House of Representatives

Tax Laws Amendment (2010 Measures No. 1) Bill 2010

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 1 Approved superannuation clearing house

Outline of chapter

1.1 Schedule 1 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 (SGA Act 1992), the Retirement Savings Accounts Act 1997 (RSA Act 1997), the Superannuation Industry (Supervision) Act 1993 (SIS Act 1993), the Income Tax Assessment Act 1936 (ITAA 1936) and the Taxation Administration Act 1953 (TAA 1953) to support the Government's 2008-09 Budget measure to provide a free superannuation clearing house service for small businesses. The measure is designed to reduce the cost and paperwork burden to small businesses of complying with their superannuation obligations.

Context of amendments

1.2 Under the superannuation guarantee (SG) arrangements, employers are required to pay a minimum level of superannuation contributions for the benefit of their eligible employees at least once a quarter to avoid liability to the SG charge. The minimum contribution level is 9 per cent of an employee's ordinary time earnings.

1.3 Some employers currently pay contributions in fulfilment of their SG obligations through a payroll provider or a superannuation clearing house. However, these contributions are only considered to have been made for SG purposes when they are paid into a complying superannuation fund or retirement savings account (RSA).

1.4 The choice of fund rules require most employers to provide their employees with a choice of superannuation fund. Employees are generally able to choose the fund into which their employer superannuation contributions are paid. Employers must provide a standard choice form to their new employees, and to their existing employees on request. Employees wishing to exercise choice of fund must complete the form with the required information and return it to their employer. An employee may also initiate the choice process by giving their employer written notice nominating a particular fund as their chosen fund. Employers must give effect to an exercise of choice by an employee within two months of receiving written notice from the employee.

1.5 Complying with the choice of fund rules, including the process of giving effect to an employee's exercise of choice and having to interact with different superannuation funds, can impose costs and divert effort away from a business's core activities. Smaller businesses, with fewer resources at their disposal, are less likely to be able to absorb this cost and inconvenience without impacting on the operation of the business.

1.6 The amendments contained in this Schedule support the Government's 2008-09 Budget measure to provide a free superannuation clearing house service for small businesses (those with fewer than 20 employees) to assist in meeting their superannuation obligations.

Summary of new law

1.7 The amendments to the SGA Act 1992 allow employers to meet their obligation to make compulsory superannuation contributions for the benefit of their employees by paying to an approved clearing house.

1.8 The amendments also extend the conditions under which contributions for the benefit of an employee are made in compliance with the choice of fund requirements to cover circumstances where contributions are made through an approved clearing house.

1.9 Amendments to the SIS Act 1993 and the RSA Act 1997 allow an employer to satisfy its obligation in relation to the prompt remittance of superannuation amounts deducted from an employee's salary or wages by making payments to an approved clearing house.

1.10 The secrecy provisions in the tax law are also amended to allow taxation officers to disclose information to an approved clearing house for the purpose of performing its functions.

Comparison of key features of new law and current law

New law Current law
An employer is able to reduce its SG liability by making payments to an approved clearing house. Where an employer makes contributions through a clearing house in fulfilment of its SG obligations, the contributions are only considered to have been made for SG purposes when they are paid into a complying superannuation fund or an RSA.
A contribution to a fund by an employer for the benefit of an employee is also made in compliance with the choice of fund requirements if:

·
the contribution is made through an approved clearing house;
·
the employee has given the employer written notice choosing a fund; and
·
the employer passed the information contained on the written notice to the approved clearing house within 21 days of receiving it from the employee.

A contribution to a superannuation fund by an employer for the benefit of an employee is made in compliance with the choice of fund rules if the contribution is made to a chosen fund for the employee or, if there is no chosen fund, to an eligible choice fund for the employer. An employee can nominate a fund as their chosen fund by giving written notice to their employer.
Contributions that are not made in compliance with the choice of fund requirements give rise to an SG shortfall for the employer and a resultant liability to the SG charge.
An employer is able to discharge its obligation in respect of the prompt remittance of superannuation amounts deducted from an employee's salary or wages by paying them to an approved clearing house within 28 days of the end of the month in which the deduction is made. Where an employer is authorised to deduct amounts from an employee's salary or wages for the purpose of payment to a superannuation fund or an RSA provider, the amounts must be paid to the trustee of the fund or RSA provider within 28 days of the end of the month in which the deduction is made.
The secrecy provisions are extended to allow the Australian Taxation Office to disclose information to an approved clearing house for the purpose of performing its functions. Secrecy provisions in the tax law allow the Australian Taxation Office to provide taxpayer information to certain bodies or officers for specified government purposes.

Detailed explanation of new law

Superannuation guarantee contributions

1.11 Part 3 of the SGA Act 1992 deals with liability of employers to the SG charge. An employer commences each quarter with an SG charge percentage of 9 per cent (the minimum contribution level under the SG arrangements) in respect of each employee. An employer can reduce its SG charge percentage for a quarter under section 23 by making contributions to a complying superannuation fund or an RSA by the 28th day following the end of the quarter. Section 23A allows late payments (payments made after the due date) to a complying superannuation fund or an RSA to be offset against the SG charge.

