to disclose protected information that relates to a failure or a suspected failure by an individual’s employer or former employer to comply with their obligations under the SGAA or the TAA as it relates to the SGAA in relation to the employee.

Comparison of key features of new law and current law

New law

Current law

A taxation officer is permitted to make a record or disclose protected information to an individual who is or was an employee where the record or disclosure is information that relates to a failure or a suspected failure by the individual’s employer or former employer to comply with the employer’s obligations under the SGAA or the TAA as it relates to the SGAA in relation to the employee.

The information or disclosure cannot relate to the general financial affairs of the employer.

No equivalent.

Detailed explanation of new law

2.14               These amendments expand a taxation officer’s ability to disclose information in relation to an employee by providing an exception to allow the making of a record or disclosure of protected information to current and former employees which relate to the following:

•        A failure by the individual’s employer or former employer to comply with the employer’s obligations under the SGAA or the TAA;

•        Where the Commissioner reasonably suspects there has been a failure to comply with the employer or former employer’s obligations under the SGAA or the TAA; or

•        Any actions taken by the Commissioner in relation to such a failure or suspected failure.

[Schedule 2, item 2, item 7A to the table in subsection 355-65(3) in Schedule 1]

2.15               These amendments supplement the existing law which allow the Commissioner to disclose protected information relating to the Commissioner’s response to a complaint by an employee about their employer’s failure to comply with the employer’s obligations under the SGAA or the TAA in relation to the employee.

2.16               These amendments are designed to allow a taxation officer to disclose information where the Commissioner has evidence that there has been a failure or reasonably suspects there has been a failure to comply with the employer’s obligations under the SGAA or the TAA so far as it relates to an individual employee of the employer.

2.17               This will generally be where an employer has failed or is suspected of failing to pay the superannuation guarantee charge and lodging the superannuation guarantee statement by the due date. These obligations are triggered where an employer has a superannuation guarantee shortfall (which is made up of the total of all of the individual superannuation guarantee shortfalls for the employer) and the employer has not reduced the shortfall to nil by paying employee superannuation guarantee contributions before the relevant due date. An employer also has a range of other obligations under the SGAA relating to reporting and providing information to the Commissioner and paying estimates of superannuation guarantee charges.

2.18               Under the amendments, the Commissioner can inform a current or former employee about information where the Commissioner is aware of a failure or reasonably suspects there has been a failure by their employer to comply with their superannuation obligations. The Commissioner should have evidence to support its conclusion that there is a reasonable suspicion of a failure in order to trigger the disclosure. This allows the Commissioner to initiate its own disclosures based on the compliance activities being undertaken by the Commissioner and increased reporting from employers and superannuation providers.

2.19               The exception also permits the Commissioner to disclose information relating to an individual that relates to the Commissioner’s response to a failure or suspected failure of an employer to comply with their superannuation obligations.

2.20               The Commissioner is able to disclose information even if at a later time, it is found that there was no such failure. This is because the information would still relate to the Commissioner’s actions in response to a suspected failure to comply.

2.21               The information that can be disclosed under the amendments can include the compliance activities and debt recovery action that the Commissioner is undertaking in relation to the employer’s failure and the Commissioner’s actions to recover unpaid superannuation guarantee charge from the employer. For example, if the Commissioner has issued an estimate or a director penalty notice to recover the unpaid superannuation guarantee liabilities, this can be disclosed under the amendments.

2.22               While these compliance activities may relate to information that affects multiple employees of the employer, provided the information has a connection to an individual employee affected by a failure or a suspected failure, the Commissioner is able to disclose this information under the amendments.

2.23               The amendments do not permit information that relates to the general financial affairs of the employer to be disclosed. This would cover actions that the Commissioner is taking in respect of the employer that has no connection with the employee. For example, if the Commissioner was separately pursuing the employer for an unpaid income tax debt, then this information would not be an allowable disclosure. On the other hand, if the Commissioner was taking recovery action against the employer for an amount comprising both amounts relating to unpaid superannuation guarantee charge and other tax debts, information about the actions being taken would be an allowable disclosure, but details of the other unrelated debts would not be an allowable disclosure.

Example 2.1 - disclosure to other employees who have not lodged complaints

RCorp has three employees, Nathan, Jill and Amy. The Commissioner receives a complaint from Amy who believes RCorp has not been paying her superannuation guarantee correctly. Haydon, a taxation officer, commences an investigation of RCorp’s superannuation guarantee compliance. Haydon’s investigations reveal that Nathan and Jill may also have been underpaid superannuation guarantee for the same quarter.

Under the existing law, Haydon could only discuss his investigation with Amy and would not have been able to disclose the suspected failure to Nathan or Jill. Under the amendments, Haydon can now inform Nathan and Jill about the suspected underpayments of superannuation guarantee.

Haydon completes his investigation and establishes a superannuation guarantee charge liability for RCorp. Haydon is able to keep Amy, Nathan and Jill informed of the actions being taken to recover the superannuation guarantee charge amounts that relate to each of them.

As an extension to this scenario, if during investigation, Haydon identifies that in addition to the unpaid superannuation guarantee charge amounts, RCorp has also failed to pay its income tax debt for two years. Haydon issues a garnishee notice to RCorp’s bank for the total amount of unpaid superannuation guarantee charge and income tax. Haydon can inform Amy, Nathan and Jill that the garnishee notice has been issued. However, Haydon cannot disclose any specific details about the income tax debts as they are unrelated to the suspected underpayments of superannuation guarantee charge.

Example 2.2 - disclosure based on Commissioner’s own investigations

Jo, a taxation officer, has been reviewing data received from a number of superannuation funds. She notices a mismatch in the employer contributions for a number of GCorp’s employees compared to other data received in relation to GCorp’s payroll. Jo suspects that GCorp may have stopped paying superannuation guarantee for its employees but not lodged superannuation guarantee charge statements.

Jo notifies the employees of GCorp that the Commissioner suspects there is unpaid superannuation guarantee charge relating to them. Jo issues a default assessment to GCorp in respect of the unpaid liability of superannuation guarantee charge and then issues a director penalty notice to the directors for the unpaid liability.

Under the amendments, Jo is able to contact GCorp’s employees about GCorp’s possible failure to comply with its obligations under the SGAA but only to the extent the disclosure relates to the particular employee’s entitlements. Jo is also able to disclose that the Commissioner has issued to GCorp a default assessment and director penalty notice in respect of the unpaid superannuation liability to recover that particular employee’s entitlements.

Consequential amendments

2.24               An amendment to ensure that a disclosure that is made under item 7 to the table in subsection 355-65(3) in Schedule 1 also includes a failure to comply with an obligation under the TAA as it relates to the SGAA. This is to capture all of the information that the Commissioner can disclose in their response to a complaint by an employee where there has been a failure of an obligation under the TAA. [Schedule 2, item 1]

2.25               An amendment to clarify that a taxation officer is able to provide disclosures to an employee if there is a dispute to whether they are an employee. [Schedule 2, item 3, subsection 355-69(9) in Schedule 1]

Application and transitional provisions

2.26               The amendments in relation to the disclosure of protected information relating to a failure or a suspected failure of an employer to comply with obligations under the SGAA or under the TAA apply to records and disclosures made on or after 1 July 2018 (regardless of whether the failure or suspected failure to comply with the obligation occurred before, on or after 1 July 2018). [Schedule 2, item 4]

2.27               The disclosures can apply to a failure or a suspected failure to comply with an employer’s superannuation obligation that has or is suspected to have occurred before 1 July 2018 because the event would have already occurred. The amendments allow the Commissioner to disclose historical information relating to the potential effected employee which can impact on their superannuation entitlements.

 



Chapter 3          

Single touch payroll reporting

Outline of chapter

3.1                   Schedule 3 amends the TAA to broaden the Single Touch Payroll reporting requirements so they apply to all employers, regardless of the number of employees. Single Touch Payroll is the reporting framework for employers to provide payroll and superannuation information to the Commissioner at the time the employment liabilities are paid or withheld.

3.2                   Schedule 3 also amends the TAA to require employers to include salary sacrificed amounts paid to their employees’ superannuation funds in the amounts reported under the Single Touch Payroll reporting rules.

3.3                   All legislative references in this Chapter are to the TAA unless otherwise stated.

Context of amendments

3.4                   The Superannuation Guarantee Cross-Agency Working Group was established in December 2016 to report on the operation, administration and extent of non-compliance in the superannuation guarantee system in Australia.

3.5                   In March 2017, the Superannuation Guarantee Cross-Agency Working Group released its final report, which contained its final recommendations on options to improve superannuation guarantee compliance.

3.6                   The amendments to broaden Single Touch Payroll reporting were announced as part of the Government’s package of reforms to strengthen compliance with superannuation guarantee obligations by employers. These amendments are based on recommendation 1 contained in the Superannuation Guarantee Cross-Agency Working Group’s report.

Single Touch Payroll

3.7                   Division 389 in Schedule 1 was inserted by Schedule 23 to the Budget Savings (Omnibus) Act 2016 and introduced the Single Touch Payroll rules. Single Touch Payroll reporting currently requires the real-time reporting of withholding payments and amounts withheld from them, employee salary or wages and ordinary time earnings, and superannuation contributions to the Commissioner at the time these amounts are withheld or paid by employers.

3.8                   The Single Touch Payroll rules are designed to enhance compliance by providing the Commissioner with increased visibility to monitor the payment of employee entitlements. This enables the Commissioner to identify non-compliance by employers earlier and better inform affected employees.

3.9                   Division 389 in Schedule 1 currently applies to ‘substantial employers’ from 1 July 2018 or from 1 July of the year that they become a substantial employer. An entity is a substantial employer at a particular time if on the most recent 1 April before that time, commencing 1 April 2018, the entity had 20 or more employees, inclusive of the total number of employees employed by all member companies of the wholly-owned group . Entities that do not have 20 or more employees can choose to report under the Single Touch Payroll rules on a voluntary basis.

3.10               A significant proportion of superannuation guarantee non-compliance is attributable to small businesses. The Superannuation Guarantee Cross-Agency Working Group’s final report recommended the expansion of mandatory Single Touch Payroll reporting to all employers to provide the Commissioner more visibility of non-compliance by employers which could then be actioned more promptly.

Summary of new law

3.11               The Single Touch Payroll reporting rules in Division 389 in Schedule 1 apply to all employers, regardless of the number of employees they have.

3.12               All employers are required to include ‘sacrificed ordinary time earnings amounts’ and ‘sacrificed salary or wages amounts’ within the meaning of the SGAA (salary sacrificed amounts) paid to their employees’ superannuation funds in the amounts reported under the Single Touch Payroll reporting rules.

Comparison of key features of new law and current law

New law

Current law

All entities with employees are required to report the information required under the Single Touch Payroll rules in Division 389 in Schedule 1 to the Commissioner.

Entities with 20 or more employees (substantial employers) are required to report the information required under the Single Touch Payroll rules in Division 389 in Schedule 1 to the Commissioner.

All entities with employees are required to include salary sacrificed amounts in their Single Touch Payroll reporting to the Commissioner.

No equivalent.

Detailed explanation of new law

Single Touch Payroll reporting by all employers

3.13               These amendments expand the scope of Single Touch Payroll reporting under Division 389 in Schedule 1 to apply to all entities who are employers, regardless of the number of employees they have. [Schedule 3, item 6, subsection 389-5(1) in Schedule 1]

3.14               Single Touch Payroll reporting requires the automatic reporting of certain amounts by employers to the Commissioner under Division 389 in Schedule 1, as set out in subsection 389-5(1) in Schedule 1. Employers are required to report withholding payments and amounts withheld from them, employee salary or wages and ordinary time earnings to the Commissioner at the time these amounts are withheld or paid by employers. As a result of other amendments made to the requirements in Division 389 as part of Schedule 2, employers are required to include an employee’s sacrificed salary or wages and sacrificed ordinary time earnings amounts in their reporting to the Commissioner under the Single Touch Payroll rules.

3.15               The amendments remove the existing condition in Division 389 relating to ‘substantial employers’. As a result, the requirement to report certain amounts under Division 389 applies to all employers, and is no longer restricted to ‘substantial employers’. Therefore, employers only need to undertake a headcount on 1 April 2018, to determine if they are a ‘substantial employer’, and no later after 1 April.

3.16               The expansion of mandatory and real time reporting of employer liabilities to all employers is designed to improve the Commissioner’s ability to monitor superannuation guarantee compliance by increasing the visibility of non-payments by all employers.

Example 3.1 - size of employer

EXL Health Pty Limited is a company that provides allied health services. EXL Health Pty Limited employs 10 individuals for the health practice.

EXL Health Pty Limited is an entity that has employees. EXL Health Pty Limited will be required to report the relevant amounts to the Commissioner under Division 389 in Schedule 1.

Application and transitional provisions

3.17               The amendments requiring all employers to report under the Single Touch Payroll reporting rules apply in relation to an amount that an entity is required to report under Single Touch Payroll if the requirement to notify arises on or after 1 July 2018. [Schedule 3, subitem 10(1)]

3.18               For small employers who are not ‘substantial employers’ (entities with 20 or more employees), Single Touch Payroll reporting commences from 1 July 2019. For ‘substantial employers’ at 1 July 2018, these entities must continue to report under the existing Single Touch Payroll rules as they are required to report before 1 July 2019.

3.19               The amendments also apply to specific entities with whom the Commissioner has set a different application date for Single Touch Payroll reporting after 1 July 2018 but prior to 1 July 2019, the application day for any such entity will be the earlier of the day set by the Commissioner or 1 July 2019. This ensures that all employers will be subject to Single Touch Payroll by 1 July 2019. [Schedule 3, subitem 10(2]

Reporting of sacrificed amounts by employers

3.20               The Single Touch Payroll reporting rules require employers report any amounts that constitute ordinary time earnings that are paid to an employee. Employers are also required to report any amounts that constitute salary and wages that are paid to an employee.

3.21               The amendments extend these reporting requirements to include any salary sacrificed amounts that would have constituted ordinary time earnings or salary and wages had they been paid directly to the employee. [Schedule 3, item 14, subsection 389-5(1) in Schedule 1 (table items 2 and 2A)]

3.22               The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 introduced amendments to the SGAA 1992 to prevent employers from using their employees’ salary sacrificed superannuation contributions to reduce their own superannuation guarantee contributions and ensure that superannuation guarantee is paid on the pre-salary sacrifice base.

3.23               Requiring that sacrificed amounts be reported under the Single Touch Payroll regime ensures that the Commissioner has visibility of all amounts that are relevant to working out an employee’s pre-salary sacrifice base and their superannuation guarantee entitlements.

3.24               These amendments permit any combination of ordinary time earnings and sacrificed ordinary time earnings to be reported as a single (total) amount or as separate amounts. This ensures the Commissioner is able to work out the employer’s superannuation guarantee liability for an employee. This is achieved by the reference to an amount that consists of ‘either or both’ of an amount of ordinary time earnings or a sacrificed ordinary time earnings amount. [Schedule 3, item 14, table item 2 in the table in subsection 389-5(1) in Schedule 1]

3.25               Similarly, the amendments permit any combination of salary or wages and sacrificed salary and wages to be reported as a single (total) amount or as separate amounts. Again, this is achieved by the reference to an amount that consists of ‘either or both’ an amount of salary or wages or a sacrificed salary or wages amount. [Schedule 3, item 14, table item 2A in the table in subsection 389-5(1) in Schedule 1]

3.26               To simplify the provisions, the amendments separate the reporting requirements for ordinary time earnings and salary and wages into separate table items. However, the reporting of these amounts is unaffected as they were already required to be reported separately. The amendments simply move the requirement into two separate items.

3.27               The time at which amounts related to ordinary time earnings or salary and wages must be reported is the day on which the amounts are paid to the employee, or would have been paid as ordinary time earnings or salary and wages. [Schedule 3, item 14, table items 2 and 2A in the table in subsection 389-5(1) in Schedule 1]

3.28               Where a reported amount contains both an amount that is paid to the employee and a sacrificed amount, the day on which the sacrificed amount would have been paid to the employee will, by definition, align with any amounts that were actually paid. Where this is not the case, the amounts cannot be reported together as a single amount and must be reported separately.

Example 3.2 - reporting amounts paid and sacrificed amounts

Chung Co is an employer that is required to report under the Single Touch Payroll reporting rules.

Victoria is one of Chung Co’s employees. Victoria’s fortnightly ordinary time earnings (before any effective salary sacrifice reduction) is $3,000. Victoria’s salary is the same as her ordinary time earnings. She has an effective salary sacrifice agreement with Chung Co to sacrifice $1,000 of her ordinary time earnings per fortnight. This reduces Victoria’s fortnightly ordinary time earnings and salary or wages (as defined in the SGAA) to $2,000.

Chung Co previously calculated its superannuation guarantee contributions on Victoria’s reduced ordinary time earnings, $2,000 ($3,000 minus $1,000). This amounted to minimum superannuation guarantee contributions totalling $190.00 ($2,000 x 9.5%) being made to Victoria’s superannuation fund. Under the current Single Touch Payroll reporting rules, Chung Co would have reported $2,000 as Victoria’s ordinary time earnings.

Under the changes introduced by the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017, the minimum superannuation guarantee contribution that Chung Co must make to Victoria’s superannuation fund is calculated on the pre-sacrificed amount ($2,000 + $1,000).

Under the amended Single Touch Payroll reporting requirements, Chung Co is required to report the following amounts:

•        Under table item 2: $3,000 - comprising the $2,000 ordinary time earnings paid to Victoria as part of her salary + the $1,000 she salary sacrificed; and

•        Under table item 2A: $3,000 - comprising the $2,000 salary or wages paid to Victoria as her fortnightly salary + the $1,000 she salary sacrificed.

Example 3.3 - reporting amounts paid and sacrificed amounts

Liam is an employee and is paid a fortnightly wage of $5,000. Liam has an ongoing effective salary sacrifice arrangement with his employer under which $500 of his fortnightly wage is salary sacrificed into superannuation.

Liam is also entitled to overtime for additional hours worked outside of his contracted working hours.

During one fortnight, Liam earns an extra $1,000 in overtime for additional hours worked. He requests that his employer contribute $200 from his overtime earnings to his superannuation fund in addition to his standard salary sacrifice arrangement.

Under the amended Single Touch Payroll reporting requirements, Liam’s employer is required to report the following amounts:

•        Under table item 2: $5,000 - comprising the $4,500 ordinary time earnings paid to Liam as part of his contracted salary + the $500 he salary sacrificed; and

•        Under table item 2A: $6,000 - comprising the $5,300 salary or wages paid to Liam as part of his fortnightly wage and overtime earnings + the $700 he salary sacrificed.

Application and transitional provisions

3.29               The amendments requiring all employers to report ordinary times earnings and salary or wage amounts including any sacrificed amounts apply in relation to quarters beginning on or after the day Part 2 of Schedule 3 commences. [Schedule 3, subitem 16(1)]

3.30               Part 2 of Schedule 3 commences on the later of the day the Act receives the Royal Assent or immediately after the commencement of Schedule 2 to the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Act 2018 (which is the Act that will be created if the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2018 is passed by the Parliament). However, Part 2 of Schedule 3 will not commence if that Act is not enacted. [Schedule 3, subitem 15(2)]

Consequential amendments

3.31               Schedule 3 makes amendments as a consequence of expanding the Single Touch Payroll reporting to all employers, including the repeal of the definition of ‘substantial employer’, provisions and headings which explain and reference ‘substantial employer’ and Guide material. The definition is no longer required as a result of expanding Single Touch Payroll reporting to all employers. The provisions which allow voluntary reporting by entities that are not ‘substantial employers’ are also no longer required. [Schedule 3, items 1 to 5 and 7to 9, subsection 995-1(1) of the ITAA 1997, paragraphs 8AAZLGB(1)(a) and (3)(b), sections 389-1 and 389-5 (heading), subsections 389-5(6), 389-15(1) and (2), and 389-15(3) (heading) in Schedule 1]

3.32               Schedule 3 makes consequential amendments to include references to new item 2A in the table in subsection 389-5(1) in Schedule 1 for the reporting of salary sacrificed amounts in a number of provisions that currently reference items 1 or 2 in that table. [Schedule 3, items 11, 13 and 15, paragraphs 8K(2A)(a), 8N(2)(a), 284-75(8)(a) in Schedule 1, and subsection 389-25(1) in Schedule 1]

Regulation impact statement

Background

3.33               The Single Touch Payroll initiative was announced by then Minister for Small Business and Assistant Treasurer, the Hon Kelly O’Dwyer MP, on 21 December 2015. The initiative supports the Government’s commitment to simplify tax and superannuation business reporting.

