Explanatory MemorandumCirculated By the Authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP
Superannuation - tax file number amendments
Outline of chapter
3.1 Schedule 3 to this Bill amends the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Retirement Savings Accounts Act 1997 (RSA Act) to allow superannuation fund trustees and retirement savings account (RSA) providers respectively to use tax file numbers (TFNs) to locate member accounts and to facilitate the consolidation of multiple member accounts.
Context of amendments
3.2 A TFN is a unique number issued by the Australian Taxation Office (ATO) for each taxpayer, which allows the ATO to match details of income disclosed in a taxpayer's return with details of a person's income received from other sources. TFNs are used by the ATO as a primary identifier of an individual for the purposes of the administration of taxation and superannuation laws administered by the Commissioner of Taxation (Commissioner).
3.3 There are current laws which allow use of TFNs in the superannuation industry. These laws apply to trustees of regulated superannuation funds, approved deposit funds, RSAs, exempt public sector superannuation schemes, and employers.
3.4 The collection of TFNs by superannuation funds is authorised under Part 25A of the SIS Act. This Act provides clear limitations on the use of TFNs and also outlines details of the recording and destruction of TFN records.
3.5 If the superannuation fund trustee or RSA provider is not provided with a member's TFN for superannuation purposes, the superannuation fund trustee or RSA provider is required to seek the member's TFN within 30 days of the person becoming a fund member. However, it is not compulsory for the member to quote their TFN.
3.6 However, where a TFN is not provided, member contributions may not be accepted, and there may be adverse taxation consequences. For example, if a TFN is not quoted and the fund receives employer contributions for that member, additional income tax is payable by the fund which will generally reduce the member's benefit in the fund.
3.7 Superannuation fund trustees and RSA providers currently use TFNs primarily for the purpose of calculating the amount of tax which will be deducted from the member's benefit when paid. In most cases, where a TFN is quoted, tax will be deducted at normal, concessional rates.
3.8 Currently, TFNs may only be used by a superannuation fund trustee or RSA provider to locate, in the fund's records, member accounts provided other methods are used first and only if the other methods are insufficient. It is an offence for the superannuation fund trustee or RSA provider to contravene this part of the Act.
3.9 Superannuation fund trustees and RSA providers are not currently permitted to use TFNs for the purpose of locating multiple accounts held by the same person in order to consolidate the accounts, whether in the same superannuation fund, RSA, or across multiple superannuation funds.
3.10 TFN use by superannuation funds is governed by the Privacy Act 1988 and the Taxation Administration Act 1953 (TAA 1953) to ensure member privacy is protected and to prevent unauthorised use of TFNs.
Summary of new law
3.11 Schedule 3 amends the SIS Act and the RSA Act to allow superannuation fund trustees and RSA providers respectively to use TFNs to locate member accounts and to facilitate the consolidation of multiple accounts held by the same person.
3.12 This measure was announced in the Assistant Treasurer and Minister for Financial Services and Superannuation's Media Release No. 024 of 16 December 2010.
Comparison of key features of new law and current law
|New law||Current law|
|TFNs may be used by superannuation fund trustees and RSA providers to locate member accounts.||TFNs may only be used by a superannuation fund trustee or RSA provider to locate, in the fund's or provider's records, member accounts provided other methods are used first and only if the other methods are insufficient or to confirm the identification of amounts resulting from the use of the other information.|
|TFNs may be used by superannuation fund trustees and RSA providers to facilitate account consolidation||TFNs cannot be used by the superannuation fund trustee or RSA provider in the first instance for account consolidation purposes.|
Detailed explanation of new law
3.13 These amendments will allow superannuation fund trustees and RSA providers to use TFNs to locate member accounts. [ Schedule 3, item 2, section 137A of the RSA Act ; item 12, section 299LA of the SIS Act ]
3.14 The new laws will cover TFNs regardless of whether they are provided to the superannuation fund by the member, the member's employer or the Commissioner in accordance with the SIS Act and the RSA Act provisions.
3.15 The new law does not impose any compulsory obligations on superannuation fund trustees and RSA providers.
3.16 The new law will allow superannuation fund trustees and RSA providers to use TFNs to locate a member's account details. However the law will not allow the fund to use TFNs to replace their existing account numbers. The aim of the law is to remove the impediment for funds to use other search methods before TFNs are used. It will not replace existing account identification methods (such as account or membership numbers). This ensures that the amendment operates in accordance with National Privacy Principle 7. [ Schedule 3, item 2, subsection 137A(3 ) of the RSA Act ; item 12, subsection 299LA(3 ) of the SIS Act ]
3.17 These amendments will also allow superannuation fund trustees and RSA providers to use TFNs to facilitate the consolidation of multiple accounts held by the same person in the same superannuation fund and across multiple superannuation funds, provided the requirements of the regulations are met (see paragraph 3.24). [ Schedule 3, item 2, subsection 137A(2 ) of the RSA Act ; item 12, subsection 299LA(2 ) of the SIS Act ]
Example 3.2: Consolidation within a fund Rhonda is not aware she has two superannuation accounts with Fund A. Fund A is permitted to match Rhonda's TFN and consolidate the two accounts provided the conditions in the regulations are met. The regulations, may for example, provide conditions relating to member consent and other procedures that superannuation fund trustees must follow before consolidating accounts.