1.12 New section 23B provides that an employer who pays an amount to an approved clearing house for the benefit of an employee is taken to have contributed the amount to a complying superannuation fund or an RSA for the purposes of sections 23 and 23A. The payment would need to be accepted by the approved clearing house. This is to ensure that only small businesses registered with an approved clearing house will be able to discharge their SG obligations by paying to the approved clearing house. To ensure that a payment to an approved clearing house is not counted twice for SG purposes, any contribution the approved clearing house makes to a complying superannuation fund or an RSA as a result of the payment is disregarded. [Schedule 1, item 3, section 23B]

1.13 Approved clearing house is defined in new subsection 79A(3) as meaning a body specified in the regulations for the purposes of that subsection. [Schedule 1, items 2 and 5, subsections 6(1) and 79A(3)]

The choice of fund requirements

1.14 The choice of fund requirements are contained in Part 3A of the SGA Act 1992. A contribution to a fund by an employer for the benefit of an employee is made in compliance with the choice of fund requirements if the contribution is made to a chosen fund for the employee or, if there is no chosen fund, to an eligible choice fund for the employer. Contributions that are not made in compliance with the choice of fund requirements give rise to an SG shortfall for the employer under subsection 19(2A) and a resultant liability to the SG charge.

1.15 New subsection 32C(2B) provides that a contribution to a fund by an employer for the benefit of an employee is also made in compliance with the choice of fund requirements if:

·
the contribution is made through an approved clearing house;
·
the employee has given the employer written notice choosing a fund in accordance with Division 4 (Choosing a fund); and
·
the employer passes the information provided by the employee in the written notice to the approved clearing house within 21 days of receiving it (and before or at the time of the contribution) and the approved clearing house accepts the information. The latter requirement is to ensure that only small businesses registered with an approved clearing house will be able to rely on subsection 32C(2B) to avoid an SG shortfall under subsection 19(2A).

A contribution made in accordance with new subsection 32C(2B) will not result in an SG shortfall for the employer under subsection 19(2A). [Schedule 1, item 4, subsection 32C(2B)]

Example 1.1 Ace Crash Repairs (ACR) is a small business which is registered with an approved clearing house to make superannuation contributions on behalf of its employees. ACR has recently taken on Mick as a new employee and he is given a standard choice form by ACR in compliance with its obligations under the choice of fund rules.Mick completes the choice form nominating XYZ superannuation fund as the fund into which his superannuation contributions are to be paid and returns the form to his employer. ACR forwards the information provided by Mick on the form to the approved clearing house one week after receiving it from Mick. XYZ fund is a fund which meets the requirements for a chosen fund in Division 4 of the SGA Act 1992.As the conditions prescribed in subsection 32C(2B) are satisfied, contributions made by ACR for the benefit of Mick through the approved clearing house are made in compliance with the choice of fund requirements.

1.16 Where a contribution by an employer to a fund through an approved clearing house is not made in accordance with subsection 32C(2B), the contribution can also comply with the choice of fund requirements provided it is made in accordance with the existing rules in Part 3A. In this context, new section 79A treats the contribution as having been made on the employer's behalf by the approved clearing house as the employer's agent. If the contribution is made in compliance with the choice of fund requirements, an SG shortfall will not arise. [Schedule 1, item 5, section 79A]

Example 1.2 ACR also makes contributions through the approved clearing house in respect of another of its employees, Kate. Because Kate has not chosen a fund, ACR has instructed the approved clearing house to make contributions on her behalf to ACR's default fund, ABC superannuation fund. The approved clearing house acts on these instructions and pays the contributions to ABC fund, which is an eligible choice fund.As the conditions set down in new subsection 32C(2B) are not satisfied (including because Kate has not chosen a fund), ACR cannot rely on that provision in order to avoid an SG shortfall arising under subsection 19(2A). However, subsection 19(2A) also looks to the underlying contribution by ACR to ABC fund in determining whether an SG shortfall arises. As Kate has no chosen fund, and because ABC fund is an eligible choice fund, the contribution by ACR to ABC fund through the approved clearing house is made in compliance with the choice of fund requirements. Consequently, the contribution does not give rise to a shortfall under subsection 19(2A).

1.17 The above amendments do not affect an employer's obligations under the choice of fund rules to provide its employees with a standard choice form in the circumstances specified in Part 3A.

Prompt remittance of amounts deducted from salary or wages of an employee

1.18 Where an employer is authorised to deduct amounts from an employee's salary or wages for the purpose of payment to a superannuation fund, the SIS Act 1993 requires that the amounts be paid to the trustee of the fund within 28 days after the end of the month in which the deduction is made. An equivalent requirement in respect of RSAs is contained in the RSA Act 1997. These Acts are amended to allow employers to satisfy this obligation by making payments to an approved clearing house (within the meaning of the SGA Act 1992). [Schedule 1, items 1 and 6, subsection 183(2A) of the RSA Act 1997, subsection 64(2A) of the SIS Act 1993]

Disclosure of information to an approved clearing house

1.19 Secrecy provisions in the tax laws allow for the provision of taxpayer information to certain bodies or officers for specified government administration purposes. The amendments extend these provisions to allow taxation officers to disclose information to an approved clearing house for the purposes of performing its functions in relation to superannuation contributions. The relevant secrecy provisions are currently contained in the ITAA 1936 but will be transferred to the TAA 1953 with the enactment of the Tax Laws Amendment (Confidentiality of Taxpayer Information) Bill 2009. [Schedule 1, items 7 and 8, paragraph 16(4)(hbb) of the ITAA 1936, subsection 355-65(3) of the TAA 1953]

Application

1.20 The amendments made by Part 1 of this Schedule apply to a payment made to an approved clearing house on or after 1 July 2010. [Schedule 1, item 9]


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