3.34               Single Touch Payroll requires the use of Standard Business Reporting (SBR) enabled software to digitally report Pay-As-You-Go (PAYG) Withholding and superannuation contributions information to the Australian Taxation Office (ATO). This information is created and reported concurrently with other payroll functions undertaken by employers, e.g. generating a payslip and creating a file for transmission to financial institutions to pay employees. The use of Single Touch Payroll reduces duplication and record keeping requirements for employers and introduces streamlined processes associated with hiring new employees, by providing digital services for completion of tax file number (TFN) declarations and Superannuation standard choice forms.

3.35               Single Touch Payroll was legislated in the Budget (Omnibus) Savings Act 2016 and is being progressively implemented through a staged transition approach. Employers of any size may voluntarily commence transitioning to Single Touch Payroll from 1 July 2017. Large employers (with 20 or more employees) are required to report via Single Touch Payroll from 1 July 2018.

3.36               The expansion of Single Touch Payroll to small business (employers with 19 or fewer employees) was announced by the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, on 29 August 2017.

3.37               The inclusion of small business will assist the ATO to take earlier action to protect honest small businesses that do the right thing and support those who may begin to struggle with meeting their obligations. In particular, those small businesses who do not fully comply with their PAYG Withholding and superannuation obligations enjoy a significant competitive advantage over those that do fully comply. Single Touch Payroll will also allow the ATO to identify and support, much earlier, those small businesses who are struggling to comply.

3.38               Government will also gain greater visibility over the compliance behaviour of small business in respect of paying their PAYG Withholding and superannuation guarantee (SG) obligations and of employees in respect of possible benefits fraud or overpayment.

Small business population

3.39               The small business population is a large, diverse market made up of approximately 750,000 employers employing approximately 3.8 million employees. In payroll terms, small business can be broken down into the following size segments [1] :

 

 

 

Number of employees

Percentage of small business population

1-2 employees

44%

3-4 employees

16%

5-9 employees

19%

10-19 employees

17%

New entrants

4%

Current small business employee reporting requirements

3.40               Small business employers are currently required to comply with a number of reporting obligations relating to their employees. A snap shot of these include:

3.41               When hiring a new employee, they are required to provide their ABN and default superannuation fund details to enable their employee to complete a paper based Superannuation standard choice form and TFN Declaration form.

3.42               When paying employees, the small business employer must:

•        calculate the tax that applies to their income and report and pay it to the ATO at a later date (generally quarterly).

•        calculate superannuation contributions and report and pay these to superannuation funds on behalf of the employees at a later date (minimum quarterly).

3.43               In addition, small business employers are also required to:

•        calculate, report and aggregate PAYG Withholding amounts to the ATO (generally monthly or quarterly) via an activity statement.

•        prepare a report for the ATO summarising the year’s salary and tax withheld for employees (annually).

•        provide each employee with an individual summary of income and tax withheld (annually).

•        register for a PAYG Withholding role with the ATO (new employers only).

3.44               Currently, PAYG Withholding obligations are reported and paid to the ATO up to three months after payment of the employee wages and salaries upon which they are based (payroll events). Superannuation guarantee amounts must be paid to superannuation funds at a minimum 28 days after the end of a quarter. This delay requires small businesses to put in place systems and processes to reconcile data created at the payroll event and to collate these for reporting to the ATO and superannuation funds.

What is the Problem?

3.45               Reform of small business employers’ compliance with their employee tax and superannuation reporting obligations will reduce their compliance costs and regulatory burden, improve PAYG Withholding and SG contributions compliance and improve Government service delivery. These problems are examined in detail below:

High compliance costs and regulatory burden

3.46               To comply with their employee tax and superannuation reporting obligations, small businesses are required to undertake a range of ongoing lodgements with the ATO and other government agencies and entities that are often not aligned with each other. These processes often separate the calculation, reporting and payment requirements of small business which give rise to duplication in the employers reporting obligations, increasing their compliance costs and regulatory burden. For instance, the regulatory burden for employers to comply with their reporting and lodgment of tax withheld from employees was estimated to be approximately $2.5 billion in 2011.

PAYG Withholding and SG non-compliance

3.47               The current administration of PAYG Withholding and superannuation has some well-known drawbacks. By separating the pay day and reporting event, the current regime creates room for errors and unnecessary reconciliation. Also, by encouraging reliance on end-of-year reconciliation (by both small business and the ATO), it introduces up to 12 month delays in recognising under-reporting and payment problems.

3.48               Small businesses that fail to meet their PAYG Withholding and SG requirements contribute to a weaker budget position in several ways. Failing to pass on tax withheld from employees to the ATO undermines revenue collections while failing to make superannuation payments to super funds, on behalf of employees, potentially increases future budget outlays through higher pension payments than might otherwise be the case. Inefficient administration results in administration costs that might otherwise be avoided.

3.49               Under the existing PAYG Withholding system, long delays can arise between the payroll event and the reporting and payment of PAYG Withholdings. This is because small businesses can lodge and remit PAYG Withholding amounts quarterly. As a result of the delay small businesses experiencing cash flow management difficulties can fail to meet their obligations in a timely manner, or at all.

3.50               Recent estimates indicate that around $2.5 billion per year is not paid in compliance with the SG obligation of employing entities. The incidence of non-compliance with SG is highest amongst small business employers and the incidence of liquidation (where SG cannot be recovered at all) is almost exclusively a small business problem.

3.51               At present the ATO only has limited oversight of whether small businesses are meeting their SG obligations. The ATO also only receives information on SG payments on an annual basis. Without visibility of what employees are owed and contributions made to funds, it is very difficult for the ATO to take actions to enforce compliance with SG.

3.52               Current reporting arrangements mean there can be a lag of up to 14 months in the reporting of contributions that employers have paid. This delay was identified by the Superannuation Cross-Agency Working Group’s report into SG non-compliance as a key barrier to the ATO’s work to improve compliance with SG. Delays in reporting requirements create further lags in ATO compliance action. The mechanism for recovering unpaid superannuation is the superannuation guarantee charge (SGC), a tax liability imposed on employers who do not pay their SG obligations. However, only 48 per cent of the total SGC raised against non-compliant employers is collected by the ATO, often because the employer is insolvent by the time this liability arises. By decreasing the lag time in reporting, the ATO can undertake compliance actions early, before non-compliant employers become insolvent. 

3.53               Due to the delays in the reporting of SG contributions and the lack of ease with which employees are able to monitor the payment of SG contributions, employees are often unaware about potential unpaid SG entitlements, resulting in significant delays in the reporting of complaints to the ATO.

3.54               The most significant impacts of not having a real-time reporting system applying to all employers in relation to SG compliance are:

•        the lack of a level playing field for businesses in relation to reporting and payment of their SG obligation - some would have a reporting obligation, others would not, while still other businesses can continue avoiding payment with little chance of detection.

•        the continued lack of visibility for the ATO of SG compliance by small business - the ATO currently receives no employer data from a small business except in response to an investigation as a result of an employee complaint.

•        unacceptable time lags in the existing limited compliance activity by the ATO (usually 12-16 months after a non-payment has been reported by an employee which makes recovery efforts cumbersome, a big financial burden for employers and often too late to effect a remedy).

•        the consequential loss of retirement savings for employees in these non-complying businesses (potentially 9.5% of wages/salary p.a. compounded over an employees’ working life).

•        the future cost to government of having to supplement the aged pension for these employees.

Inefficient Government service delivery

3.55               Technological advances have resulted in changing community expectations. Citizens already expect a certain level of service based on their existing digital interactions with private businesses, and they bring those expectations to their interactions with government. People want more personalised, accessible and reliable services from government agencies [2] , however it is clear that there is a gap between expectations and current government service delivery. I n the process of moving to digital services, government needs to provide solutions that go above and beyond the boundaries of traditional systems. In the ‘Digital Australia - State of the Nation 2014’ report government ranked as the worst business sector in terms of digital sector experiences [3] .

3.56               Looking more specifically at the current experience of employers and individuals interacting with the tax and superannuation systems, it becomes clear that better use and adoption of technology such as Single Touch Payroll, which streamlines processes by aligning reporting requirements with natural business payroll processes, would improve existing service delivery as well as reduce red tape. For example, in terms of reporting, small business employers currently use multiple channels to:

•        send the ATO approximately 900,000 TFN declarations every year.

•        issue approximately 3.8 million annual payment summaries to employees.

•        complete approximately 1.6 million PAYG Withholding only activity statements. [4]

3.57               Employees currently:

•        have very little visibility of their cumulative tax obligations and superannuation entitlements throughout the year.

•        have to wait several weeks after the end of the financial year for pre-fill data to be available to complete their tax return.

•        often do not realise they have paid too little or too much tax until they complete their tax return.

•        may be unaware of their cumulative income position to determine correct entitlements to welfare payments.

3.58               The above is only a micro example of the existing inefficiencies in service delivery, relying largely on manual processes across government agencies to meet day to day employment obligations and different systems. These types of problems are experienced across all sectors of government, and opportunities exist to use Single Touch Payroll to support increased agency connectedness and as a result a more seamless end to end experience for citizens interacting with Government.

Benefits of a mandated real-time reporting process

3.59               The benefits of a mandated system accrues to a range of parties, including:

•        businesses who currently comply with the law will benefit by way of eliminating unfair competition and the creation of a more level playing field.

•        all businesses will also benefit by way of near real-time feedback by the ATO about their compliance status - thus facilitating continuous correction and updates without running the risk or burden of compliance action.

•        most small businesses will benefit from simplified end of year reporting which arises from the elimination of payment summaries having to be provided to employees.

•        employees benefit through increased retirement savings (where they are currently missing out) and being given visibility on a near real-time basis to check their tax and superannuation status online (via myGov).

•        government benefits through being able to undertake effective compliance action in relation to an employer’s legal obligations, in protecting future retirement savings of individuals, reducing the future burden of pensions on the Commonwealth budget, and reduced reporting burden on businesses.

Why is Government action needed?

3.60               Government intervention will address the failure of the current regulatory regime to achieve its compliance objectives, as demonstrated by the significant and ongoing employer non-compliance with SG, and to transform reporting of employee tax and superannuation reporting obligations to a digital, real-time basis.  The latter will align reporting to government of tax and superannuation with normal payroll functions undertaken by employers (rather than it being on different timelines) thereby reducing duplication of effort and record-keeping.

3.61               Without regular and accurate information on superannuation obligations owed to employees, it is difficult for the ATO to undertake timely action to enforce SG compliance. As the ATO’s case data indicate that small business account for the majority of SG non-compliance, it is important that businesses with less than 19 employees are also subject to the same reporting requirements as larger employers.

3.62               Government intervention will also help address the free-rider affect that arises from employers ‘choosing’ not to comply with the law, thereby gaining cash flow and cost advantages over competitors. Not having real-time information restricts the detection of non-compliance.

3.63               A mandate for all employers is also expected to lower the cost of payroll software adoption due to industry scale effects and innovation in business models (such as more cloud based software and other product offers).  Some software vendors already have free or low cost entry products/offers with more expected to emerge if a mandate is legislated. 

Policy options

3.64               The following policy options have been considered:

•        Option 1: Status quo. Under this option, no action would be taken by the Government and the existing reporting process would continue.

•        Option 2: Require employers to report their employee tax and superannuation obligations at the time of the payroll event. The employer would also be provided with the option to make voluntary payments if they choose.

•        Option 3: Require employers to report their employee tax and superannuation obligations at the time of the payroll event and make mandatory payments at the same time.

Option 1: Status Quo

3.65               Under Option 1 there would be no change to the current reporting process with small business employers able to voluntarily implement Single Touch Payroll.

Option 2: Real-time reporting of employee  tax and superannuation obligations with the option to make voluntary payments

3.66               Option 2 involves employers utilising SBR-enabled software to digitally report employee tax and superannuation obligations information to the ATO at the same time the employer pays their employees and superannuation funds.  In effect, it provides an automated, streamlined processing of employer related obligations simultaneously with the natural cycle of the employer’s payroll event.

Option 3: Real-time reporting of employee  tax and superannuation obligations with mandatory payments

3.67               Option 3 also involves employers using SBR-enabled software to digitally report their employee tax and superannuation obligations information at the time the employer pays their employees and superannuation funds. However Option 3 also requires mandatory real-time payment of the obligations arising from the report.

Impact analysis and regulatory costing analysis

Impact analysis

3.68               Single Touch Payroll is a specialised, purpose built system requiring changes to the systems and processes of businesses, software developers and the ATO to enable business to automatically fulfil their PAYG Withholding and superannuation reporting obligations as an extension of their natural payroll process. The size and scale of the changes implemented through Single Touch Payroll are unlikely to occur independently of government action.

3.69               The primary impact to the community on extending Single Touch Payroll to small business employers is through reduced compliance costs for small business and individuals when interacting with government, both in its own right and as a foundational investment toward more seamless interactions between the community and government.

Option 1: Status Quo

3.70               This option would not involve any Government action.

3.71               The current reporting requirements will continue to result in high compliance costs and regulatory burden on employers, as well as continue the limited visibility for the ATO to monitor PAYG Withholding and SG compliance.

3.72               The primary incentive for small business employers voluntarily adopting Single Touch Payroll is the benefit of automating their payroll function and ancillary reporting obligations. Many small businesses (around 40%) already have payroll software and will find that their payroll software supplier is providing a compliant Single Touch Payroll version for them to use at no extra cost. Other incentives include time savings due to the reduction in reporting requirements such as preparation of the PAYG payment summary annual report, and nearer to real-time interactions and feedback with the ATO on their compliance status.

3.73               The remaining 60% of small business employers are unlikely to take up Single Touch Payroll voluntarily due to their current lack of payroll software or their preference to work in a non-digital environment. Small employers choosing not to adopt Single Touch Payroll would avoid the initial implementation costs, estimated to be in the order of $140-$250 in off-off costs per business and $50 per month. These costs are gross and do not account for offsetting benefits if Single Touch Payroll was to be implemented.

3.74               It is expected that over time the number of small businesses using software will increase as more products become available and this will aid to reduce their overall administrative burden. However, the specific compliance costs of PAYG Withholding is estimated to be $2.3 billion annually and affects all small businesses involved in this regime. Even with software, small business employers often need to reconcile the amounts calculated each pay against the businesses’ PAYG Withholding reporting and payment cycle. They also need to reconcile annual amounts in order to provide an employee with their annual PAYG Payment Summary and lodge the PAYG payment summary annual report with the ATO. 

3.75               There would also remain a significant risk of continuing non-compliance by employers with their SG obligations as reporting real-time information to the ATO would be voluntary.

Option 2: Real-time reporting of employee tax and superannuation obligations with the option to make voluntary payments

3.76               Option 2 directly addresses the core problems identified while not impacting on the cash flow of small businesses.

3.77               While this option will require small business to undergo an initial modest amount of effort and upfront cost in order to implement the Single Touch Payroll reporting system, it is expected that over time, small business will benefit from a significant reduction in compliance and reporting costs. This includes pre-filing of data provided on the Single Touch Payroll report into an employer’s activity statement and removal of the obligations to provide employees with annual payment summaries and to provide an annual PAYG payment summary statement to the ATO. Additional benefits include time-savings tied to increased electronic transactions and self-service for employees that would be introduced with Single Touch Payroll.

3.78               Real-time reporting will also increase SG compliance by providing the ATO with increased visibility to monitor the payment of employee entitlements. This would enable the ATO to identify non-compliance by employers earlier and better inform affected employees. This will also increase community confidence in the integrity of the Superannuation system and that employee entitlements are being protected. Complying employers will also feel confident that they are operating in a level playing field.

3.79               Employees will be expected to benefit from Single Touch Payroll through not only timely, reliable and accurate reporting of their entitlements but visibility of this information through their myGov account at any time during the financial year. This will help them to make informed decisions on their tax position prior to lodging their annual tax return. Through myGov, the ATO will also be able to display to the employee a list of their existing superannuation accounts allowing them to easily notify their employer of an existing account as their fund of choice. This is expected to reduce the number of new superannuation accounts created and benefit the employee by reducing the amount of fees they incur.

3.80               There may be additional impacts to accounting and small business software designers and providers. Software designers and providers may incur some costs to ensure their software is compatible with Single Touch Payroll. Software designers may encounter financial difficulties if their systems are not compatible with Single Touch Payroll, businesses would inevitably replace non-compliant payroll software with complaint software.

3.81               Government will benefit from reduced costs of paper TFN and payment summary handling, a reduction in the number of SG Employee Notifications and investigations and better targeting of non-complying employers in respect of both their PAYG Withholding and SG obligations.

Option 3: Real-time reporting of employee tax and superannuation obligations with mandatory payments

3.82               Option 3 will have similar benefits as provided under Option 2. However, Option 3 requires mandatory real-time payment of employee tax and superannuation obligations at the time the report is lodged which will alter the current reporting and payment cycles currently in effect.

3.83               Altering this payment cycle to real-time may disrupt cash flow in small businesses resulting in additional financial pressure and have negative effects on the economy.

3.84               More frequent payment of superannuation obligations will not necessarily improve compliance with SG. It has not been identified as a significant driver of non-compliance. Non-compliant small business employers often cite cash flow problems as the major reason for their failure to pay employees’ superannuation entitlements. By disrupting cash flow arrangements, this option may actually worsen compliance with the superannuation guarantee for smaller employers.

3.85               Option 3 would give rise to significant enforcement difficulties for the ATO, potentially making compliance more difficult for small businesses. Each employer would have a different time period over which superannuation obligations accrue - potentially a different period with respect to different employees - instead of the currently uniform quarterly period. The ATO would need to record these different periods and monitor compliance at a more granular level. These differential obligation periods would be administratively cumbersome and would likely occasion significant confusion among employers and advisers. It could also incentivise employers to pay their employees less frequently, which is not an intended policy outcome.

Cost of compliance

3.86               An important policy problem this proposal intends to address is the administrative burden/cost of compliance on small businesses who must comply with the PAYG Withholding regime. The implementation of real-time reporting will benefit small businesses who will receive an overall reduction in compliance costs.

3.87               The details and estimates from the ATO’s Small Business Pilot indicate the real-time reporting system of Single Touch Payroll will have a material impact.  Overall, the proposal will create an initial implementation cost across affected small businesses but has considerable potential to produce on-going annual savings or reductions in compliance costs of the taxation and superannuation systems. Although only limited direct benefits are expected for small employers overall, the change will bring major improvements to system integrity and transparency while also creating a building block to enable further government reporting reduction in years to come.

3.88               Through real-time reporting under Single Touch Payroll employers will provide salary and wages information (including ordinary times earnings and superannuation liability data) at the same time as they undertake their payroll process. In addition the frequency with which superannuation funds report contribution data to the ATO will be increased. This will give the ATO real-time visibility of SG liabilities and will enable the ATO to continuously monitor SG shortfalls at the employer and employee level. The ATO may be able to monitor SG payment patterns for changes, identify potential non-compliance and provide early support to businesses that may be struggling. The ATO would also be able to implement preventative messages for employers, such as: ‘nudge’ strategies, SMS payment reminders; or early contact when a predicted payment is missed.

3.89               Single Touch Payroll also addresses an underlying non-compliance problem by creating a common, reliable reporting obligation for business while reducing aspects of the compliance burden. In essence, it is impossible to move to ‘real-time’ reporting linked to the pay day event in a manual world. The costs on all parties would be prohibitive.

Regulatory costing analysis

Option 1: Status quo

3.90               By its nature, this option would have no regulatory or compliance costs for small business, government or the community, with the existing framework continuing unchanged.

3.91               As this option does not involve changes to the status quo, the regulatory costing is zero.

Option 2: Real-time reporting of employee tax and superannuation obligations with the option to make voluntary payments

Average net annual regulatory costs/savings (from business as usual)

Change in costs ($ million)

Business

Community organisations

Individuals

Total change in costs

Total, by sector

-$176m

-

-

-$176m

3.92               Real-time reporting of employee tax and superannuation obligations streamlines the actions a small business employer needs to take (i.e. where obligations can be met by doing their normal business process). Reduced regulatory burden over time includes:

•        improvements to the payment summary process.

•        pre-filling of PAYG Withholding information into the Business Activity Statement.

•        commencement forms being completed online by employees with more reliable data for employers.

•        a level playing field when it comes to paying tax and superannuation.

3.93               Without Government and ATO intervention to help develop and implement compatible processes and systems these improvements will not occur and consequent savings will not be realised. Single Touch Payroll has been made possible by the convergence of advances in payroll and related software technology, the growing digital capabilities of government and a commitment by government to lighter touch regulatory approaches.