Example 3.3: Consolidation between funds Stephen holds a superannuation account with Fund A and suspects he may hold an account in Fund B. The regulations may provide conditions relating to member consent and other procedures that superannuation fund trustees must follow before consolidating accounts. Provided Stephen consents to the consolidation and the other conditions in the regulations are met, the fund may use the TFN to facilitate the consolidation of the accounts.
3.18 All of these amendments will apply to eligible superannuation entities, regulated exempt public sector superannuation schemes (as defined under section 299W of the SIS Act), and RSAs.
Safeguarding member privacy
3.19 This Schedule will not alter an individual's right to choose not to quote their TFN and there will not be additional consequences for not quoting a TFN. However, the current consequences for failing to quote a TFN will remain.
Example 3.4: Non-quotation of a TFN Vincci has not quoted her TFN to her superannuation fund. In accordance with the conditions in the regulations, her fund has advised that it will match TFNs in its records to locate multiple accounts. The fund provides Vincci the opportunity to provide her TFN before the matching occurs, however Vincci decides not to quote her TFN. As her fund does not have her TFN in relation to this account, the fund will not be able to match any additional accounts she may have using this method. In addition, her fund may be liable for extra income tax on no-TFN contributions made for her which it may deduct from her account. Further, her fund will not be able to accept member contributions from her.
3.20 Sections 8WA and 8WB of the existing TAA 1953 will provide for a penalty for the unauthorised use or recording of TFNs. The penalty is currently 100 penalty units (currently $11,000), or imprisonment for two years, or both. [ Schedule 3, items 2 and 16, note in subsection 137A(2 ) of the RSA Act ; items 12 and 17, note in subsection 299LA(2 ) of the SIS Act ]
3.21 Binding TFN Guidelines, issued under section 17 of the Privacy Act 1988 , protect the privacy of natural persons by regulating the collection, storage, use, disclosure, security and disposal of TFN information. In addition, the National Privacy Principles, contained in Schedule 3 to the Privacy Act 1988 , govern the collection, use and disclosure of personal information and the use of agency identifiers.
3.22 TFN Guideline 1.1 states that 'The TFN is not to be used as a national identification system by whatever means.' Guideline 1.2 states that 'The rights of individuals under taxation, assistance agency or superannuation law to choose not to quote a TFN shall be respected.'
3.23 These amendments are consistent with the Privacy Act 1988 , the National Privacy Principles and the TFN Guidelines. The reasons include:
- superannuation funds will not be able to use TFNs to replace member account numbers;
- use of TFNs for the purposes outlined in the legislation is a limited extension of the current TFN use rather than a new application;
- the increased use of TFNs has been authorised by amending the superannuation law as referenced under the TFN Guidelines;
- the increased use of TFNs will be safeguarded by regulations that ensure member identity is protected and member consent is obtained where appropriate;
- the law does not alter an individual's right to choose not to quote a TFN; and
- superannuation funds are not obliged to increase their TFN use.
3.24 In addition to the legislation, regulations will also be made to specify additional requirements that must be met. In relation to account consolidation, these will cover requirements for member consent and other procedures that superannuation fund trustees and RSA providers must follow before consolidating accounts. [ Schedule 3, items 2 and 16, subsection 137A(2 ) of the RSA Act ; items 12 and 17, subsection 299LA(2 ) of the SIS Act ]
3.25 The details of these regulations will be finalised following consultation with relevant stakeholders.
Application and transitional provisions
3.26 The amendments relating to account location will apply from 1 July 2011. The amendments relating to consolidation will apply from 1 January 2012 or a date as proclaimed and both amendments will apply to the use of TFNs on or after commencement whether the TFN was quoted before, on or after the commencement of this Schedule. [ Schedule 3, items 13 and 18 ]
3.27 The proclamation provision has been included to allow time for consultation on the regulations relating to the legislation. The regulations will contain necessary safeguards and processes and it is important that industry is given sufficient time to consider these changes. Given the importance of these regulations, the Government has included a proclamation provision to ensure that the legislation and the accompanying regulations commence operation as close to the same time as possible.
3.28 Transitional provisions relating to the regulations are included to ensure that any regulations which were made under Schedule 3, Part 1 continue to have effect when Schedule 3, Part 2 repeals and replaces the relevant provisions. [ Schedule 3, item 19 ]
3.29 Safeguards are in place to ensure that fund members and RSA holders who have previously provided a TFN are not disadvantaged by the change, including strong penalties for the misuse of TFNs. In addition, superannuation providers are not obliged to increase their use of TFNs and members can still decide not to provide their TFN to their superannuation provider.
3.30 Several amendments are required to repeal the previous TFN provisions. [ Schedule 3, item 1, subsections 137(4 ) and ( 5 ) of the RSA Act ; items 3, 6, 8 and 10, subsections 299H(4 ) and ( 5 ), 299J(4 ) and ( 5 ), 299K(4 ) and ( 5 ) and 299L(4 ) and ( 5 ) of the SIS Act ]
3.31 Several amendments are required to remove references to the previous uses of TFNs from the applicable offences and strict liability sections of the SIS Act. [ Schedule 3, items 4, 5, 7, 9 and 11, subsections 299H(6 ) and ( 7 ), 299J(6 ) and ( 7 ), 299K(6 ) and ( 7 ), 299L(6 ) and ( 7 ) of the SIS Act ]
3.32 The definitions of 'eligible superannuation entity' and 'regulated exempt public sector superannuation scheme' are added to the RSA Act. [ Schedule 3, items 14 and 15, section 16 of the RSA Act ]