3.94               Small business has shown substantial growth in acquiring a wide set of basic digital capabilities, particularly over the last five to seven years. The combination of computers, new mobile devices, internet access, electronic payment options and web-based transactions provide multiple pathways by which businesses can and are adapting to digital modes of work. The majority of small businesses now operate at least some part of their business over the internet or with the use of in-house software tools. Many also partner with others who assist with these tasks on their behalf. This increased digital capability will assist small business transition to Single Touch Payroll.

Option 3: Real-time reporting of employee tax and superannuation obligations with mandatory payments

Average net annual regulatory costs/savings (from business as usual)

Change in costs ($ million)

Business

Community organisations

Individuals

Total change in costs

Total, by sector

-$210m

-

-

-$210m

3.95               Option 3 will have similar benefits to Option 2 as they both involve the real-time reporting of employee tax and superannuation obligations. The difference in the reduction in regulatory cost between the two options is a result of the change to the payment cycle. Option 2 provides for voluntary payments while Option 3 requires mandatory real-time payment at the time the employer lodges their report relating to their employee tax and superannuation obligations. Reporting and payment at the same time provides less regulatory burden for employers through fewer reporting points.

3.96               Although it is calculated approximately 750,000 small businesses would be affected by the proposal, the ATO Small Business pilot and associated research confirms that most small businesses will find they can implement Single Touch Payroll with a relatively modest amount of effort and cost. Costs include software and subscriptions and management time/effort to get through the setup process. Advisory costs are not included in these scenarios and would add substantially to the upfront costs if borne by the employer.

3.97               Based on an ATO May 2017 [5] survey of payroll software businesses in the small business market, monthly subscription rates for a typical micro business (less than 5 employees) range from a low of $0-$12, medium $13-$58 to a high of $59-$99. Single employee businesses have rates at around a 50-60% discount to these ranges, while rates for small business with 5 or more employees are roughly 1.5-2 times these range estimates.

Status of the RIS at major decision making points

3.98               In September 2015, the ATO prepared a RIS for the Single Touch Payroll initiative that focused on, and recommended, the mandating of large employers to report under Single Touch Payroll from 1 July 2018. This RIS has been prepared for the decision that extended Single Touch Payroll to small business from 1 July 2019.

Consultation plan

3.99               Since the announcement of the Single Touch Payroll initiative on 28 December 2014, significant stakeholder consultation has been completed. [6] This consultation, along with the ATO Small Business pilot, has informed the development of the policy options considered in this proposal.

The small business pilot

3.100           The ATO conducted a pilot, commencing in the second half of 2016, on the deregulation benefits of Single Touch Payroll to small business employers. The findings of the pilot were released publicly on 29 September 2017.

3.101           For the pilot, the ATO engaged 138 small business employers along with software solution providers and tax practitioners in a range of pilot tests, simulations, prototyping exercises and interviews. The pilot was designed to test the concept of Single Touch Payroll on reporting payroll obligations for small business employers.

3.102           The pilot objectives were to:

•        understand the impact of Single Touch Payroll on the small business user experience.

•        identify and confirm cost/benefits of Single Touch Payroll for small businesses.

•        identify any blockers or constraints that might prevent small business from realising these benefits and how these might be overcome.

Pilot findings

3.103           Overall the participants were largely positive towards the concept of Single Touch Payroll, identifying:

•        most participants could update to Single Touch Payroll with little impact on their current processes.

•        single Touch Payroll would save time and make reporting obligations easier.

•        those participants who don’t currently use software had concerns about completing online tasks themselves, leading to the potential for some small business employers having to increase their reliance on their tax practitioner.

•        paper based reporters will incur a cost to move to Single Touch Payroll as well as face a learning curve to implement digital interactions.

•        some participants expressed concerns about the ability for small business employers to use technology and data safely in a digital environment.

Targeted consultation

3.104           Targeted consultation on the extension of Single Touch Payroll to small business was subsequently held with stakeholders in Sydney on 16 October 2017 and in Melbourne on 17 October 2017. Stakeholders represented a variety of sectors including payroll, accounting, bookkeeping, tax advisory and small business.

3.105           Consultation focused on ensuring that the current Single Touch Payroll legislation enacted for large employers is suitable for small business scenarios.  The views of stakeholders are summarised below:

3.106           Stakeholders agreed with the expansion of Single Touch Payroll and the benefits that it will deliver in the long term, including increased visibility of SG and enabling employees to keep track of real-time employment related income and superannuation contributions.

3.107           Stakeholders agreed with the findings and recommendations in the ATO’s pilot report.

3.108           Stakeholders expressed the need for no cost/low cost software being available to help small business transition to Single Touch Payroll.

3.109           Stakeholders agreed with the recommendations in the small business pilot report that deliberate non-compliant small businesses should be required to comply with Single Touch Payroll from 1 July 2019 and not be given a 12 month grace period from penalties if they fail to report.

3.110           Stakeholders expressed the view that new employers (that become employers after 1 July 2019) should be given a 12 month grace period from penalties from the date they become an employer and are required to report under Single Touch Payroll.

3.111           Stakeholders would prefer to see increased education and support promotions rather than a one-off financial incentive to encourage the early adoption of Single Touch Payroll. This included setting up webinars, forums and temporary support centers to help small employers understand their reporting obligations.

3.112           Stakeholders want certainty that real-time payment of tax and superannuation obligations will not be mandated as this will cause significant cash flow difficulties to small business, resulting in many businesses failing due to financial pressures.

3.113           Overall stakeholders were supportive of the framework for small business.

Option selection/Conclusion

3.114           Following extensive consultation to date, Option 2 is recommended. This option provides the best balance between quantitative and qualitative benefits.

3.115           Option 3 has very little, if any, community support and is considered burdensome and not achievable due to cash flow issues of mandatory payment at the time of reporting. Mandatory payment is likely to have a significant negative impact on the economy through financial pressure on small business resulting in business failures. In addition it is likely to increase SG non-compliance. As a result this option is not recommended.

3.116           Overall the benefits to employers under Option 2 include improvements to the employee commencement and reporting effort, leveraging the employer’s payroll process wherever possible, earlier and more helpful intervention by the ATO in helping small business manage emerging cash flow issues and the compliance benefits which will flow from a more level playing field. Employees will gain new transparency over their PAYG Withholding tax position and superannuation contributions as reported by employers each pay day. These longer term benefits are expected to offset the initial costs to implement Single Touch Payroll over time.  

Implementation and evaluation/review

3.117           The extension of the Single Touch Payroll initiative to small business employers will be managed using established program and project management methodologies and governance arrangements applied in the delivery of all Government initiatives administered by the ATO. The ATO’s experience in implementing Single Touch Payroll for large employers, and other complex initiatives such as SuperStream, will be beneficial and inform how the transition is administered.

3.118           Amendments will be required to the Single Touch Payroll legislation to support employee-level event-based reporting for small business employers. This will align the timeframes for reporting with the payroll event and to support the reporting of superannuation information to the Commissioner of Taxation.

3.119           The proposed phased implementation will assist small businesses transition to Single Touch Payroll. The transitional approach will comprise a legislative mandate requiring implementation of Single Touch Payroll with:

•        an operative date of 1 July 2019 from which small business employers must comply;

•        a transition-in period of 2 years including a voluntary take-up period of 12 months leading up to 1 July 2019, followed by a grace period from failure to lodge penalties for the next 12 months;

•        a non-flexible start date of 1 July 2019 for small businesses with a substantial and repeated history of poor compliance with SG or PAYG Withholding (i.e.no grace period applies).

3.120           The ATO, in collaboration with industry and community stakeholders, will develop and deliver a pro-active, well targeted communications, help and support campaign with particular focus on small businesses with:

•        less than 5 employees and not already working with payroll or reporting software.

•        little or no digital capability.

•        in rural/remote areas where digital connectivity may be a constraint.

•        infrequent or irregular employment arrangements.

3.121           The ATO will continue its work with software developers; innovative solution providers and intermediaries to ensure that a range of low cost/no cost solutions for reporting under Single Touch Payroll are available in the market for micro businesses.

3.122           Small business employers will need suitable compatible Business Management Software (BMS) or an affordable intermediation service in order to experience the red tape reduction benefits of Single Touch Payroll.

3.123           Small businesses will continue to provide superannuation contributions to superannuation funds in accordance with the SuperStream payment and data requirements, but under Single Touch Payroll, small business employers will also report superannuation contribution information to the ATO as part of the payroll event.

3.124           To eliminate the requirement for annual payment summaries where businesses have an obligation to include reportable fringe benefits amounts (currently reported on annual payment summaries), the information would be reported digitally through Single Touch Payroll to the ATO, prior to 30 June following the end of the FBT year (30 March). This is a change for businesses as they currently have until 14 July to provide this information.

3.125           In addition, a new streamlined digital service for individuals commencing employment will be introduced. Individuals will be able to complete their TFN declaration and Superannuation standard choice forms using myGov or directly in their employer’s payroll BMS. Small business employers will advise their new employees about which method to use based on their business practices. This replaces the need for employees to complete the following paper forms:

•        tax file declaration [NAT 3092]

•        superannuation standard choice form [NAT 13080]

•        withholding declaration [NAT 3093]

•        withholding declaration - upwards variation [NAT 5367]

•        voluntary agreement for PAYG withholding [NAT 2772]

3.126           Under the myGov option, individuals could supply payroll details including their TFN declaration and super choice information to their employers online. As the employee is known to the ATO when they use their credentials and authenticate (log-on) in myGov, some information could be pre-filled by the ATO for employee validation. Employers would receive this validated information via a secure channel directly into their BMS. As the information is already validated and would not need to be rekeyed into the payroll software, the administrative burden for employers is somewhat reduced. Additionally, the associated reduction in errors would reduce reverse workflows and unnecessary ATO contact, while improving the integrity of ATO data holdings that are also consumed by other government agencies.

3.127           At the end of the transition-in period for small business employers the ATO, in conjunction with the Australian Small Business Family Enterprise Ombudsman, will review the size and composition of non-complying businesses with Single Touch Payroll to determine appropriate strategies for government to consider to encourage compliance for any business struggling to make the transition.



Chapter 4          

Fund reporting

Outline of chapter

4.1                   Schedule 4 amends the law to allow the Commissioner to provide superannuation providers with a grace period for correcting false or misleading statements in relation to member information statements without giving rise to penalties.

4.2                   Schedule 4 removes the requirement for employers to report superannuation guarantee contributions paid to superannuation providers under the Single Touch Payroll reporting rules.

4.3                   Schedule 4 reintroduces a previous measure to remove the requirement for superannuation funds to lodge bi-annual statements for lost members.

4.4                   All legislative references in this Chapter are to the TAA unless otherwise stated.

Context of amendments

4.5                   The Superannuation Guarantee Cross-Agency Working Group was established in December 2016 to report on the operation, administration and extent of non-compliance in the superannuation guarantee system in Australia.

4.6                   In March 2017, the Superannuation Guarantee Cross-Agency Working Group released its final report, which contained its final recommendations on options to improve superannuation guarantee compliance.

4.7                   The amendments relating to grace periods and employer reporting of superannuation guarantee contributions relate to measures announced as part of the Government’s package of reforms to strengthen compliance with superannuation guarantee obligations by employers. These amendments relate to recommendation 2 contained in the Superannuation Guarantee Cross-Agency Working Group’s report.

4.8                   While not part of the superannuation guarantee package of reforms, the amendments relating to bi-annual statements for lost members also streamline fund reporting. The amendments are being reintroduced following the lapse of the Treasury Legislation Amendment (Repeal Day 2015) Bill 2016.

APRA-regulated superannuation fund reporting

4.9                   Recommendation 1 in the Superannuation Guarantee Cross Agency Working Group’s final report recommended more frequent and detailed superannuation fund reporting. This recommendation operates in conjunction with the expansion of Single Touch Payroll reporting to all employers. However, reporting of superannuation guarantee contributions paid into employee superannuation accounts moves to superannuation funds and away from employers. These changes strengthen both the Commissioner’s capacity to monitor compliance and identify non-compliance when it occurs, as well as to improve strategies to prevent non-compliance.

4.10               As part of this measure, the frequency of the APRA regulated superannuation fund reporting increases to an ‘event-based’ reporting, replacing the current annual member contribution statement. These changes are being enforced through the Commissioner’s existing powers to require reporting from superannuation providers under section 390-5 in Schedule 1.

4.11               The measure does not apply to self-managed super funds.

Statements for lost members

4.12               A measure to remove the requirement for superannuation providers to provide bi-annual lost member statements to the Commissioner was previously introduced to Parliament as part of the lapsed Treasury Legislation Amendment (Repeal Day 2015) Bill 2016. The amendments for that measure were contained in Parts 2 and 3 in Schedule 2 to the Bill.

4.13               This measure is being reintroduced as part of the superannuation and taxation integrity package.

4.14               Superannuation funds are required to lodge a bi-annual lost members statement with the Commissioner, identifying all superannuation balances of lost members. This statement provides information to the Commissioner to display on a register of lost members. The Commissioner also collects member information through the annual member information statement, some of which is duplicated in the lost member statement.

Summary of new law

4.15               Schedule 4 amends the law to allow the Commissioner to provide superannuation providers with a grace period for correcting false or misleading statements in relation to member contribution statements without giving rise to penalties.

4.16               Schedule 4 removes the requirement for employers to report superannuation guarantee contributions paid to superannuation providers under the Single Touch Payroll reporting rules.

4.17               Schedule 4 amends the SUMLMA to remove the requirement for superannuation providers to lodge, twice yearly, a lost members statement with the Commissioner in its current form. These changes remove an additional reporting burden for funds, reducing compliance costs.

4.18               Information for the purposes of the register of lost members will be collected using the Commissioner’s existing administrative powers under the TAA (although the amendments introduce a minor change to those powers to clarify their scope).

Comparison of key features of new law and current law

New law

Current law

The Commissioner can grant superannuation providers a grace period to correct false and misleading statements made under events-based reporting without penalty.

No equivalent.

All entities are not required to report superannuation guarantee contributions under the Single Touch Payroll rules in Division 389 in Schedule 1 to the Commissioner.

Entities with 20 or more employees (substantial employers) are required to report superannuation guarantee contributions under the Single Touch Payroll rules in Division 389 in Schedule 1 to the Commissioner.

Superannuation providers are not required to provide the Commissioner with a lost member’s statement on a twice yearly basis. The Commissioner may require lost member information to be reported in the approved form.

Superannuation providers must give the Commissioner a lost member’s statement on a twice yearly basis.

Detailed explanation of new law

Ongoing grace period for correcting errors for superannuation providers

4.19               These amendments allow the Commissioner to provide superannuation providers with an ongoing grace period for correcting false or misleading statements in relation to member information statements without giving rise to penalties. [Schedule 4, item 5, section 390-7 in Schedule 1]

4.20               There are a number of offences which gives rise to criminal penalties in relation to making false or misleading statements. An entity commits an offence if they provide a statement to the Commissioner where:

•        the statement is false or misleading in a material particular (subsection 8K(1A));

•        the statement contains an omission which makes the statement false or misleading in a material particular (subsection 8K(1B));

•        the entity recklessly provides a statement that is false or misleading or omits information which makes the statement false or misleading (subsection 8N(1)).

4.21               An entity is also liable to an administrative penalty for making a statement to the Commissioner that is false or misleading whether because of things in it or omitted from it (subsection 284-75(1) in Schedule 1).

4.22               Under the amendments, where a superannuation provider makes a further statement to the Commissioner to correct the original statement which is in the approved form and within a grace period (if one has been provided), a superannuation provider will not be subject to administrative penalties or offences relating to providing false or misleading statements. [Schedule 4, items 1, 2 and 4, subsections 8K(2B), 8N(3) and 284-75(9) in Schedule 1]

4.23               This grace period is designed to allow superannuation providers to conduct assurance processes of information and payments received from employers which is then reported to the Commissioner. The amendments provide superannuation providers with opportunities to correct the statement within specified time periods without being liable to penalties or offences relating to providing false or misleading statements. It is designed to provide a balance between superannuation providers increasing their reporting on time and reporting accurate information. After the grace period has expired, any false or misleading statement made to the Commissioner may be subject to penalties. The Commissioner may remit these penalties under existing powers.

4.24               The Commissioner can determine, by legislative instrument, the timeframe for superannuation providers to correct errors and specify different timeframes which may apply to different classes of entities. [Schedule 4, item 5, subsection 390-7(5) in Schedule 1]

4.25               The Commissioner can provide, by notice, a different period for an individual superannuation provider. This allows, for example the Commissioner to reduce an entity’s grace period if it appears that the particular entity is misusing the grace period. The Commissioner’s decision to provide a different period for an individual superannuation provider is a reviewable decision. [Schedule 4, item 5, subsections 390-7(2) to (4) in Schedule 1]

4.26               Under subsection 390-115(1) in Schedule 1, if a superannuation provider becomes aware of a material change or omission in any information given to the Commissioner (which includes in a statement given under section 390-5 in Schedule 1), it must inform the Commissioner of the change or omission in the approved form no later than 30 days after it becomes aware of the change or omission.

4.27               These amendments do not change the existing obligation under subsection 390-115(1) in Schedule 1. The obligation to inform the Commissioner of material changes or omissions continues to apply to superannuation providers and operates concurrently with the new amendment in section 390-7 in Schedule 1 which allows superannuation providers to take advantage of the grace period to correct statements before false and misleading penalties apply.

Employer reporting of superannuation contributions

4.28               The amendment removes the requirement in Division 389 in Schedule 1 for employers to report to the Commissioner contributions paid to superannuation funds by the employer as part of Single Touch Payroll. [Schedule 4, item 6, item 3 to the table in subsection 389-5(1) in Schedule 1]

4.29               This change is the result of increased APRA-regulated superannuation fund reporting which provide the Commissioner with superannuation contributions paid by employers for each employee member account. The Commissioner will receive this information under events-based reporting from 1 July 2018. Therefore the current requirement for employers to separately report information under item 3 in subsection 389-5(1) in Schedule 1 is no longer required.

Application and transitional provisions

4.30               The removal of the requirement for employers to report superannuation guarantee contributions applies to contributions paid on or after 1 July 2018. [Schedule 4, item 7]

Statements for lost members

4.31               Part 4 of the SUMLMA requires the Commissioner to keep a register of lost members containing information for the purpose of reuniting individuals with their lost superannuation money. Superannuation providers must give the Commissioner a twice yearly statement containing information relating to lost members for the purpose of the register. These requirements are in addition to the bi-annual reporting and payment requirements for certain unclaimed lost member accounts in Part 4A of the SUMLMA.

4.32               Superannuation providers are also required to give the Commissioner a member information statement, in the approved form under section 390-5 of Schedule 1. Subsections 390-5(5) and 390-5(6) of Schedule 1 enable the Commissioner to specify, by legislative instrument, the period covered by the statement and the day on which the statement must be given to the Commissioner. Currently, a member information statement is required for each individual who held a superannuation interest in a superannuation plan for a financial year and is due on 31 October each year. With the frequency of the APRA regulated superannuation fund reporting increasing, the current annual member contribution statement will be replaced with an events-based reporting regime. These changes are being enforced through the Commissioner’s existing powers to require reporting from superannuation providers under section 390-5 in Schedule 1. This will enable the Commissioner to determine the frequency of reporting required, and can specify a different reporting due date for different information.

4.33               The proposed amendments will repeal requirements under Part 4 of the SUMLMA for the provision of information about lost superannuation members to the Commissioner for the purposes of the register of lost members. The Commissioner will continue to be required to keep a register of lost members under Part 4 of the SUMLMA and will be permitted to give information contained in the register to State and Territory authorities. Information for the purposes of the register of lost members will be collected using the Commissioner’s existing power to require reporting from superannuation providers under section 390-5 in Schedule 1. This will allow the Commissioner to set the frequency and form in which lost member information is to be reported (which may be different to the frequency of reporting required for other events). [Schedule 4, Part 2, items 10 to 15, section 7, Part 4, subsections 24HA(1), 25(3) and 26(3), section 27, paragraph 29(1)(b) and subsection 44(1) of the SUMLMA]

4.34               The amendments will also repeal the meaning of a lost member in Part 4 of the SUMLMA, and incorporate this meaning within the definition of lost member in section 8 of the SUMLMA. A lost member continues to be a lost RSA holder within the meaning of the RSA Regs or a lost member within the meaning of the SIS Regs. [Schedule 4, Part 2, item 9, section 8 of the SUMLMA]

4.35               The related regulations to the SUMLMA will also be repealed as a result of these amendments.

Application and transitional provisions

4.36               The repeal of requirements under Part 4 of the SUMLMA for the provision of information about lost superannuation members to the Commissioner for the purposes of the register of lost members does not apply to information that is required to be given to the Commissioner under the lost member bi-annual statements for a half year ending before 1 January 2018. [Schedule 4, item 16)]

4.37               In practical terms, this means that the final bi-annual statement superannuation providers are required to lodge under the existing law are statements due on 30 April 2018 for the period 1 July 2017 to 31 December 2017. From 1 January 2018, superannuation providers no longer need to lodge the bi-annual statement. However, they are still required to report information about lost members as required by the Commissioner under section 390-5 in Schedule 1.

4.38               The transitional provision ensures that the lost member register which, before the commencement of this item, was kept for the purpose of the lost member register required under Part 4 of the SUMLMA is preserved. From the commencement of this Part, the lost member register is treated as being kept under the new requirement under the SUMLMA, as amended by Part 3 of Schedule 4. [Schedule 4, item 17)]

Consequential amendments

4.39               Schedule 4 makes consequential amendments to repeal headings and add an additional note to clarify when a superannuation provider will be able to rely on the grace period. [Schedule 4, items 3 and 5, subsections 284-75(8), and 390-7 (1) notes 1 and 2 in Schedule 1]

4.40               Schedule 4 also makes a consequential amendment to allow the Commissioner to request information from superannuation providers relating to the SUMLMA under the existing section 390-5 in Schedule 1. [Schedule 4, item 18]



Chapter 5          

Compliance measures

Outline of chapter

5.1                   Schedule 5 to the Bill amends the TAA to enhance compliance with superannuation guarantee charge and other tax related liabilities. The amendments achieve this in the following ways:

•        Strengthening the integrity of the director penalty provisions for directors who fail to comply with their superannuation guarantee charge and PAYG withholding obligations; and

•        Enhancing compliance with the requirement to provide security through the use of Court orders. 

5.2                   All legislative references in this Chapter are to the TAA unless otherwise stated.

Context of amendments

5.3                   The Superannuation Guarantee Cross-Agency Working Group was established in December 2016 to report on the operation, administration and extent of non-compliance in the superannuation guarantee system in Australia.

5.4                   In March 2017, the Superannuation Guarantee Cross-Agency Working Group released its final report, which contained its final recommendations on options to improve superannuation guarantee compliance.

5.5                   These amendments are measures announced as part of the Government’s package of reforms to strengthen compliance with superannuation guarantee obligations by employers. The amendments are based on recommendation 4 contained in the Superannuation Guarantee Cross-Agency Working Group’s report.

Penalties for directors of non-complying companies

5.6                   In relation to a company’s superannuation guarantee obligations, under Division 269 in Schedule 1 a company is liable to pay a superannuation guarantee charge at the time it must lodge a superannuation guarantee statement. The ‘due day’ for a superannuation guarantee charge for a quarter is the 28 th day of the second month after the quarter ends.

5.7                   In relation to a company’s PAYG withholding obligations, under Subdivision 16-B the obligation to withhold and pay amounts to the Commissioner depends on whether an entity is a large, medium or small withholder. Large withholders must pay amounts within 1 week of the time they are withheld. Medium withholders must pay amounts by the 21 st  day of the month following the month in which they were withheld. Small withholders are generally required to pay amounts by the 28 th day of the month following the end of the quarter in which they are withheld. These payments do not involve an assessment as the obligations to withhold and pay withheld amounts arise because of the particular payments (for example salary and wages) being made.

5.8                   Under Division 268 in Schedule 1, the Commissioner can make an estimate of an overdue and unpaid superannuation guarantee charge that has not been assessed or a PAYG withheld amount. Companies are under an obligation to pay the amount of the estimate. The amount of the estimate is due and payable at the time the notice is given.

5.9                   Division 269 in Schedule 1 provides for separate obligations imposed on directors and penalties for failing to meet those obligations. Directors have personal obligations to ensure that the company complies with its obligations. These ‘director obligations’ apply until the company complies with its obligation, an administrator is appointed, or a company begins to be wound up.

5.10               If a company fails to meet its obligations to pay a superannuation guarantee charge, PAYG withholding amount or estimates of these liabilities by the ‘due day’, the directors of the company are personally liable to pay a penalty to the Commissioner. The amount of the director penalty is equal to the unpaid amount of the company’s liability under the obligation. The Commissioner cannot commence proceedings to recover the penalty until 21 days after a director penalty notice is given.

5.11               There are timing differences between when the director obligation to ensure the company pays its superannuation guarantee charge and PAYG withholding liabilities (also referred to in Division 269 as ‘underlying liabilities’) arises and when the director obligation to ensure the company pays a Division 268 estimates of those unpaid underlying liabilities. An estimate of a superannuation guarantee charge or PAYG withholding liability creates a separate and distinct liability from the underlying liability (and as a consequence, a separate and distinct director obligation to ensure the company pays the estimate).

5.12               The timing differences between these two distinct director obligations can be exploited by directors to frustrate the original intent of the director penalty provisions. This can result in directors avoiding being held personally accountable for unpaid and overdue superannuation guarantee charge and PAYG withholding liabilities incurred while they presided over the company.

Remittance of penalty and the ‘lock-down rule’

5.13               Director penalties under Division 269 in Schedule 1 can be remitted if a director stops being under one of the relevant obligations either before the director penalty notice is given to them, or within the 21 day notice period.

5.14               A director of a company stops being under an obligation in the following circumstances:

•        If the company pays the outstanding PAYG withholding amount, superannuation guarantee charge, or estimates of these amounts; or

•        If an administrator is appointed; or

•        The company begins to be wound up.

5.15               The appointment of an administrator or the winding up of a company does not affect a director penalty for a company’s unpaid tax related liabilities in the following circumstances:

•        Where the company’s obligation is to pay PAYG withholding - when three months from the due day have passed (but only to the extent that the company has failed to report the payments or withholding amounts to Commissioner);

•        Where the company’s obligation is to pay superannuation guarantee charge - when three months from the due day have passed and the company has failed to lodge a superannuation guarantee statement with the Commissioner;

•        Where the company’s obligation is to pay an estimate of PAYG withholding or superannuation guarantee charge - when three months have passed from the day by which the company was under an obligation to pay the underlying liability to which the estimate relates.

5.16               If one of these items applies, the director penalty will not be remitted if the company goes into liquidation or administration and the penalty is effectively ‘locked down’. A ‘locked down penalty’ can only be remitted if the company pays the liability to which the penalty relates or the director pays the penalty imposed.

5.17               There has been observed deliberate behaviour in taking advantage of the three month period before a director penalty for an unpaid superannuation guarantee charge or an estimate is ‘locked down’ in order to delay placing the company in liquidation or voluntary administration.

Security deposits

5.18               Division 255 in Schedule 1 provides the Commissioner the ability to require a security deposit for the payment of an existing or future tax related liability where the Commissioner has reason to believe that an entity is carrying on a business and intends to carry on that business for a limited time only. The Commissioner may also require a security deposit where they believe it is reasonable to do so. The Commissioner must give notice of the requirement to give security in the required form.

5.19               It is a criminal offence to fail to provide security as required. The penalty for non-compliance is 100 penalty units.

5.20               In the case where there are substantial tax liabilities and the value of the security requested is significant, the penalty for failing to comply with the requirement to provide security can be insufficient to ensure compliance.

Summary of new law

5.21               The amendments strengthens the Commissioner’s ability to collect superannuation guarantee charge and PAYG withholding liabilities in the following ways:

•        With respect to director penalties under Division 269 in Schedule 1, a director’s obligations in relation to ensuring their company pays an estimate of superannuation guarantee charge or withholding liability commence at the same time as their obligations in relation to ensuring the company pays the underlying liability to which the estimate relates;  

•        Removal of the three month period before director penalties are ‘locked down’ in respect of unpaid superannuation guarantee charge liabilities; and

•        Allowing the Commissioner to apply for a Court order to compel entities to comply with a security deposit requirement.

Comparison of key features of new law and current law

New law

Current law

For the purpose of the director penalty provisions in Division 269 in Schedule 1, a director is under an obligation to ensure that the company complies with its obligations in respect of an estimate under Division 268 in Schedule 1 commencing from the ‘initial day’. For PAYG liability estimates, the initial day will be:

•                For companies who are small and medium withholders, the last day of the period identified in the notice of the estimate as the period to which the estimate relates ; and

•                For companies who are large withholders, the day on which the company would have been obliged to pay the underlying liability .

For superannuation guarantee liability estimates, the initial day will be from end of the quarter to which the estimate relates.

For the purpose of the director penalty provisions in Division 269 in Schedule 1, a director is under an obligation to ensure that the company complies with its obligations in respect of an estimate under Division 268 in Schedule 1 commencing on the ‘initial day’, being the day the company is given a notice of the estimate.

A director penalty cannot be remitted if a company is placed into voluntary administration or insolvency where:

•        The company has an obligation to pay a superannuation guarantee charge and the company does not report the superannuation guarantee charge liability to the Commissioner on or before the due date;

•        The company has an obligation to pay an estimate of a superannuation guarantee charge and the day by which the company was obligated to pay the underlying liability to which the estimate relates has passed.

A director penalty cannot be remitted if a company is placed into voluntary administration or insolvency where:

•        The company has an obligation to pay a superannuation guarantee charge and the company does not report the superannuation guarantee liability to the Commissioner within three months from due date of the superannuation guarantee charge liability.

•        The company has an obligation to pay an estimate of a superannuation guarantee charge and three months from the day by which the company was obligated to pay the underlying liability to which the estimate relates has passed.

The Commissioner can seek a Court order to compel an entity to comply with a requirement to provide a security deposit for an existing for future tax related liability under section 255-100 of Schedule 1.

No equivalent.

Detailed explanation of new law

Timing of obligation to pay estimates for the purposes of Division 269 in Schedule 1

5.22               These amendments alter the time at which a director is taken to be under an obligation to ensure the company pays an estimate of an underlying superannuation guarantee charge or PAYG withholding liability for the purposes of the director penalty provisions in Division 269 in Schedule 1.

5.23               Consistent with the scope of the director penalty provisions generally, the amendments apply in relation to the directors of companies which have been issued with a notice to pay an estimate under Division 268 in Schedule 1. [Schedule 5, item 3, subsection 269-10(4) in Schedule 1]

5.24               The amendments align the date that a director commences being under an obligation to cause their company to pay an estimated liability imposed by the Commissioner to be the same date the company is either liable for the underlying liability or for the end of a quarter. [Schedule 5, item 3, subsection 269-10(5) in Schedule 1]

5.25               The amendments extend back the ‘initial day’ for a director’s obligation with respect to estimates of underlying liabilities that are superannuation guarantee charges, to be the last day of the quarter to which the estimate relates. [Schedule 5, item 3, subparagraph 269-10(5)(b) in Schedule 1]

5.26               The amendments also extend back the ‘initial day’ for estimates of underlying liabilities that are PAYG withholding liabilities, to be one of the following days:

•        For companies who are small and medium withholders, the initial day is the last day of the period identified in the notice of the estimate as the period to which the estimate relates; and

•        For companies who are large withholders, the initial day is the day on which the company would have been obliged to pay the underlying liability to the Commissioner.

[Schedule 5, item 3, subparagraph 269-10(5)(a) in Schedule 1]

5.27               The initial day will depend on the classification of the company as either a small, medium or large withholder for PAYG withholding purposes.

5.28               The initial day for large withholders differs from small and medium withholders because the law does not provide large withholders with a distinct period in which they are required to report their PAYG withholding payments. The due date for the PAYG withholding liability depends on the particular day on which the amount is withheld. For companies who are large withholders, it is appropriate for the initial day for estimates to be the day the company it is obliged to pay the amount of the withholding liability to the Commissioner to reflect the shorter time frames between the withholding of a payment and when the company must remit the withholding liability to the Commissioner.

5.29               As noted above, currently there is a timing difference between the time a director begins to be under the obligation to cause the company to pay an estimate and to cause the company to pay the actual underlying liability (to which the estimate relates). The timing difference being that an obligation to pay an estimate of an underlying liability arises at the time notice of the estimate is given, but the obligation to pay the underlying liability arose some time prior to the estimate being given.

5.30               The consequence of this timing difference is that there is a gap between the two director obligations. This gap can be exploited by directors to frustrate the original intent of the director penalty provisions and avoid being held personally accountable for unpaid and overdue superannuation guarantee charge and PAYG withholding liabilities incurred while they presided over the company. These changes resolve this timing issue by aligning the initial day for the company’s estimates to a day that can be linked directly to the related underlying withholding liability or the end of the quarter for superannuation guarantee liabilities. This treatment only applies for the purposes of working out whether a director penalty notice can be issued to a director (or former director) of a company under Division 269 in Schedule 1.

5.31               These amendments treat a director as having an obligation to cause the company to pay a Division 268 estimate before the company has an actual obligation to pay the estimate. However, this approach is justified on the basis that the company’s obligation to pay the estimate relates directly to the company’s obligation to pay the underlying liability relating to that estimate. Therefore, it is appropriate that the directors presiding over the company at the time the underlying liability arose also have an obligation to ensure their company complies with any estimate of that underlying liability issued later in time. This is the outcome these amendments are designed to achieve.

Example 5.1 - ‘initial day’ for an estimate of superannuation guarantee liability

Thien, Cristiano and Harry are directors of a company, C-R7 Pty Ltd which operates a business. C-R7 Pty Ltd employs 50 individuals. C-R7 Pty Ltd has failed to comply with its superannuation guarantee obligations by failing to lodge a superannuation guarantee statement and pay the superannuation guarantee charge for the quarter ended 31 March 2018. On 31 May 2018, Cristiano resigns as a director of C-R7 Pty Ltd. On 1 July 2018 the Commissioner issues C-R7 Pty Ltd a notice of an estimate for the superannuation guarantee charge for the quarter ended 31 March 2018.

For the purpose of the director penalty provisions in Division 269 in Schedule 1, the directors (including Cristiano who resigned) will be deemed to have an obligation to ensure that C-R7 Pty Ltd complies with the estimate. This obligation commenced on 31 March 2018 (the initial day) even though the estimate was not given until 1 July 2018. Consistent with existing law, the directors are still required to ensure that C-R7 Pty Ltd complies with the estimate at the time the estimate was given to the company: 1 July 2018 (the due date). If C-R7 Pty Ltd does not comply with the notice on 1 July 2018, the directors will be personally liable to a director penalty equivalent to the amount of the unpaid estimate for superannuation guarantee charge liability. The Commissioner can commence proceedings to recover the penalty from the directors 21 days after the directors are served with a director penalty notice.

Example 5.2 - ‘initial day’ for an estimate of PAYG withholding liability

In continuing on from Example 5.1, the Commissioner issues C-R7 Pty Ltd a notice on 1 July 2018 of an estimate for the PAYG withholding liability for the month of March 2018 arising from salaries paid to its employees. C-R7 Pty Ltd is a medium withholder.

For the purpose of the director penalty provisions in Division 269 in Schedule 1, the directors (including Cristiano who resigned on 31 May 2018) will be deemed to have an obligation to ensure that C-R7 Pty Ltd complies with the estimate. This obligation commenced on the last day of the period identified in the notice of the estimate as the period to which the underlying liability relates, this being 31 March 2018 (the initial day). Consistent with existing law, the directors are still required to ensure that C-R7 Pty Ltd complies with the estimate at the time the estimate was given to the company: 1 July 2018 (the due date). If C-R7 Pty Ltd does not comply with the notice on 1 July 2018, the directors (including Cristiano) will be personally liable to a director penalty equivalent to the amount of the unpaid estimate for PAYG withholding liability for the month of March 2018. The Commissioner can commence proceedings to recover the penalty from the directors 21 days after the directors are served with a director penalty notice.

Compliance with the obligation relating to an estimate of a liability

5.32               Under the existing law, the directors of a company must cause the company to comply with its obligations. The directors of the company continue to be under this separate obligation until the company complies, an administrator is appointed or the company begins to be wound up.

5.33               The amendments make it clear that if the obligation referred to in the existing law relates to an obligation to pay an estimate, the director is considered to be subject to their obligation to cause the company to pay the estimate in certain circumstances. [Schedule 5, item 4, subsection 269-15(2A) in Schedule 1]

5.34               One of these obligations requires a director be subject to the obligation to ensure their company complies with an estimate at all times on and after the ‘initial day’ of the estimate until the director’s obligation ceases. This includes any time before the Commissioner has issued the estimate. [Schedule 5, item 4, paragraph 269-15(2A)(c) in Schedule 1]

5.35               These amendments superimpose obligations in respect of estimates of liabilities which are extended back to either the last day of the period to which the estimate relates or the time when the underlying PAYG withholding liability was payable (depending on the withholding size of the company) or at the end of a quarter for underlying superannuation guarantee charge liability (being the initial day of the estimate). A director is required to establish that they have taken steps to ensure their company complies with the obligation relating to the actual underlying liability (before the estimate was issued). This step must be considered as part of the director establishing that they have taken the necessary steps to ensure their company discharges the obligation arising from the estimate of that underlying liability.

5.36               These changes resolve the timing issue identified above by aligning the timing of the obligations of a company’s estimates with the timing of the obligations for the related underlying liability.

Defences

5.37               The amendments introduce new conditions in the existing defences for directors who have been issued with a director penalty notice for an estimate of an underlying liability.

5.38               A director has a defence with respect to a director penalty for an unpaid estimate where they can show that during their time as a director, they took all reasonable steps to ensure that they caused the company to pay the estimate, as well as the underlying liability to which the estimate relates. [Schedule 5, item 5, subsections 269-35(3AA) and (3AB) in Schedule 1]

5.39               The new conditions on this defence are necessary to ensure that directors are not able to frustrate a director penalty in respect of estimates. The amendments deem a director’s obligation with respect to estimates to arise from the ‘initial day’, being the time when the underlying PAYG withholding liability was payable or at the end of a quarter for underlying superannuation guarantee charge liability. The new conditions on the defence are designed to protect current or former directors if during their tenure or their management and control of the company, the director can show they took all reasonable steps to ensure their company discharged the obligation in respect of both the estimate and the actual underlying liability, or alternatively show that there were no reasonable steps for the directors to take for both obligations.

5.40               If a director raises any defences against liability for the director penalty with respect to an obligation to pay an estimate, these defences will only be applicable from the ‘initial day’, and not the day the estimate was given to the company.

Application and transitional provisions

5.41               The amendments apply in relation to an estimate made under Division 268 in Schedule 1 on or after 1 July 2018 (regardless of whether the underlying liability to which the estimate relates arose before, on or after 1 July 2018). [Schedule 5, item 6]

Circumstances where a director penalty is remitted

5.42               These amendments remove the 3 month period before a director penalty is ‘locked down’ and cannot be remitted if a company is placed into voluntary administration or insolvency. This change is restricted to superannuation guarantee charges and estimates of superannuation guarantee charge. [Schedule 5, item 11, item 4 to the table in subsection 269-30(2) in Schedule 1]

5.43               Under the new law, a director penalty cannot be remitted if a company is placed into voluntary administration or insolvency where the company has an obligation to pay a superannuation guarantee charge and the company does not report the superannuation guarantee liability to the Commissioner on or before the due date.

5.44               Generally, an employer is required to remit superannuation contributions within 28 days of the end of the quarter. Where the superannuation contribution is not paid and there is a superannuation guarantee shortfall, the employer is subject to obligations to lodge the superannuation guarantee statement and pay the superannuation guarantee charge to the Commissioner. The liability for a superannuation guarantee charge arises 1 month and 28 days after the end of a quarter.  

5.45               The elimination of the 3 month time period shortens the timeframe so that director penalties are ‘locked down’ earlier and cannot be remitted after the due date provided that a superannuation guarantee statement has not be lodged on or before the due date. For superannuation guarantee liabilities the due date for the purposes of Division 269 in Schedule 1 is 1 month and 28 days after the end of the quarter. Prior to these amendments, directors would ordinarily have 4 months and 28 days from the end of the quarter to place their company into voluntary administration or insolvency before ‘lock down’ of the director penalties would occur. The amendments ensure the timing of the ‘lock down’ rule mirrors the timing of the obligations which the company and the director have to ensure that their superannuation guarantee liabilities are met.

5.46               With respect to estimates of superannuation guarantee charge liabilities, the due date is the date the company was obliged to pay the underlying liability (to which the estimate relates). Prior to these amendments, directors would ordinarily have 3 months from the due date of the underlying liability to place their company into voluntary administration or insolvency before the ‘lock down’ of the director penalty for the estimate would occur. These amendments ensure the timing of the ‘lock down’ rule mirrors the timing of the obligations which the company and directors have to ensure an estimate of superannuation guarantee charge liability is complied with.

Example 5.3 - lock down of director penalties

Susie is the director of a company, M&E Pty Ltd. M&E Pty Ltd is an employer of 10 individuals and is subject to superannuation guarantee obligations. M&E Pty Ltd fails to pay superannuation contributions for its employees for the quarter ended 31 March 2019. M&E Pty Ltd fails to lodge the superannuation guarantee statement and fails to pay the superannuation guarantee charge by the due date, being 28 May 2019. M&E Pty Ltd subsequently lodges the superannuation guarantee statement for the March 2017 quarter on 30 June 2019.

On 15 August 2019, M&E Pty Ltd is placed into voluntary administration. As a director, Susie has failed to ensure that M&E Pty Ltd meets it obligations in respect of the superannuation guarantee charge within the required timeframes.

On 30 August 2019, the Commissioner issues Susie with a director penalty notice for the outstanding superannuation guarantee charge liability. The director penalty notice issued to Susie is not capable of being remitted, despite the company being placed into voluntary administration because it took place more than 1 month and 28 days after the end of the relevant quarter for payment of superannuation guarantee charge (which is the due date for superannuation guarantee charge for the purposes of Division 269 in Schedule 1) and for M&E Pty Ltd to lodge the superannuation guarantee statement.

5.47               The amendments do not apply to PAYG withholding liabilities and estimates of PAYG withholding liabilities. This is because companies are obliged to report and pay PAYG withholding liabilities to the Commissioner occur at the same time. The due date for reporting and payment of PAYG withholding amounts are within 1 week for large withholders and generally within 28 days of the month/quarter end for medium and small withholders.

Application and transitional provisions

5.48               The amendments apply in relation to PAYG withholding liabilities and superannuation guarantee charge liabilities that first become payable on or after 1 July 2018. [Schedule 5, subitem 13(a)]

5.49               The amendments apply in relation to estimates of superannuation guarantee charge liabilities and PAYG withholding liabilities made on or after 1 July 2018 (regardless of whether the underlying liability to which the estimate relates arose before, on or after 1 July 2018). [Schedule 5, subitem 13(b)]

Order to provide security

5.50               These amendments allow the Commissioner to apply to the Federal Court to order an entity to comply with a requirement to give a security. The Commissioner must have given a notice of the requirement to provide a security deposit. [Schedule 5, item 14, subsection 255-115(1) in Schedule 1]

5.51               Enabling the Commissioner to make these applications and for the Court to make these orders addresses the instances of non-compliance with the security deposit rules. Non-compliance predominantly arises where the value of the security deposit (which reflects the value of the tax related liability) exceeds the penalty for failing to provide the security deposit. Entities who fail to comply with a Court order risk committing a criminal offence resulting in criminal penalties. These consequences are designed to drive taxpayer behaviour into complying with the Court order and providing the security deposit to the Commissioner.

5.52               The Court may also choose to place other orders on an entity to ensure the requirement to provide the security is met effectively. The Court may require that the requirement be complied with by a specified day in the order. [Schedule 5, item 14, subsections 255-115(2) and (3) in Schedule 1]

5.53               The Court has the flexibility to place ancillary orders on an entity. For example, the Court may order the provision of a different security requirement over a different asset or allow a different time period or time extension to comply with the order. These ancillary orders are consistent with the orders that can already be made by a Court under section 8G in relation to other requirements under taxation law. The consequences of failing to comply with a Court order are serious which justifies the Court’s power to alter the existing requirement and imposing new orders. This can help the entity comply with the Court order and avoid committing an offence.

5.54               If an entity is not given a Court order under this section orally, then the proper officer of the Court must serve a copy of the order on the entity in accordance with the methods specified by the Court procedural rules or, alternatively, service must be conducted as otherwise ordered by the Court. [Schedule 5, item 14, subsection 255-115(4) in Schedule 1]

5.55               An entity who fails to comply with the order commits an offence and is liable to a penalty of 50 penalty units or imprisonment for 12 months, or both. [Schedule 5, item 14, subsection 255-120(1) in Schedule 1]

5.56               This offence is an offence of strict liability. [Schedule 5, item 14, subsection 255-120(2) in Schedule 1]

5.57               This penalty ensures that appropriate consequences apply to entities that refuse to comply with an order that has been made against them by the Court. The amount of the penalty and the application of strict liability is the same as the offence for refusing to comply with other Court orders and the associated penalty that are already imposed under sections 8G and 8H. Applying the same consequences in respect of security deposits ensures a consistent outcome between the two sets of rules and is appropriate as they both deal with failures to comply with Court orders. 

5.58               An entity does not commit an offence to the extent they are not capable of complying with the order. [Schedule 5, item 14, subsection 255-120(3) in Schedule 1]

5.59               This defence is consistent with the defence set out in section 8H. The defence covers situations where an entity has entered into voluntary administration or insolvency. This ensures that an entity will not commit an offence where an entity no longer controls or manages the business and the business assets and are not capable of complying with the order.

5.60               The defence is framed as an offence-specific defence, which means that the evidential burden for proving that they are not capable of complying with the order is placed on the defendant. This approach is justified on the basis that the financial position and capability of an entity to comply with order are peculiarly within the knowledge of the defendant and would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish.

5.61               A similar approach is adopted in subsection 8C(1B), which provides that a failure to comply with a requirement under the taxation law does not amount to an offence under subsection 8C(1) to the extent that a person is not capable of complying with the relevant obligation.

Application and transitional provisions

5.62               The amendments apply in relation to a requirement to give security in relation to a tax-related liability if the Commissioner provides the notice of the requirement on or after 1 July 2018. [Schedule 5, item 15]

Consequential amendments

5.63               Schedule 5 makes consequential amendments to remove item 4 to the table in subsection 269-10(1) in Schedule 1 and the note which are no longer required. Schedule 5 also makes consequential amendments to include a note under the existing reasonably arguable position defence contained in section 269-35(3A) which clarifies that the defence may be available to times before the notice of an estimate of a superannuation guarantee charge liability is given. [Schedule 5, items 1 and 2, item 4 in table 4 of subsection 269-10(1) in Schedule 1, the note in subsection 269-10(1) in Schedule 1, the note in subsection 269-35(3A) in Schedule 1]

5.64               Schedule 5 makes consequential amendments to remove the reference to the 3 month rule in respect of superannuation guarantee liabilities and estimates. The amendments retain the 3 month rule in respect of PAYG withholding liabilities and estimates. [Schedule 5, items 7 to 10 and 12, heading to column 2, item 1 in column 2 to the table, item 2 in column 1 to the table, item 2 in column 2 to the table in subsection 269-30(2) in Schedule 1, subsection 269-30(3) in Schedule 1]



Chapter 6          

Amendments relating to employee commencement

Outline of chapter

6.1                   Schedule 6 to the Bill contains amendments to allow the pre-filling of an individual’s tax file number declaration and superannuation standard choice form by the Commissioner to the individual’s employer.

6.2                   All legislative references in this Chapter are to the TAA unless otherwise stated.

Context of amendments

6.3                   Currently, individuals must provide a tax file number declaration and superannuation standard choice form to either the Commissioner or to the individual’s employer (usually, via paper). The tax file number declaration allows an individual the option to disclose their tax file number to an employer or claim an exemption from quoting their tax file number, and provides information which can affect their withholding rates. These disclosure obligations for individuals are not mandatory under the tax law.

6.4                   A taxation officer is permitted to disclose an individual’s tax file number to an employer of the individual if the individual provided the number to the Commissioner in a tax file number declaration. However, there are situations where an employee may not know their tax file number or may be enquiring about their tax file number to the Commissioner which are not covered by this exception.

6.5                   The current disclosure rules do not permit any pre-filling of information relating to the individual to their employer.

Summary of new law

6.6                   Schedule 6 to the Bill contains amendments to allow the pre-filling of an individual’s tax file number declaration and superannuation standard choice form by the Commissioner to the individual’s employer to assist the individual to complete these forms using information held by the Commissioner.

6.7                   The amendments achieve this by providing a range of new exceptions to the tax file number offence and the confidentiality of taxpayer information rules to enable the disclosure of tax file numbers, withholding information and the superannuation member accounts of individuals.

Comparison of key features of new law and current law

New law

Current law

The Commissioner can disclose the tax file number of an individual if the employee has provided the tax file number to the Commissioner in a tax file number declaration, or made a tax file number declaration in particular circumstances.

 

The Commissioner can disclose the tax file number of an individual if the employee provided the number to the Commissioner in a tax file number declaration.

 

The Commissioner can disclose to an individuals’ employer protected information on matters relating to the withholding rates of an individual.

No equivalent.

The Commissioner can disclose protected information to an individual’s employer (including the individual’s existing superannuation membership accounts) for the purpose of the individual making an informed superannuation choice.

No equivalent.

Detailed explanation of new law

6.8                   These amendments enable the Commissioner to disclose a tax file number to an individual’s employer if the individual provided a tax file declaration to the Commissioner in relation to that employer. [Schedule 6, item 1, paragraph 202CG(a) of the ITAA 1936]

6.9                   The Commissioner can also disclose a tax file number to an individual’s employer if the employee made a tax file declaration to the Commissioner and the individual does not know their tax file number or is enquiring about the tax file number with the Commissioner. [Schedule 6, item 1, paragraph 202CG(b) of the ITAA 1936]

6.10               The amendments add two additional exceptions to the taxpayer confidentiality provisions in Division 355 in Schedule 1.

6.11               The Commissioner can disclose protected information to an employer (the payer) in relation to whom an individual has made a tax file number declaration that is in effect. The disclosure must be made for the purpose of the individual giving a declaration to the employer to determine withholding matters relating to the individual and is limited to information that relates to this purpose. The individual must request the Commissioner disclose the information in order for the disclosure to be made. [Schedule 6, item 3, item 11 to the table in subsection 355-50(2) in Schedule 1]

6.12               The Commissioner can disclose limited information to an employer (as defined in the SGAA) for the purpose of informing the individual of their existing superannuation interests, assist the individual to choose whether to maintain a current superannuation account or create a new one and to assist individuals to give effect to such a choice. [Schedule 6, item 4, item 11 to the table in subsection 355-65(3) in Schedule 1]

6.13               These changes enable the Commissioner to pre-fill information from an employee’s tax file number declaration and superannuation standard choice forms on their business management software. To assist an individual to complete these forms with the benefit of information held by the Commissioner. Currently, individuals complete these forms without the benefit of information held by the Commissioner. Individuals that do not understand the questions can supply incorrect information leading to reverse workloads for their employers.

6.14               An individual, whose information will be disclosed by the Commissioner under these amendments, must first request the Commissioner disclose their information before the Commissioner discloses their protected information to their employer’s business management software so that it can be presented as pre-filled information to assist the individual to make a withholding declaration. The individual must make this request each time they want the Commissioner to make the disclosure. For example, with each new employer or if the information held by the Commissioner changes and they want this new information to be disclosed to their employer’s business management software so that it can be presented as pre-filled information.

6.15               The disclosures enable the individual to make a tax file declaration using up-to-date information about matters that may impact their withholding rate. Currently, individuals answer questions on a tax file number declaration, which determines how much their employer withholds from their pay, without the assistance of information held by the Commissioner. This can result in the individual receiving an unexpected tax debt because their employer withheld too little throughout a financial year to cover their tax obligations (for example, a compulsory loan repayment).

6.16               The disclosures can assist the individual to make an informed choice between their employer’s default superannuation fund and their existing superannuation funds. Currently, individuals may not exercise their right to choose a fund for their employer superannuation contributions because they are unaware they have existing superannuation fund memberships or they do not know the appropriate information in order to nominate one of their existing superannuation funds in a standard choice form.

6.17               These changes ensure that an appropriate rate of withholding is applied by employers and reduce the proliferation of superannuation member accounts for individuals.

Application and transitional provisions

6.18               The amendments allowing the disclosure of a tax file number to an employer of an employee applies in relation to a tax file number declaration made on or after 1 July 2018. [Schedule 6, item 2]

6.19               The amendments in relation to the disclosure of protected information to an employee’s payer of information relating to the withholding matters of the employee apply from commencement.

6.20               The amendments in relation to the disclosure of protected information to an employee’s payer for the purpose of the employee making a superannuation fund choice apply from commencement.

 

 



Chapter 7          

Information sharing

Outline of chapter

7.1                   Schedule 7 enables the sharing and verification of tax file numbers (TFNs) which have been obtained in accordance with a Commonwealth law, between the Commissioner and Commonwealth Agencies.

7.2                   All legislative references in this Chapter are to the ITAA 1936 unless otherwise stated.

Context of amendments

7.3                   Division 355 in Schedule 1 to the TAA contains the taxpayer confidentiality rules. Subject to certain exceptions, it is an offence for taxation officers to disclose or make a record of ‘protected information’ in respect of an entity if the information is acquired in their capacity as a taxation officer.

7.4                   Protected information is information that is disclosed or obtained under or for the purposes of a taxation law. The information must relate to the affairs of the entity (although not limited to their taxation affairs) and it must identify, or be reasonably capable of being used to identify the entity.

7.5                   The prohibition on disclosure does not apply where an exception to the offence applies. These exceptions include disclosures for a range of purposes including for Government purposes relating to social welfare, health or safety.

7.6                   TFNs are not subject to the general taxpayer confidentiality laws for ‘protected information’, on the basis that they are not, in and of themselves, reasonably capable of identifying an entity.

Tax file number offences

7.7                   The TAA contains specific offences relating to TFNs. These offences are not just limited to TFNs of individuals, but cover TFNs for all entities.

7.8                   One of the TFN offences prohibits a person from recording and maintaining such a record of another person’s TFN, using another person’s TFN which connects it with the person’s identity, or divulging or communicating another person’s TFN to a third person.

7.9                   A person commits an offence for the unauthorised disclosure and recording of TFNs and faces penalties of up to 100 penalty units or imprisonment for 2 years, or both.

7.10               However, there are exceptions to the offence which allow a person to do the things prohibited, where it is done in connection with the person exercising powers or performing functions under, or in relation to, a taxation law or a specified law of the Commonwealth set out in section 202.

7.11               To some extent, these specified laws of the Commonwealth allow a Secretary of an Agency to require or request a person to provide their TFN to the Secretary, often for the purpose of the Commonwealth Agency making a personal assistance payment or benefit to that person. However some of these specified laws do not allow for the sharing and verification of TFNs between the Commonwealth Agency and the Commissioner. The scope of these powers and functions vary between each Commonwealth law, with no uniformity in the process.

7.12               The lack of consistency and clarity in the existing specified laws of the Commonwealth that are intended to enable the verification and sharing of TFNs have instead significantly inhibited the process.

7.13               These limitations have led to reduced levels of confidence in the matching of personal protected information of individuals permitted between the Commissioner and Commonwealth Agencies. This increases the risk of leakage in the personal assistance payment and social welfare system because of errors or changes in personal information such as name and address as identifiers.

Summary of new law

7.14               The amendments allow a Commonwealth Agency to provide a person’s TFN, where they have obtained it under a Commonwealth law, to the Commissioner of Taxation for the purpose of verifying the TFN and enable the Commissioner of Taxation to verify and share a person’s TFN with that Commonwealth Agency who has requested the verification.

Comparison of key features of new law and current law

New law

Current law

A Commonwealth Agency can provide a TFN of a person where they have obtained it in accordance with a Commonwealth law, to the Commissioner for the purpose of verification. The Commissioner can verify that TFN is a particular person’s and share the correct TFN of the person to the Commonwealth Agency requesting the verification.

No equivalent.

A taxation officer can make a disclosure of protected information to the Repatriation Commission if the disclosure is made for the purpose of a Commonwealth law in relation to allowances or benefits.

No equivalent.

Detailed explanation of new law

Tax file number sharing and verification

7.15               The amendments provides for a uniform process to enable the verification and sharing of TFNs between the Commissioner and Commonwealth Agencies under the taxation law.

7.16               The amendments ensure that the Commissioner and Commonwealth Agencies do not commit a TFN offence relating to the use of TFNs where they are exercising powers and performing functions permitted under a taxation law.

7.17               The changes ensure that a Commonwealth Agency who can legally request the TFN of an individual is able to verify that the TFN actually belongs to that individual by having the number verified by the Commissioner of Taxation. For example, with a verified TFN, Commonwealth Agencies who administer personal assistance payments can undertake data-matching with higher levels of confidence in the properly identifying the correct individual against third party identifiers such as name and date of birth. These changes supplement the existing taxpayer confidentiality rules by enhancing compliance activities to ensure greater accuracy for social welfare payments by:

•        Improving Family Tax Benefit accuracy;

•        Better upfront compliance activities, minimising the potential for clients receiving social security payments to be overpaid;

•        Enhancing debt recovery action by better determining capacity to pay; and

•        Enhancing child support payments through accelerating the identification of liable parents who have a change in employment circumstances.

7.18               To use this verification process, a Commonwealth Agency must obtain a TFN of a person in a manner that is in accordance with a law of the Commonwealth, and the Commonwealth Agency. An Agency Head or a relevant SES employee of the Commonwealth Agency must also believe that the TFN belongs to the person who has provided the Commonwealth Agency with the number. [Schedule 7, item 1, subsection 203(1)]

7.19               The TFN could also belong to another person from whom the Commonwealth Agency is entitled to obtain a TFN of. For example, some of the social security laws entitle a Commonwealth Agency to request the TFN of the spouse of a person who is seeking to obtain personal assistance payments.

7.20               An Agency Head or a relevant SES employee of the Commonwealth Agency can issue a notice to request the Commissioner to verify the TFN under these amendments. To ensure that the Commissioner is provided with the necessary identifying particulars, the notice must include the TFN and the full name and date of birth of the relevant person. The Commonwealth Agency may include any additional information that the Commonwealth Agency believes to be relevant to assist in identifying the individual. [Schedule 7, item 1, subsections 203(2) and (3)]

7.21               Only an Agency Head, SES employee or acting SES employee is able to make the request for the TFN verification. This ensures that the power is limited to appropriate officers of the Commonwealth Agency.

7.22               If the Commissioner is satisfied that the information provided in the request matches the TFN recorded by the Commissioner, the Commissioner can notify the requesting Commonwealth Agency whether the TFN can be verified. The Commissioner can confirm whether the TFN is correct or not correct. [Schedule 7, item 1, subsection 203(4)]

7.23               The Commissioner can also share the correct TFN of the relevant person in the notice to the Commonwealth Agency if the Commissioner is satisfied that another TFN (other than the one provided in the request which is an incorrect number) belongs to the relevant person. [Schedule 7, item 1, subsection 203(5)]

7.24               A Commonwealth Agency who receives a correct TFN from the Commissioner is taken to have obtained the number in accordance with a Commonwealth law. [Schedule 7, item 1, subsection 203(6)]

7.25               This change allows a Commonwealth Agency to use, record or disclose the number as though they had obtained it in accordance with a Commonwealth law. This enables the Commonwealth Agency to undertake data matching of personal information and TFNs that is permitted by a Commonwealth law which they administer.

Example 7.1 - verification of a TFN and permitted disclosure of other protected information

Melissa is an SES employee of the Department of Veteran Affairs. The Department of Veteran Affairs has obtained the TFN of David (a client of the Department who is in receipt of a pension) that is in accordance with the Veterans Entitlement Act 1986 . Melissa believes that the TFN belongs to David.

Melissa provides a notice to the Commissioner of Taxation requesting for the verification of David’s TFN . The notice requesting the verification contains the full name and date of birth of David, as well as his postal address.

Hope is a taxation officer and verifies that the TFN contained in the notice is the correct TFN of David. Hope provides a written notice to the Department that confirms that the TFN has been verified and is correct according to the Commissioner’s records.

Hope ascertains that the postal address provided by the Department does not match the current postal address listed for David in the Commissioner’s system. Hope also ascertains that David has salary and wages reported for a period by his employer under the Single Touch Payroll rules. Under the taxpayer confidentiality exception for an Agency Head dealing with matters relating to the social security law, Hope is able to disclose to the Department of Veteran Affairs the listed postal address of David as well as his salary and wages according to record of the Commissioner as it is for the purpose of administering a social security law.

Example 7.2 - verification and correction of a TFN

Tristan is an SES employee of the Department of Human Services. The Department of Human Services has obtained the TFN of Emily (a client of the Department who is in receipt of a Centrelink payment) that is in accordance with a social security law. Tristan believes that the TFN belongs to Emily.

Tristan provides a notice to the Commissioner of Taxation requesting for the verification of Emily’s TFN . The notice requesting the verification contains the full name and date of birth of Emily.

Chris is a taxation officer and verifies that the TFN contained in the notice is the not correct TFN of Emily. Chris provides a written notice to the Department that confirms that the TFN cannot be verified and is not correct according to the Commissioner’s records. Chris is able to provide the correct TFN of Emily in the notice.

7.26               The amendments are not limited and do not limit the application of other provisions in the tax law or laws of the Commonwealth which provide for the sharing or verification of TFNs. [Schedule 7, item 1, subsection 203(7)]

7.27               The amendments make it clear that the notices provided by the Commissioner or a Commonwealth Agency to verify the TFN are not legislative instruments within the meaning of section 8 of the Legislation Act 2003 . [Schedule 7, item 1, subsection 203(8)]

7.28               This provision is merely declaring the state of the law, rather than prescribing a substantive exemption from the requirements of the Legislation Act 2003 .

Providing information to the Repatriation Commission

7.29               The amendments also broaden disclosures made by a taxation officer to the Repatriation Commission to cover disclosures made for the purpose of a Commonwealth law in relation to allowances or benefits. This is in addition to the existing disclosure exception which covers a Commonwealth law relating to pensions. [Schedule 7, item 2, table item 3 to table 1 in 355-65(2) in Schedule 1 to the TAA]



Chapter 8          

Miscellaneous amendments

Outline of chapter

8.1                   Schedule 8 to this Bill makes a number of miscellaneous amendments to the taxation, superannuation and other laws. These amendments are part of the Government’s commitment to the care and maintenance of the Treasury portfolio legislation including the taxation and superannuation systems.

8.2                   These amendments make minor technical changes to correct spelling errors, bring provisions in line with drafting conventions, repeal inoperative provisions and update references in the tax law to reflect changes to the names of State and Territory legislation and specifically listed deductible gift recipients. The Schedule also makes consequential amendments as a result of other recent changes to the law, makes minor technical amendments to remove administrative inefficiencies, clarifies the law ensuring the law operates in accordance with the policy intent and rewrites certain provisions to standardise rules across various types of tax, improving efficiency, coherency and simplicity in tax administration.

Context of amendments

8.3                   Miscellaneous amendments to the taxation and superannuation laws such as those contained in Schedule 8 are periodically made to remove anomalies, correct unintended outcomes and improve the quality of Treasury laws. Progressing such amendments gives priority to the care and maintenance of the tax system, a process supported by a recommendation of the 2008 Tax Design Review Panel, which was appointed to examine how to reduce delays in the enactment of tax legislation and improve the quality of tax law changes.

Summary of new law

8.4                   These miscellaneous amendments address technical deficiencies and legislative uncertainties within the taxation, superannuation and other laws.

8.5                   Schedule 8 contains the following Parts:

•        Part 1—Amendments to commencement provisions of amending Bills;

•        Part 2—Amendments to application provisions of amending Bills;

•        Part 3—Road user charge;

•        Part 4—Seasonal Workers Program;

•        Part 5—Offshore information notices;

•        Part 6—Various amendments; and

•        Part 7—Transitional arrangements relating to the disclosure of information.

Detailed explanation of new law

Part 1—Amendments to commencement provisions of amending Bills

Unclear commencement dates for amendments in the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012

8.6                   Items 2 to 13 in Schedule 1 to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 were to commence on a single day to be fixed by Proclamation. The Superannuation Legislation Amendment (MySuper Core Provisions) Proclamation 2012 provided for the commencement of items 3 to 14 in Schedule 1 to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 on 1 January 2013. The items in the Proclamation were incorrectly identified, as there is no item 14 in Schedule 1 to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 , and item 2 in that Schedule was not proclaimed to have commenced.

8.7                   A number of superannuation-related amendments made by the Fair Work Amendment Act 2012 and by Schedule 4 of the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012 are contingent on the commencement of item 2 in Schedule 1 to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 .

8.8                   These amendments amend the commencement table of the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 to clarify that item 2 in Schedule 1 to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 commenced on 1 January 2013. This also clarifies the commencement of amendments contingent on item 2 in Schedule 1 to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012. [Schedule 8, item 1, item 3 in the table in subsection 2(1) of the Superannuation Legislation Amendment (MySuper Core Provisions Act 2012]

8.9                   The 1 January 2013 commencement date for item 2 is the date that the item was intended to commence through the original Proclamation. Amending the commencement table in this way is appropriate now that the exact day of commencement is known.

8.10               These amendments commence immediately after the commencement of sections 1 to 3 of the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 (that is, immediately after 28 November 2012). Although, this change retrospectively corrects the technical issues with the commencement of the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 , it does not have a negative impact on taxpayers or other individuals as the law was intended to apply, and has always been applied, on the basis that item 2 in Schedule 1 to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 commenced from 1 January 2013.

Part 2—Amendments to application provisions of amending Bills

Ensuring that Australian financial institutions are required to report in accordance with the policy intent

8.11               The Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2015 amended the taxation law to require certain financial institutions in Australia to report information to the Commissioner about financial accounts held by foreign tax residents. In order to identify relevant reportable accounts, financial institutions need to carry out the due diligence procedures outlined in the Standard for Automatic Exchange of Financial Account Information in Tax Matters, commonly known as the Common Reporting Standard (CRS). A copy of this document is available on the OECD website (www.oecd.org).

8.12               A ‘Lower Value Account’ is one category of accounts, amongst others, specified and defined in the CRS. Subitem 14(2) of the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2015 requires Australian financial institutions to carry out due diligence on ‘Lower Value Accounts’ by 31 July 2019.

8.13               Subitem 15(3) of the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2015 requires Australian financial institutions to provide statements to the Commissioner about ‘Lower Value Accounts’ held by foreign residents no later than 31 July 2019. Essentially, this provision was designed to modify the standard rule in subsection 396-105(6) in Schedule 1 to the TAA that would otherwise require financial institutions to provide a statement in relation to these accounts identified in a particular calendar year by 31 July of the following year. The intention was to allow financial institutions the full period up to 31 July 2019 to carry out due diligence on Lower Value Accounts, while preserving the requirement that any such accounts found to be Reportable Accounts are also reported by 31 July 2019.

8.14               However, subitem 15(3) of the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2015 operated too narrowly. The CRS specifies that a financial institution does not have to report an account (and therefore provide a statement to the Commissioner about that account) until it has identified the account as being a ‘Reportable Account’. Therefore, a financial institution could, for example, conduct the necessary due diligence to identify Lower Value Accounts in the first half of 2019 and because the account would not be identified as a Reportable Account in 2017, it would not be subject to subitem 15(3). Instead it would be subject to the subsection 396-105(6) in Schedule 1 to the TAA and the financial institution would not need to report that account until 31 July 2020 (the first 31 July after it has been identified as a Reportable Account).

8.15               This Schedule amends subitem 15(3) of the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2015 so that a Lower Value Account maintained by an Australian financial institution in the 2018 calendar year will be treated as being a Reportable Account, regardless of when the financial institution identifies it as a ‘Reportable Account’. This ensures that Australian financial institutions must provide statements about such accounts to the Commissioner by 31 July 2019 (that is, the statement is due on the first 31 July after the end of 2018 in accordance with the standard rule provided by subsection 396-105(6) in Schedule 1 to the TAA). This ensures that subitem 15(3) of the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2015 applies in accordance with the announced policy intent. [Schedule 8, item 2, subitem 15(3) of the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2016]

8.16               These amendments commence on 1 January 2018 to ensure that accounts maintained in the 2018 calendar year must be reported by 31 July 2019. Although, this change retrospectively corrects technical issues with subitem 15(3), it is not expected to have a negative impact on Australian financial institutions or other individuals as the amendments ensure that subitem 15(3) operates in line with its announced intent. That is, the due date for reporting is the same date that is already generally understood by Australian financial institutions and for which they are taking action to meet.

8.17               These amendments do not change the operation of current subitem 15(3) for the 2017 calendar year. That is, a financial institution that has conducted due diligence in 2017 to identify an account as a Reportable Account that is a Lower Value Account must provide a statement relating to the account by 31 July 2019.

Part 3—Road user charge

Consequential amendments as a result of the Fuel Tax Regulation 2016

8.18               This Schedule makes consequential amendments to the Fuel Tax Act 2006 . This was a result of amendments made by the Fuel Tax Regulation 2016 which omitted regulation 43-10 of the Fuel Tax Regulations 2006 (former regulations). Regulation 43-10 of the former regulations allowed the Road User Charge (RUC), which is expressed in cents for each litre of fuel, to be converted to a rate in cents for each kilogram of fuel. This conversion allowed the RUC to be applied to fuels sold in kilograms such as liquefied natural gas (LNG) and compressed natural gas (CNG) powered heavy vehicles on-road.

8.19               The amendments streamline the process of applying the RUC to fuels sold in kilograms and provide ongoing structural flexibility for the Transport Minister to determine rates for the RUC in litres, kilograms and other units of measurement of fuel. For example, taxpayers that purchase fuels sold in kilograms (such as LNG or CNG) would apply the RUC expressed in cents per kilogram of fuel directly rather than undertake a conversion process. [Schedule 8, items 3 and 4, subsections 43-10(7), (8) and (11A) of the Fuel Tax Act 2006]

8.20               The amendments also ensure that the Transport Minister cannot make more than one determination in respect of a class of taxable fuel (such as litres, kilograms etc.) in a financial year if the effect of the determination would be to increase the RUC for that class more than once in a financial year. [Schedule 8, item 5, subsection 43-10(12) of the Fuel Tax Act 2006]

8.21               The amendments also apply the converted RUC rates (cents for each kilogram of fuel) to their respective periods for previously issued RUC determinations, which were expressed in cents for each litre of fuel. Further, the amendments ensure that the Fuel Tax (Road User Charge) Determination 2017continues in force as if it were a determination made under the amendments. These amendments do not impact taxpayers as they apply the same rates that have been previously applied in past years and over the same periods they applied to. [Schedule 8, items 6 and 7]

8.22               Further, the amendments ensure that the converted cents for each kilogram of fuel RUC rate pursuant to the Fuel Tax (Road User Charge) Determination 2017 remains in effect until it is revoked by a new RUC determination (for taxable fuels for which duty is payable at a rate per kilogram) made by the Transport Minister. [Schedule 8, item 7]

Part 4—Seasonal Workers Program

Consequential amendments as a result of the Migration Amendment (Temporary Activity Visas) Regulation 2016

8.23               This Schedule makes consequential amendments to the ITAA 1997 and Schedule 1 to the TAA as a result of amendments made by the Migration Amendment (Temporary Activity Visas) Regulation 2016 , which changed the classification of the Seasonal Labour Mobility Program visa from the ‘ Special Program Visa (subclass 416)’ to the ‘Temporary Work (International Relations) Visa (subclass 403)’. The consequential amendments are required to ensure that the withholding tax provisions operate in relation to the new visa subclass in the same way that the provisions operate in relation to holders of the Special Program Visa (subclass 416).

8.24               The amendments ensure that an employer must withhold an amount from salary, wages, commission, bonuses or allowances it pays to certain employees that hold the Temporary Work (International Relations) Visa (subclass 403) at the rate provided by the Taxation Administration Regulations 2017 . [Schedule 8, item 9, subparagraph 12-319A(b)(ii) in Schedule 1 to the TAA]

8.25               The amendments also ensure that certain employees that hold the Temporary Work (International Relations) Visa (subclass 403) are liable to pay income tax at the special rate that applies under the Seasonal Labour Mobility Program withholding tax (as provided by the Income Tax (Seasonal Labour Mobility Program Withholding Tax) Act 2012 ). [Schedule 8, item 8, subparagraph 840-905(b)(ii) of the ITAA 1997]

8.26               The amendments apply to income derived and salary, wages, commission, bonuses and allowances paid on or after 19 November 2016 and ensure that the law is consistent with the practice generally adopted by employers prior to and on and after 19 November 2016 of withholding at a rate of 15 per cent. This aligns with the date the change to the visa classification was made by the Migration Amendment (Temporary Activity Visas) Regulation 2016. Whilst the amendments are retrospective, they are wholly beneficial to employees that hold such visas and their employers. This is because the amendments ensure employees that held the new visa classification had access to a final flat tax rate of 15 per cent on their earnings. Without the amendment, higher marginal tax rates would apply, and employers would be required to have withheld at the higher rate. Any employers that have withheld at the higher rate prior to the amendments are not subject to penalties under the tax law, and the employees are entitled to refunds of those amounts. [Schedule 8, item 10]

8.27               This Schedule also makes amendments to ensure that despite these amendments, the withholding tax provisions continue to operate in relation to holders of the Special Program Visa (subclass 416). [Schedule 8, item 11]

Part 5—Offshore information notices

Rewriting the offshore information notice rules in Schedule 1 to the TAA

8.28               Part 5 of Schedule 8 to this Bill rewrites provisions regarding offshore information notices from the ITAA 1936 into Schedule 1 to the TAA.

8.29               The rewritten provisions make changes to conform to the legislative approach used in Schedule 1 to the TAA, to simplify how the law is expressed, and to remove any ambiguity about the operation of the law.

8.30               The rewritten provisions also contain newly written guide material and the provision is restructured so as to simplify the language and expression of the provision.

8.31               In general, the legal effect of the provisions is not intended to change as a result of the rewrite. However, several changes have been made to extend the operation of the offshore information notice regime to all taxes administered by the Commissioner, and to simplify the operation of the provision. The effect of these changes is detailed below.

Application to all tax-related liabilities

8.32               Currently, the offshore information notice regime for income tax is contained in the ITAA 1936, and this provision is applied to PRRT and the Register of Foreign Ownership of Agricultural Land through the Petroleum Resource Rent Tax Assessment Act 1987 and the Register of Foreign Ownership of Water or Agricultural Land Act 2015 , respectively. Schedule 8 to this Bill extends the offshore information notice regime to all taxes administered by the Commissioner. [Schedule 8, items 12, 14, 15 and 19, section 264A of the ITAA 1936; section 108A of the Petroleum Resource Rent Tax Assessment Act 1987; section 33 of the Register of Foreign Ownership of Water or Agricultural Land Act 2015; and Subdivision 353-B in Schedule 1 to the TAA]

8.33               Offshore information notices are considered to be effective in improving the Commissioner's ability to administer Australia's income tax and PRRT regimes in relation to overseas taxpayers. Extending this regime to all taxes will allow the Commissioner to better administer other taxes that are increasingly being applied to a greater number of foreign taxpayers as a result of recent policy decisions, including the application of GST to digital products from overseas.

8.34               This change continues the ongoing simplification work of successive governments to standardise the administrative provisions applying to taxes the Commissioner administers.

8.35               The Commissioner's decision to issue an offshore information notice remains subject to judicial review under the Administrative Decisions (Judicial Review) Act 1977 .

Evidentiary consequences of non-compliance

8.36               Schedule 8 to this Bill amends the law so that a refusal or failure to provide information or documents as requested in an offshore information notice has the effect that the information or documents requested are inadmissible in proceedings under Part IVC of the TAA disputing any assessment for a tax-related liability. [Schedule 8, item 19, section 353-30 in Schedule 1 to the TAA]

8.37               This is an extension to the evidentiary consequences of failing or refusing to comply with an offshore information notice, which, under the current law, limit inadmissibility to proceedings disputing the assessment or assessments in relation to which the information or documents were requested.

8.38               This change follows and complements the extension of the offshore notice regime to all taxes administered by the Commissioner, and encourages the timely provision of all information and documents needed by the Commissioner to obtain a full and correct understanding of the transactions under examination and to arrive at an accurate assessment or assessments for each tax for which the taxpayer maybe liable.

The Commissioner issues an offshore information notice to Skalex Pty Ltd. The notice contains six requests for information or documents relating to income tax. Skalex Pty Ltd complies with five of the requests, but refuses to provide documents under the last request.

No proceedings relating to assessments of income tax for Skalex Pty Ltd eventuate. However, the Commissioner separately brings proceedings against Skalex Pty Ltd to determine its GST liability.

The information and documents covered by the request with which Skalex Pty Ltd refused to comply is inadmissible in these proceedings to challenge assessments for a GST liability, even though the request was made in the context of income tax.

8.39               Consistent with the existing law, no information or documents may be admitted when they are covered by an offshore information notice that has not been fully complied with. This limitation recognises that allowing evidence to be admitted from partial compliance with an offshore information notice will not create the necessary incentives required to encourage full and complete disclosure to the Commissioner. Allowing evidence from partial compliance to be automatically admissible will merely encourage taxpayers to only provide information and evidence that supports their position and to continue to withhold from the Commissioner all other information.

Commissioner's considerations when determining consent to evidence

8.40               If a taxpayer refuses or fails to comply with a request set out in an offshore information notice, the information or documents covered by that request are not admissible in proceedings disputing the taxpayer's assessment for a tax-related liability.

8.41               However, the Commissioner may consent to the taxpayer admitting the information or documents into evidence in such proceedings.

8.42               Schedule 8 to this Bill will require the Commissioner, when exercising this power, to consider whether the absence of the information or documents would have the effect that the remaining information or documents relevant to the proceeding are, or are likely to be, misleading. [Schedule 8, item 19, subsection 353-30(2) in Schedule 1 to the TAA]

8.43               Under the current law, the Commissioner is instead required to have regard to whether the absence of the information or documents would have the effect that the remaining information or documents relevant to that issue are, or are likely to be, misleading.

8.44               This change allows the Commissioner to consider the absence of the relevant information or documents in the context of the whole of the proceedings rather than on an issue by issue basis. This is a broader and simpler consideration which removes the need for complex rules setting out different outcomes based upon the number of issues in relation to which the information or documents are relevant.

Following on from Example 1.1, the Commissioner must consider whether to consent to the admission into evidence of the information and documents covered by the request with which Skalex Pty Ltd refused to comply.

In deciding whether to consent, the Commissioner must consider whether the absence of the information or documents would have the effect that the remaining information or documents that are relevant to the proceedings are, or are likely to be, misleading.

Consequential amendments

8.45               A number of consequential amendments are made to reflect the movement of the provisions from the ITAA 1936 to Schedule 1 to the TAA.

8.46               Definitions of offshore information and offshore document are inserted into the ITAA 1997. [Schedule 8, item 13, subsection 995-1(1) of the ITAA 1997]

8.47               The definition of statements made to a taxation officer in the TAA has been updated to reflect the movement of the offshore information notice provisions into Schedule 1 . [Schedule 8, items 16 and 17, subsection 8J(2) of the TAA]

8.48               Guide material has been inserted at the beginning of Division 353 in line with drafting practice throughout the TAA. [Schedule 8, item 18, Division 353 in Schedule 1 to the TAA]

Finding tables

8.49               This Chapter includes finding tables to assist in identifying which provision in this Schedule corresponds to a provision in the old law that has been rewritten, and vice versa.

8.50               References to old law in the finding tables are to these provisions in the ITAA 1936.

8.51               References to the new law are to provisions in the TAA, unless otherwise indicated. Also, in the finding tables:

Finding table 1 — old law to new law

Old law

New law

264A

353-25 and 353-30 in Schedule 1

Finding table 2 — new law to old law

New law

Old law

353-25 in Schedule 1

264A

353-30 in Schedule 1

264A

Part 6—Various amendments

Correcting misplaced comma in note in A New Tax System (Goods and Services Tax) Act 1999

8.52               This Schedule corrects a typographical error involving the misplacement of a comma in a note at the end of the definition of taxable supply in the A New Tax System (Goods and Services Tax) Act 1999 . [Schedule 8, item 20, note to the definition of ‘taxable supply’ in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999]

Consequential amendments relating to the Public Governance and Resources Legislation Amendment Act (No. 1) 2017  

8.53               This Schedule repeals section 44AAJ of the Competition and Consumer Act 2010 to align the reporting requirements of the Australian Energy Regulator and the Australian Competition and Consumer Commission, which produce a combined Annual Report. The amendment removes the requirement for the Australian Energy Regulator to produce its own report in addition to the combined report, which already meets the standard legislative requirements set out in the Public Governance, Performance and Accountability Act 2013 . [Schedule 8, item 21, section 44AAJ of the Competition and Consumer Act 2010]

8.54               The repeal applies in relation to reporting periods that commence on or after 1 July 2018. [Schedule 8, item 22]

Removing inoperative provisions in the ITAA 1936 and associated consequential amendments

8.55               Sections 163A and 163B of the ITAA 1936 are inoperative, applying to the 2001 and prior income years. This Schedule repeals these provisions and makes associated consequential amendments. [Schedule 8, items 23, 32, 34, 49, 50, 57 to 60, 64, 65 and 67, paragraph (b) of the definition of ‘income tax’ in subsection 3(1) of the Crimes (Taxation Offences) Act 1980, subparagraphs 254(2)(a)(i) and 255(4)(a)(i) and sections 163A, 163AA, 163B and 254 of the ITAA 1936, items 9 and 10 in the table in subsection 8AAB(4) of the TAA, item 50 in the table in subsection 250-10(1) and items 1, 3 and 5 in the table in 340-10(2) in Schedule 1 to the TAA and subparagraphs 8A(1)(a)(va), 8A(1)(a)(vb) and 12A(1)(a)(i) of the Taxation (Interest on Overpayments and Early Payments) Act 1983]

Updating the taxation law to reflect updates in State and Territory legislation

8.56               Part XIC of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) enables the States and Territories to devolve their administration and payment of fringe benefits tax to the departmental level in a similar way to the arrangements that apply for the Commonwealth.

8.57               The States and Territory departmental bodies that are eligible for nomination for these purposes are listed in section 135T of the FBTAA. As each State and Territory has its own legislative definitions of bodies that are the equivalent of Commonwealth departments, subsection 135T(1) of the FBTAA defines an ‘eligible State or Territory body’ by reference to the relevant State or Territory legislation.

8.58               This Schedule updates section 135T of the FBTAA to reflect changes to the legislation in various States and Territories. [Schedule 8, item 24, subsection 135T(1) of the FBTAA]

8.59               This update applies from the first 1 April that occurs on or after this Bill commences to coincide with the start of years of tax for fringe benefits tax purposes. [Schedule 8, item 25]

Correcting reference to ‘fuel tax credit’ in the Fuel Tax Act 2006

8.60               Subsection 43-5(1) of the Fuel Tax Act 2006 incorrectly refers to a ‘tax fuel credit’. This Schedule corrects the reference to ‘fuel tax credit’. [Schedule 8, item 26, subsection 43-5(1) of Fuel Tax Act 2006]

Spelling error in subsection 26BC(9D) of the ITAA 1936

8.61               Currently, subsection 26BC(9D) of the ITAA 1936 refers to ‘the applicaton of Parts 3-1…’. This Schedule corrects the spelling error. [Schedule 8, item 27, subsection 26BC(9D) of ITAA 1936]

Spelling error in section 121EJ of the ITAA 1936

8.62               Currently, section 121EJ of the ITAA 1936 refers to ‘OB activites’. This Schedule corrects the spelling error. [Schedule 8, item 28, section 121EJ of ITAA 1936]

Amendments ensuring consistent treatment between deferred annuities

8.63               The definition of ‘ineligible annuity’ in subsection 159GP(1) of the ITAA 1936 provides a carve-out from the definition of qualifying security. This carve-out currently refers to ‘an annuity issued by a life assurance company to or for the benefit of a natural person (other than in the capacity of the trustee of a trust estate)’. The carve-out applies to a deferred annuity purchased directly by an individual from a life company, but not to an annuity purchased by a superannuation fund to underwrite the liabilities it has in respect of its members.

8.64               As a result, annuities that are issued by life companies to complying superannuation funds to meet their liabilities to provide deferred superannuation income streams may be subject to double taxation during the accumulation (pre-retirement) phase. This double taxation arises from annuities of this kind falling within the definition of qualifying security, meaning that they are taxed at both the life company level under Division 320 of the ITAA 1997 and at the superannuation fund level under the accruals taxation rules in Division 230.

8.65               This Schedule amends the definition of ‘ineligible annuity’ in subsection 159GP(1) to include annuities that are issued by a life assurance company to a complying superannuation fund for the sole purpose of the fund meeting its liabilities to provide a deferred superannuation income stream to one or more of its members. [Schedule 8, item 30, paragraph 159GP(1)(b) of the ITAA 1936]

8.66               To be covered by the definition of ineligible annuity, the value of the annuity must be the same or substantially the same as the value of the deferred superannuation income stream (or streams) to its members. The terms on which the annuity is payable must also be the same or substantially the same as the terms on which the deferred superannuation income stream (or streams) are payable. [Schedule 8, item 30, subparagraphs 159GP(1)(b)(ii) and (iii) of the ITAA 1936].

8.67               The requirement about benefits being ‘substantially the same’ ensures that the benefits payable under the annuity are materially the same as the underlying benefits that are paid to the fund’s members, while allowing for differences that arise from the annuity not being directly issued to the member. These differences include things like slight differences in timing for the payment of benefits or in payment amounts because of fees and costs.

8.68               The Schedule also makes equivalent amendments in respect of annuities issued to retirement savings account (RSA) providers that are held by a provider for the purposes of meeting its liabilities to provide a deferred income stream to one or more of its holders. [Schedule 8, item 30, paragraph 159GP(1)(c) of the ITAA 1936]

8.69               These changes prevent double taxation from arising in respect of annuities that are issued to superannuation funds and RSA providers and ensure consistent treatment with deferred annuities that are purchased directly from life companies by individuals.

8.70               To facilitate these changes, the amendments insert the definition of ‘deferred superannuation income stream’ into the section 159GP. This definition refers directly to the definition in the ITAA 1997. [Schedule 8, item 29, subsection 159GP(1) of the ITAA 1936]

8.71               The changes apply from 1 July 2017, being the time from which the rules about deferred income streams also began to apply. Although the changes are retrospective in nature, they are wholly beneficial to taxpayers as they ensure that they are not subject to unintended double taxation. [Schedule 8, item 31]

Duplication of words ‘agreement’ and ‘choice’ in the ITAA 1936

8.72               Currently, subparagraph 177C(2)(a)(i) of the ITAA 1936 refers to 'the making of an agreement, choice, declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option'.

8.73               This Schedule removes the erroneous duplication of the words 'agreement' and 'choice'. [Schedule 8, item 33, subparagraph 177C(2)(a)(i) of the ITAA 1936]

Name changes for deductible gift recipients

8.74               This Schedule updates the specific listing of three deductible gift recipients that have changed their legal names.

8.75               The amendments apply retrospectively. This ensures that all gifts collected by the entities after they changed names are lawful and tax deductibility for donations are preserved.

8.76               Given that the entities have not changed their activities or objects, the ATO has been administering the law by allowing deductions made on or after the names changed to the renamed entities. Therefore, retrospective application of the changes is beneficial to taxpayers and ensures actions taken are valid and supported by the law.

Royal Society for the Prevention of Cruelty to Animals Tasmania

8.77               The Royal Society for the Prevention of Cruelty to Animals Tasmania Limited changed its name to ‘Royal Society for the Prevention of Cruelty to Animals Tasmania’, effective from 11 April 2016.

8.78               This Schedule updates the listing of this entity, effective for gifts or contributions made on or after 11 April 2016. [Schedule 8, items 35 and 36, item 4.2.11 in the table in subsection 30-45(2) of the ITAA 1997]

The East African Fund Limited

8.79               The East African Fund changed its name to ‘The East African Fund Limited’, effective from 17 July 2017.

8.80               This Schedule updates the listing of this entity, effective for gifts or contributions made on or after 17 July 2017. [Schedule 8, items 37 and 38, item 9.2.15 in the table in subsection 30-80(2) of the ITAA 1997]

The Prince’s Trust Australia Limited

8.81               The Prince’s Charities Australia Limited changed its name to ‘The Prince’s Trust Australia Limited’, effective from 17 January 2013.

8.82               This Schedule updates the listing of this entity, effective for gifts or contributions made on or after 17 January 2013. [Schedule 8, items 39 and 40, item 13.2.20 in the table in section 30-105 of the ITAA 1997]

Consequential amendments

8.83               The index in Division 30 has been updated to reflect the amended listings for ‘The Prince’s Trust Australia Limited’ and ‘The East African Fund Limited’. [Schedule 8, items 41and 42, items 45B and 89A in the table in section 30-315 of the ITAA 1997]

8.84               The index does not require consequential amendment for the name change for the Royal Society for the Prevention of Cruelty to Animals Tasmania because the current entry in the index refers to ‘Royal Societies for the Prevention of Cruelty to Animals’, which is broad enough to cover the changes.

Reversionary transition to retirement income streams

8.85               A transition to retirement income stream is one type of superannuation income stream that can be paid to an individual who has reached preservation age but has not yet retired. Other examples of such income streams are non-commutable allocated annuities and non-commutable allocated pensions and transition to retirement pensions (for simplicity, these income streams are referred to collectively in this Chapter as ‘TRISs’). After a TRIS commences, it retains its character as a TRIS even after the recipient satisfies a general condition of release.

8.86               When the beneficiary of a TRIS satisfies certain conditions of release (such as retirement), the TRIS converts to being in the ‘retirement phase’. As with other superannuation income streams, income from the assets that support a TRIS that is in the retirement phase is generally exempt from income tax. After a TRIS commences, it retains its character as a TRIS even after the recipient satisfies a general condition of release.

8.87               Under the current law, if the recipient of a reversionary TRIS dies, the TRIS can only revert to a dependent beneficiary if the beneficiary satisfies one of the relevant conditions of release. This outcome arises because of the interaction between the specific ‘retirement phase’ definition that applies to TRISs and the requirement in regulation 6.21 of the SIS Regs that death benefits can only be paid through a superannuation income stream that is in the retirement phase.

8.88                This Schedule modifies the rules that determine when a TRIS is in the retirement phase. The changes ensure that reversionary TRISs can always be paid to a reversionary beneficiary, irrespective of whether they have satisfied a condition of release.

8.89               The amendments achieve this by excluding reversionary beneficiaries from the requirement that, to be in the retirement phase, a TRIS must be paid to a beneficiary who has satisfied a condition of release. [Schedule 8, item 43, paragraph 307-80(3)(aa) of the ITAA 1997]

8.90               This means that TRISs that are paid to a reversionary beneficiary are subject to the general retirement phase definition in subsection 307-80(1) (which simply requires that a superannuation benefit is paid).

8.91               The change will allow a reversionary TRIS to be paid to a dependant beneficiary rather than having to be commuted and a new income stream started from the deceased member’s underlying superannuation interests. This approach is consistent with the treatment of other superannuation income streams, which do not require the reversionary beneficiary to satisfy a condition of release.

8.92               A reversionary beneficiary is a beneficiary who receives a benefit from a superannuation income stream that continues to be paid after the death of the primary beneficiary (that is, the income stream does not cease on death). The term ‘reversionary beneficiary’ takes on its ordinary meaning, consistent with the approach in other provisions (such as the transfer balance cap ‘credit’ rules in item 1 in the table to subsection 294-25(1)).

8.93               Although not covered explicitly by the amendments, a reversionary TRIS can only be paid to a reversionary beneficiary who is also a dependant beneficiary of the deceased. This additional requirement arises because of the compulsory cashing rules in regulation 6.21 of the SIS Regs, which, as noted above, restricts the payment of a deceased member’s superannuation interests through a pension or an annuity to dependant beneficiaries.

8.94               The amendments apply to the part of the retirement phase definition that relates to TRISs. To ensure that the change has effect from the same time that the ‘retirement phase’ definition first applied, the amendments apply in the same way as any other provision that refers to the retirement phase definition. [Schedule 8, item 44]

8.95               The retirement phase definition was introduced as part of the superannuation reform package enacted in 2016 and was used in respect of several measures that applied from different times. Applying the changes in the above way ensures that the amended definition takes effect from the first time that it applied in relation to each of those measures. This approach is necessary given the way the original application rule for the definition was constructed (see item 11 in Schedule 9 to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 ).

8.96               In practice, the amendment largely applies from 1 July 2017, being the time from which most of the measures that first began using the retirement phase definition applied.

8.97               Applying the amendments in this way will result in the changes having a retrospective application. However, this retrospective application is appropriate because it is wholly beneficial to superannuation providers and reversionary beneficiaries, who will have a greater range of options in dealing with the superannuation interests of deceased members. The changes ensure that any payments of TRISs to reversionary beneficiaries that have occurred since 1 July 2017 do not result in a contravention of the requirement in regulation 6.21 of the SIS Regs (that only superannuation income streams that are in the retirement phase can be paid to dependent beneficiaries).

Incorrect section reference in note to subsection 311-55 of the ITAA 1997

8.98               Currently, the note to subsection 311-55 of the ITAA 1997 refers erroneously to 'Section 320'. This Schedule corrects the typographical error, so that the note refers to ‘Section 320-200’. [Schedule 8, item 45, note to subsection 311-55(1) of the ITAA 1997]

Inserting definition of ‘Arts Minister’ in the ITAA 1997

8.99               Currently, the ITAA 1997 does not define ‘Arts Minister’. However, the term ‘Arts Minister’ is used extensively in the ITAA 1997, notably in Divisions 30 and 376. This Schedule defines ‘Arts Minister’ as the Minister administering the National Gallery Act 1975 ’. [Schedule 8, item 46, subsection 995-1(1) of the ITAA 1997]

Removing inoperative provisions in the Income Tax (Transitional Provisions) Act 1997

8.100           This Schedule repeals transitional provisions relating to the refunding of tax offsets that applies only to the 2012-13 income year. These provisions are inoperative. [Schedule 8, item 47, Division 67 of the Income Tax (Transitional Provisions) Act 1997]

Ensuring defined terms in the TAA are identified in line with applicable drafting conventions

8.101           Currently, various defined terms in the TAA are incorrectly identified with an asterisk. This Schedule ensures those defined terms are identified in line with applicable drafting conventions for the TAA (outside of Schedule 1 to that Act). [Schedule 8, items 48 and 52 to 55, paragraph 3B(1AA)(d), definitions of ‘adjusted rest cost base asset setting amount’, ‘original reset cost base asset setting amount’, ‘tax on capital gain’ in subsection 8W(1C) and subsection 8W(4) in the TAA ]

Removing note in TAA containing a redundant reference

8.102           This Schedule repeals the note to subsection 8AAZLGA(3) of the TAA, which contains a reference to ‘Part 2A of the regulations’. The Taxation Administration Regulations 2017 (which were remade on 1 October 2017) no longer contain a Part 2A. [Schedule 8, item 51, note to subsection 8AAZLGA(3) in the TAA ]

Incorrect definition of the Australian Securities and Investments Commission

8.103           Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015 contained amendments to define the Australian Securities and Investments Commission as ASIC and standardise that definition throughout Schedule 1 to the TAA. This included amendments to subsection 355-65(4) in Schedule 1 to the TAA, which concerns the disclosure of protected information to ASIC. These amendments commenced on Royal Assent (that is, 30 November 2015) (refer item 5 of commencement table).

8.104           The Foreign Acquisitions and Takeovers Legislation Amendment Act 2015 also contained amendments to subsection 355-65(4) in Schedule 1 to the TAA, which changed the scope of protected information the ATO is allowed to provide to ASIC. These amendments inadvertently changed ‘*ASIC’ back to "the Australian Securities and Investments Commission”. These amendments commenced on 1 December 2015 (refer item 4 of commencement table).

8.105           This Schedule changes the reference from ‘the Australian Securities and Investments Commission’ to ‘*ASIC’ in subsection 355-65(4) in Schedule 1 to the TAA to ensure the standard definition applies across the taxation law. [Schedule 8, item 61, item 1 in the table in subsection 355-65(4) in Schedule 1 to the TAA]

8.106           This Schedule also changes the reference from ‘the Australian Securities and Investments Commission’ to ‘ASIC’ in the example in paragraph 18-135(3)(b) in Schedule 1 to the TAA. [Schedule 8, item 56, example in paragraph 18-135(3)(b) in Schedule 1 to the TAA ]

Ensuring exemption from third party reporting regime is available in accordance with the policy intent

8.107           The Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015 amended Schedule 1 to the TAA to create Subdivision 396-B. Subdivision 396-B contains a regime requiring a range of third parties (those listed in section 396-55, table column 1) to report to the ATO on certain transactions (those listed in table column 2).  Section 396-65 exempts entities listed at table items 5 to 8 of section 396-55 from the general reporting requirement. The exemption applies where a party to the transaction is not an individual, and is a wholesale client (as defined in section 761G of the Corporations Act 2001 ).

8.108           When applied to table item 8, the exemption is intended to apply where the beneficiary is a non-individual, wholesale client. However, currently the exemption may have been interpreted to apply where the trustee is a non-individual, wholesale client, irrespective of whether the beneficiary meets these criteria, because the trustee is the legal ‘party to the transaction’.  

8.109           This Schedule amends section 396-65 so that information about a transaction described in item 8 is exempted to the extent that the information relates to a beneficiary entity described in paragraph (b) of column 2 of table item 8, that is not an individual and that is being provided a financial product, or a financial service, under the transaction as a wholesale client. [Schedule 8, item 62, section 396-65 in Schedule 1 to the TAA]

8.110           The amendment applies in relation to transactions entered into on or after 1 July 2017. This aligns with the commencement of the reporting obligation for table item 8 in section 396-55. Although, this change retrospectively clarifies the intended operation of the exemption from reporting, it does not have a negative impact on reporting entities or other individuals as the ATO has administered this exemption on the basis that it was operating as intended. [Schedule 8, item 63]

Consequential amendments to the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 (No 101 of 2006)

8.111           The Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 repealed subparagraph 12A(1)(a)(iii) of the Taxation (Interest on Overpayments and Early Payments) Act 1983 .

8.112           This Schedules removes the references to the terms ‘credit’, ‘crediting’ and ‘credited’ in various provisions of the Taxation (Interest on Overpayments and Early Payments) Act 1983 , as these terms only had relevance to the repealed subparagraph 12A(1)(a)(iii) of the Taxation (Interest on Overpayments and Early Payments) Act 1983 . [Schedule 8, items 66, 68 to 70, Part IIIA Heading, subsection 12A(1) and section 12B of the Taxation (Interest on Overpayments and Early Payments) Act 1983 ]

Part 7—Transitional arrangements relating to the disclosure of information

Transitional arrangements relating to the Australian Financial Complaints Authority

8.113           The Treasury Laws Amendment (Putting Consumers First - Establishment of the Australian Financial Complaints Authority) Act 2018 amends the Corporations Act 2001 to establish a new external dispute resolution framework for the financial system to ensure that consumers have easy access to a single external dispute resolution scheme, known as AFCA, to resolve disputes about products and services provided by financial firms. Once fully operational, the AFCA scheme will replace the Superannuation Complaints Tribunal and the existing external dispute resolution schemes approved by the Australian Securities and Investments Commission. To ensure a smooth transition to the new external dispute resolution framework, there will be a transitional period where AFCA and the Superannuation Complaints Tribunal are both operating.

8.114           The Superannuation Complaints Tribunal is subject to strict secrecy rules that make it difficult for it to share information about complaints made to the Superannuation Complaints Tribunal with AFCA to facilitate a coordinated approach to handling complaints particularly during the transition period.

8.115           These amendments allow Superannuation Complaints Tribunal members or staff of the Australian Securities and Investments Commission who are made available to the Superannuation Complaints Tribunal to disclose information acquired in connection with a complaint made to the Superannuation Complaints Tribunal to the operator of AFCA to assist AFCA to perform its functions or exercise its powers. [Schedule 8, items 71 to 74, subsections 63(2), (2B), (3B) and (5) of the Superannuation (Resolution of Complaints) Act 1993 ]

8.116           For example, this will allow AFCA to:

•        work out whether a complaint has already been received and resolved by the Superannuation Complaints Tribunal, and therefore should not be re-considered by AFCA;

•        obtain information about similar ongoing complaints before the Superannuation Complaints Tribunal that are lodged with AFCA (whether by the same complainant, or by a different party in the case of death benefit complaints) to determine which body should resolve the complaint that has been lodged with both;

•        obtain operational resources and processes of the Superannuation Complaints Tribunal acquired in connection with a complaint made to the Superannuation Complaints Tribunal to assist with the establishment of AFCA.

8.117           The amendments apply in relation to disclosures of information made on and after the day after this Bill receives the Royal Assent (whether the information was acquired before, on or after that day). [Schedule 8, item 75]



Chapter 9          

Deductible gift recipients

Outline of chapter

9.1                   Schedule 9 to this Bill amends the ITAA 1997 to include three entities as DGRs. These are the Australian Philanthropic Services Limited, Foundation 1901 Limited and Sydney Chevra Kadisha.

Context of amendments

Deductible gift recipient status

9.2                   The income tax law allows income tax deductions for taxpayers who make gifts of $2 or more to a DGR. DGRs are entities which fall within one of the general categories set out in Division 30 of the ITAA 1997 or are specifically listed by name in that Division.

9.3                   DGR status helps eligible organisations attract public financial support for their activities.

Australian Philanthropic Services Limited

9.4                   Australian Philanthropic Services Limited is a registered charity that sets up and administers private ancillary funds for individuals and families as well as educating individuals, foundations and advisers concerning ancillary funds and the making of philanthropic grants.

Foundation 1901 Limited

9.5                   Foundation 1901 Limited is a registered charity established to engage with and educate Australians about federation. It engages with Australians through education campaigns to maximise understanding of the lessons from the history of federation and its continued importance to Australians.

Sydney Chevra Kadisha

9.6                   Sydney Chevra Kadisha is a registered charity that provides funeral services to the Jewish community of New South Wales irrespective of an individual’s ability to pay, by providing subsidised or free burial services and plots to the most needy within the Jewish community.

Summary of new law

9.7                   The amendments include Australian Philanthropic Services Limited, Foundation 1901 Limited and Sydney Chevra Kadisha as DGRs under the income tax law.

Detailed explanation of new law

            Australian Philanthropic Services Limited

9.8                   Taxpayers may claim an income tax deduction for gifts made to Australian Philanthropic Services Limited provided the gift complies with the existing requirements of the income tax law. [Schedule 9, item 1, table item 11.2.10 in the table in section 30-95 of the ITAA 1997]

9.9                   This amendment ensures that Australian Philanthropic Services Limited receives appropriate support through the Commonwealth tax system for assisting philanthropists to create new ancillary funds in Australia.

Foundation 1901 Limited

9.10               Taxpayers may claim an income tax deduction for gifts made to Foundation 1901 Limited provided the gift complies with the existing requirements of the income tax law. [ Schedule 9, item 3, table item 13.2.23 in the table in section 30-105 of the ITAA 1997]

9.11               This amendment ensures that Foundation 1901 Limited receives appropriate support through the Commonwealth tax system for researching and helping Australians understand the lessons from federation history.

Sydney Chevra Kadisha

9.12               Taxpayers may claim an income tax deduction for gifts made to Sydney Chevra Kadisha provided the gift complies with the existing requirements of the income tax law. [Schedule 9, item 2, table item 12.2.5 in the table in subsection 30-100(2) of the ITAA 1997]

9.13               This amendment ensures that Sydney Chevra Kadisha receives appropriate support through the Commonwealth tax system for providing Jewish burials in New South Wales.

Consequential amendments

9.14               Schedule 9 also amends the index for Division 30 of the ITAA 1997 to reflect the new listings. [Schedule 9, items 4 to 6, table items 24C, 49C and 112B of the table in section 30-315 of the ITAA 1997]

Application and transitional provisions

9.15               The amendments apply to gifts made to Australian Philanthropic Services Limited on or after 1 July 2016. [Schedule 9, item 1, third column of table item 11.2.10 in section 30-95 of the ITAA 1997]

9.16               The amendments apply to gifts made to Foundation 1901 Limited between 1 September 2016 and 31 August 2021 inclusive. [Schedule 9, item 3, third column of table item 13.2.23 in section 30-105 of the ITAA 1997]

9.17               The amendments apply to gifts made to Sydney Chevra Kadisha between 1 January 2018 and 31 December 2019 inclusive. [Schedule 9, item 2, third column of table item 12.2.5 in subsection 30-100(2) of the ITAA 1997]

9.18               The amendments apply retrospectively. This ensures that gifts made to the entities from the above application dates qualify for income tax deductions provided the gifts comply with all requirements of the income tax law. The changes are wholly beneficial both to taxpayers making gifts of $2 or more to these DGRs and also to the DGR entities that receive these gifts.

9.19               The amendments commence on the first day of the first quarterly period following Royal Assent. [Clause 2]

 



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

Schedule 1 - Directions and penalties in relation to superannuation guarantee charge

10.1               Schedule 1 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

10.2               This Schedule allows the Commissioner to issue directions to an employer who fails to comply with their superannuation guarantee obligations. These directions can require an employer to pay an outstanding superannuation guarantee charge liability or to attend an approved education course. A failure to comply with a direction can result in criminal sanctions applying.

Education directions

10.3               For educations directions, a failure to comply with the direction is added to the existing list of tax obligations contained in section 8C of the TAA.

10.4               A contravention of these obligations is an offence of absolute liability that is subject to different penalties for first, second, and third or subsequent offences. A person who commits a first offence is liable to a fine of up to 20 penalty units, is liable to a fine of up to 40 penalty units for a second offence, and is liable to a fine of up to 50 penalty units and/or imprisonment of 12 months for a third or subsequent offence.

10.5               Extending the existing offence of absolute liability and the tiered penalties to failures to comply with an education direction is appropriate as it maintains consistency with the other failures that are already covered by section 8C. All of the circumstances relate to requirements that are imposed under the taxation law to take particular actions and a failure to comply with an education direction is directly comparable to the existing requirements to notify the Commissioner of particular matters or attend before the Commissioner or another person.

10.6               The existing defence for being unable to comply with a requirement also applies to failures to comply with an education direction, meaning that an employer who is genuinely incapable of complying with the direction will not commit an offence.

Direction to pay

10.7               For directions to pay, a failure to comply with the direction is an offence of strict liability that is subject to a maximum penalty of 50 penalty units, imprisonment for 12 months, or both.

10.8               While these consequences are specifically provided for in the rules that establish the direction, they are consistent with the existing offences that apply for other failures to comply with taxation obligations (such as the offences for contraventions of section 8C described above).

10.9               If the liability that is identified in a direction is not discharged within the required period, the employer that was issued with the direction will not commit an offence if they took all reasonable steps within the required period to both comply with the direction and to ensure that the original liability was discharged before the direction was given.

10.10           This defence operates in conjunction with the general defence of honest and reasonable mistake and ensures that employers are not subject to criminal charges for failing to comply with a direction to pay an outstanding liability where they are genuinely unable to do so.

Human rights implications

10.11           This Schedule does not engage in any of the applicable rights or freedoms.

Conclusion

10.12           Schedule 1 is compatible with human rights as it does not raise any human rights issues.

Schedule 2 - Disclosure of information about non-compliance

10.13           Schedule 2 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

10.14           This Schedule provides the Commissioner with the ability to disclose information that relates to a failure or a suspected failure by an individual’s employer or former employer to comply with their superannuation obligations. Such disclosures by the Commissioner cannot include information that relates to the general affairs of the employer.

10.15           In many cases the employer will not be an individual (for example, they may be a company). However, in cases where the employer is an individual, the disclosure of information relating to a failure to comply with a superannuation obligation to an affected employee is justified on the basis that it relates to the employee’s entitlements.

Human rights implications

10.16           This Schedule does not engage in any of the applicable rights or freedoms.

Conclusion

10.17           Schedule 2 is compatible with human rights as it does not raise any human rights issues.

Schedule 3 - Single touch payroll reporting

10.18           Schedule 3 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

10.19           This Schedule requires all employers to report under the Single Touch Payroll rules and report salary sacrificed amounts to the Commissioner.

Human rights implications

10.20           This Schedule does not engage in any of the applicable rights or freedoms.

Conclusion

10.21           Schedule 3 is compatible with human rights as it does not raise any human rights issues.

Schedule 4 - Fund reporting

10.22           Schedule 4 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

10.23           This Schedule does the following:

•        amends the law to allow the Commissioner to provide superannuation providers with a grace period for correcting false or misleading statements in relation to member information statements without giving rise to penalties.

•        removes the requirement for employers to report superannuation guarantee contributions paid to superannuation providers under the Single Touch Payroll reporting rules.

•        re-introduces a previous measure to remove the requirement for superannuation funds to lodge bi-annual statements for lost members.

Human rights implications

10.24           This Schedule does not engage in any of the applicable rights or freedoms.

Conclusion

10.25           Schedule 4 is compatible with human rights as it does not raise any human rights issues.

Schedule 5 - Compliance measures

10.26           Schedule 5 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

10.27           This Schedule enhances compliance with superannuation guarantee charge and other tax related liabilities. The amendments achieve this in the following ways:

•        Strengthening the integrity of the director penalty provisions for directors who fail to comply with their superannuation guarantee charge and PAYG withholding obligations; and

•        Enhancing compliance with the requirement to provide security through the use of Court orders. 

10.28           An entity who fails to comply with the order commits an offence and is liable to a penalty of 50 penalty units or imprisonment for 12 months, or both. This offence is an offence of strict liability.

10.29           This applicable penalty ensures that appropriate consequences apply to entities that refuse to comply with an order that has been made against them by the Court. The amount of the penalty and the application of strict liability is the same as the offence for refusing to comply with other Court orders and the associated penalty that are already imposed under sections 8G and 8H of the TAA. Applying the same consequences in respect of security deposits ensures a consistent outcome between the two sets of rules and is appropriate as they both deal with failures to comply with Court orders. 

10.30           An entity does not commit an offence to the extent they are not capable of complying with the order. This defence is consistent with the defence set out in section 8H. The defence covers situations where an entity has entered into voluntary administration or insolvency. This defence ensures that an entity will not commit an offence where an entity no longer controls or manages the business and the business assets and are not capable of complying with the order.

Human rights implications

10.31           This Schedule does not engage in any of the applicable rights or freedoms.

Conclusion

10.32           Schedule 5 is compatible with human rights as it does not raise any human rights issues.

Schedule 6 - Amendments relating to employee commencement

10.33           Schedule 6 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

10.34           This Schedule contains amendments to allow the pre-filling of an individual’s tax file number declaration and superannuation standard choice form by the Commissioner to the individual’s employer.

10.35           Although the information that can be pre-filled relates to an individual employee, such pre-filling can only occur at the request of the employee.

Human rights implications

10.36           This Schedule does not engage in any of the applicable rights or freedoms.

Conclusion

10.37           Schedule 6 is compatible with human rights as it does not raise any human rights issues.

Schedule 7 - Information sharing

10.38           Schedule 7 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

10.39           This Schedule contains amendments to enable the sharing and verification of TFNs which have been obtained in accordance with a Commonwealth law, between the Commissioner and Commonwealth Agencies.

10.40            The amendments are designed to provide a clear and uniform system to enable the verification and sharing of TFNs to improve on the existing gaps and deficiencies in the existing system of TFN sharing.

10.41           The amendments will improve the integrity of the welfare system with improved data-matching, enhance stronger compliance activities being undertaken by Commonwealth Agencies and ensure greater accuracy of welfare payments.

Human rights implications

10.42           The amendments made by this Schedule engage the prohibition on arbitrary or unlawful interference with privacy contained in Article 17 of the International Covenant on Civil and Political Rights (ICCPR).

10.43           The sharing and verification of TFNs between the Commissioner and Commonwealth Agencies affect TFNs belonging to individuals. The process is restricted to Commonwealth Agencies who must have obtained the TFN in accordance with a Commonwealth law. These Commonwealth laws must first permit the Commonwealth Agency to be able to legally require or request an individual to provide their TFN or provide a TFN of another individual (such as their spouse). 

10.44           This Schedule is compatible with Article 17 of the ICCPR, as its engagement with the prohibition on interference with privacy will neither be unlawful nor arbitrary. The amendments are not arbitrary as the amendments are aimed at a legitimate objective and constitute an effective and proportionate means of achieving that objective.

10.45           The Schedule’s engagement with the prohibition on interference with privacy is lawful as the amendments authorise the disclosure of a TFN for the purpose of verification where certain conditions and safeguards are satisfied. This is achieved by ensuring that there must be a legal basis for a Commonwealth Agency to be able to require or request a TFN of an individual. This is a necessary requisite to be able to verify the TFN with the Commissioner.

10.46           The objectives of these amendments are to:

•        support the data-matching process for Commonwealth Agencies to identify that a TFN belongs to a particular individual;

•        improve accuracy of personal assistance payments from Commonwealth Agencies to individuals

10.47           The amendments constitute an effective and proportionate means of achieving these objectives, as the existing laws already enable the sharing and verification of TFNs between the Commissioner and Commonwealth Agencies. The amendments are clarifying the existing laws to ensure that there is uniformity and consistency across all Commonwealth Agencies for the sharing and verification of TFNs.

Conclusion

10.48           Schedule 7 is consistent with Article 17 of the ICCPR on the basis that its engagement of the prohibition on interference with privacy will neither be unlawful nor arbitrary. To this extent, the Schedule complies with the provisions, aims and objectives of the ICCPR.

Schedule 8 - Miscellaneous amendments

10.49           Schedule 8 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     

10.50           Schedule 8 to this Bill makes a number of miscellaneous amendments to the taxation, superannuation and other laws. These amendments are part of the Government’s commitment to the care and maintenance of Treasury portfolio legislation including the taxation and superannuation systems.

10.51           In particular, this Schedule rewrites provisions regarding offshore information notices from the ITAA 1936 into the TAA and applies those provisions to all tax-related liabilities.

10.52           This Schedule also includes amendments to allow Superannuation Complaints Tribunal members or staff of the Australian Securities and Investments Commission to disclose information acquired in connection with a complaint made to the Superannuation Complaints Tribunal to the operator of AFCA to assist AFCA to perform its functions or exercise its powers.

Human rights implications

Offshore information notices

10.53           To the extent that Schedule 8 to this Bill merely rewrites existing provisions, it has no human rights implications. Therefore, this statement will only address the human rights implications of the minor changes to the offshore information notice regime, namely:

•        the application of the provisions to all tax-related liabilities, rather than merely income tax and PRRT;

•        the inadmissibility of requested information or documents the taxpayer has refused or failed to provide in proceedings under Part IVC of the TAA disputing any tax-related liability, not merely the specific tax-related liability for which the request was initially issued; and

•        the broadening of the Commissioner’s considerations, in deciding whether to consent to information or documents being admitted into evidence when the taxpayer refused to provide them when requested, to consideration of whether the absence of the information or documents would make the remaining information or documents relevant to the proceeding misleading, not merely the remaining information or documents relevant to the issue.

10.54           The Commissioner may require information or documents from overseas taxpayers to ensure that the Australian tax liability of those taxpayers is correctly assessed. For domestic taxpayers, this information can be gathered under the general information-gathering powers in Subdivision 353-A in Schedule 1 to the TAA.

10.55           However, the Commissioner’s ability to enforce these powers against overseas taxpayers is limited. The existing offshore information notice regime for income tax and PRRT has helped overcome these difficulties by affecting admissibility of the information or documents rather than only creating an Australian-based offence for failure to provide them.

10.56           The changes to the offshore information notice regime engage the right to a fair trial or hearing, as the evidentiary consequences of a failure or refusal to comply with a request regulate the rules of evidence in courts or tribunals.

10.57           The right to a fair trial or hearing is protected by Article 14 of the International Covenant on Civil and Political Rights. The right applies to both criminal and civil proceedings and to cases before both courts and tribunals.

10.58           One component of this right is that all parties to a proceeding must have a reasonable opportunity of presenting their case under conditions that do not disadvantage them as against other parties to the proceedings.

10.59           The rewritten provisions are a modification of the existing evidentiary consequences, rather than the creation of new evidentiary consequences. Therefore, the impact of these changes is expected to be minor.

10.60           Limitations on the right to a fair trial or hearing by the offshore information notice provisions must be reasonable, necessary and proportionate, and in pursuit of a legitimate objective.

10.61           There are different rules for limiting the right to a public hearing that do not apply in this circumstance.

10.62           The evidentiary consequences are necessary for achieving the legitimate objective of ensuring that all taxpayers are accurately assessed on their Australian tax liability. Without potential consequences of some kind, there is little incentive for a taxpayer or third party located overseas to comply with an offshore information notice. A criminal penalty, as accompanies the general information-gathering power, would be difficult to enforce against taxpayers or third parties located overseas.

10.63           The increasing application of other Australian taxes to overseas taxpayers (such as the application of GST to digital products purchased from overseas), as well as the ease with which electronic records can be transferred overseas, means that the offshore information notice regime needs to be expanded to ensure the Commissioner can correctly assess Australian tax liabilities.

10.64           The evidentiary consequences are proportionate as they only attach to requests for information or documents with which documents the taxpayer has refused or failed to comply and does not prevent the taxpayer relying on information or documents they have provided when requested.

10.65           The evidentiary consequences are also reasonable. If the taxpayer has failed or refused to provide information or documents so as to allow the Commissioner to accurately understand the dealings in issue, then it is reasonable that the taxpayer should not be able to rely on the same information or documents to dispute any resulting assessment.

10.66           Further, the evidentiary consequences are qualified. The Commissioner has a power to consent to the admissibility of information or documents. In exercising this power, the Commissioner must take into account certain matters, such as whether the absence of certain information or documents would cause the remaining information or documents in the proceeding to be misleading. This consideration is now broader in scope, and this benefits the taxpayer by ensuring that the absence of information or documents related to one issue does not disadvantage the taxpayer in relation to the other issues in a proceeding.

10.67           In addition, the Commissioner is required to consent where a refusal to consent would make any tax or penalty incontestable.

10.68           The United Nations Human Rights Committee General Comment No. 32 also provides that distinctions between the procedural rights of the parties must be based on law and justified on objective and reasonable grounds, not entailing actual disadvantage or other unfairness to the defendant. The amendments meet these conditions because the potential inadmissibility of evidence under these changes is based on law, is justified on objective and reasonable grounds as outlined above, and is entirely avoidable by the taxpayer providing the relevant information or documents to the Commissioner on request and as required under law.

Transitional arrangements relating to the Australian Financial Complaints Authority

10.69           Certain amendments made by Schedule 8 to this Bill engage the prohibition on arbitrary or unlawful interference with privacy contained in Article 17 of the International Covenant on Civil and Political Rights (ICCPR).

10.70           The Schedule contains amendments that allow Superannuation Complaints Tribunal members or staff of the Australian Securities and Investments Commission who are made available to the Superannuation Complaints Tribunal to disclose information acquired in connection with a complaint made to the Superannuation Complaints Tribunal to the operator of AFCA to assist AFCA to perform its functions or exercise its powers.

10.71           This Schedule is compatible with Article 17 of the ICCPR, as its engagement with the prohibition on interference with privacy will neither be unlawful (including by virtue of the amendments to the Superannuation (Resolution of Complaints) Act 1993 set out in the Schedule) nor arbitrary. The amendments are not arbitrary as the amendments are aimed at a legitimate objective and constitute an effective and proportionate means of achieving that objective.

10.72           The United Nations Human Rights Committee has stated, in their General Comment Number 16, that:

•        ‘unlawful means that no interference can take place except in cases envisaged by the law. Interference authorized by States can only take place on the basis of law, which must itself comply with the provisions, aims and objectives of the Covenant [the ICCPR]’; and

•        ‘the concept of arbitrariness is intended to guarantee that even interference provided for by law should be in accordance with the provisions, aims and objectives of the Covenant and should be, in any event, reasonable in the particular circumstances’.

10.73           The Schedule’s engagement with the prohibition on interference with privacy is lawful as the amendments authorise the relevant disclosures of information.

10.74           The objectives of these amendments are to facilitate a smooth transition to the new external dispute resolution framework by allowing the Superannuation Complaints Tribunal to disclose information acquired in connection with a superannuation complaint to the operator of AFCA for the purpose of assisting AFCA to perform its functions or exercise its powers.

10.75           The functions of AFCA involve providing a complaints mechanism for persons dissatisfied with financial firms and resolving complaints against financial firms, including by making determinations. AFCA has specific powers to facilitate the resolution of superannuation complaints. This includes a power to join persons to a superannuation complaint, a power to obtain information and documents about a superannuation complaint, and a power to require people to attend a conciliation conference about a superannuation complaint.

10.76           The amendments constitute an effective and proportionate means of achieving these objectives, as the disclosures permitted by the amendments are limited to this purpose.

Conclusion

10.77           The rewritten offshore information notice provisions do, to a minor extent, limit the rights of the taxpayer to a fair trial or hearing. However, the limitation is reasonable, necessary and proportionate, and in pursuit of a legitimate objective. 

10.78           This Schedule is consistent with Article 17 of the ICCPR on the basis that its engagement of the prohibition on interference with privacy will neither be unlawful (including by virtue of the amendments to Superannuation (Resolution of Complaints) Act 1993 set out in the Schedule) nor arbitrary. To this extent, the Schedule complies with the provisions, aims and objectives of the ICCPR.

Schedule 9 - Deductible Gift Recipients

10.79           Schedule 9 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

10.80           This Schedule amends the ITAA 1997 to update the list of specifically listed DGRs to include Australian Philanthropic Services Limited, Foundation 1901 Limited and Sydney Chevra Kadisha.

Human rights implications

10.81           This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

10.82           This Schedule is compatible with human rights as it does not raise any human rights issues.




[1] This data is sourcedfrom A TO e m ployer records and m ay differ slightlythan AB S data due to ti m ing and classification differences. ‘ N ew entrants’ (27,492)are new e m ployers w ho have recently registered or beco m e visible to the A TO in the current period and do not yet have a kno w n size profile. T hey are excluded from the detailedprofiling analysis w hich follo w s.

[2] Australian Public Service Commission, Capability Review Australian Taxation Office , 2013.

[4] ATO 2014 data. Based on 236, 640 clients lodging 1.6 million PAYGW only activity statements where an employer is on a monthly cycle for PAYGW but a quarterly cycle for other obligations. STP will eliminate these monthly PAYGW only activity statements but the quarterly activity statement obligations for GST will remain.

[6] Detail of previous consultations is contained in the Regulation Impact Statement certified on 13 November 2015.