Commonwealth Numbered Regulations - Explanatory Statements

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SUPERANNUATION GUARANTEE (ADMINISTRATION) AMENDMENT REGULATIONS 2001 (NO. 1) 2001 NO. 87

STATUTORY RULES 2001 No. 87

Issued by the Authority of the Assistant Treasurer

Superannuation Guarantee (Administration) Act 1992

Superannuation Guarantee (Administration) Amendment Regulations 2001 (No. 1)

Section 80 of the Superannuation Guarantee (Administration) Act 1992 (the Act) provides that the Governor-General may make Regulations prescribing all matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to the Act.

The Superannuation Guarantee Charge Act 1992 (the Charge Act) imposes a charge on an employer who has not provided a prescribed minimum level of superannuation support for its employees in a financial year. Section 3 of the Charge Act provides that the Act is incorporated and is to be read as one with the Charge Act.

The purpose of the Regulations was to allow the Commissioner of Taxation to direct any recovered shortfall of superannuation contributions to an identified superannuation fund or retirement savings account (RSA) provider.

The Act, which has been in operation since 1 July 1992, requires employers to make a prescribed level of superannuation contributions to a complying superannuation fund or a RSA provider on behalf of their employees (subject to limited exemptions) to avoid a superannuation guarantee charge. If an employer does not make the required level of contributions on behalf of its employees by 28 July, in relation to the previous income year, the superannuation guarantee charge applies. The charge consists of an administration component, a nominal interest component and the SG shortfall. The interest and shortfall components are redistributed to employees to whom the shortfall relates.

Where a superannuation guarantee shortfall is recovered, the Commissioner of Taxation sends each affected employee a notification advising that the amount can be placed in a complying superannuation fund, a complying approved deposit fund (ADF) or RSA provider. Attached to the notice is a voucher which the employee presents to the fund or RSA provider. The fund or RSA provider subsequently presents the voucher to the Commissioner seeking payment of the employee's SG shortfall amount.

There are presently some 52% of vouchers that have not been claimed or redeemed.

The Regulations would:

•       allow the Commissioner to make superannuation guarantee shortfall payments to an employee's identified complying superannuation fund, ADF or RSA provider where there is an implicit nomination by an employee. The fund will be identified from information held in the custody of the Commissioner;

•       allow superannuation funds, ADFs or RSA providers to approach the Commissioner, with the employee's consent, seeking payment of any outstanding superannuation guarantee shortfall amounts directly to the employee's account; and

•       make a technical amendment to the rate applicable to additional SG charge due to the introduction of the general interest charge (GIC). The GIC is a new regime for calculating and imposing a uniform penalty for late payment of debts owing to the Australian Taxation Office. It compounds daily and is calculated at a commercially linked interest rate which adjusted each quarter to reflect changes in the money market.

The attached regulation impact statement was required for the amendments to the Superannuation Guarantee (Administration) Regulations to permit payment directly to an identified superannuation fund, ADF or RSA provider.

The amendments would have no significant impact on the revenue.

Details of the Regulations are set out in the attachment.

The amended Regulations commence on gazettal.

ATTACHMENT

Superannuation Guarantee (Administration) Amendment Regulations 2001 (No. 1)

Explanation of the amendments

Regulation 1 - specifies the name of the regulations as the Superannuation Guarantee (Administration) Amendment Regulations 2001 (No. 1).

Regulation 2 - provides that the regulations commence on gazettal.

Regulation 3 - provides that Schedule 1 amends the Superannuation Guarantee (Administration) Regulations 1993.

Schedule 1        Amendments

Item 1 added new definitions in existing Regulation 2 - new definitions of 'relevant fund', 'responsible officers' and 'shortfall component' were inserted for the purposes of new Regulations 10, 10A, 10B, 10C and 10D.

Item 2 repealed existing Regulation 8A - existing Regulation 8A prescribed the penalty rate payable on additional SG charge as 10% per annum. The penalty rate was no longer applicable because of the introduction of the GIC.

The GIC is a new regime for calculating and imposing a uniform penalty for late payment of debts owing to the Australian Taxation Office (ATO). The GIC compounds daily and is calculated at a commercially linked interest rate which is adjusted each quarter to reflect changes in the money market. The GIC is effective from 1 July 1999. The calculation of GIC is provided for in Division 1 of Part IIA of the Taxation Administration Act 1953.

Item 3 substituted existing Regulation 10 with new Regulations 10, 10A, 10B, 10C and 10D - allowed the Commissioner to direct any recovered SG shortfall amounts directly to an employee's complying superannuation fund, ADF or RSA identified from information already held by the Commissioner. It also allowed the Commissioner to pay any shortfall amounts to a complying superannuation fund, ADF or RSA provider that has a written authorisation from a member. Such a fund, ADF or RSA provider could contact the Commissioner in order to locate and transfer unclaimed superannuation monies on behalf of the member.

The new Regulation 10 required the Commissioner to give a written notice to an employee of certain shortfall components. The notice must include. The notice must include the date of the notice; the name of the employer; and the amount, or the sum of the amounts, of shortfall component. A notice may also include a relevant fund. The new Regulation 10 also allowed the Commissioner to give more than one notice.

The new Regulation 10A outlined how an employee can respond to a notice. The employee can either request the responsible officers of a complying superannuation fund, ADF or RSA provider to collect the amount of the shortfall component from the Commissioner; he or she can nominate a fund, ADF or RSA either by taking no action i.e. by default; or he or she can expressly nominate another relevant fund if the notice has specified a relevant fund.

The new Regulation 10B placed certain obligations on the responsible officers who receive a request from an employee.

The new Regulation 10C specified that a response to a notice sent by the Commissioner is a nomination for the purposes of paragraph 65(1)(a) of the Act.

The new Regulation 10D allowed an employee who has not been given a notice under the new Regulation 10 to either request the responsible officers of a relevant fund to collect the amount of the shortfall component from the Commissioner on their behalf, or to lodge a written nomination of a relevant fund with the Commissioner.

REGULATION IMPACT STATEMENT

PAYMENT OF SUPERANNUATION GUARANTEE SHORTFALL AMOUNTS TO AN IDENTIFIED FUND

Background

The SG legislation has been in operation since 1 July 1992. Under the legislation, employers are required to make a prescribed level of superannuation contributions to a complying superannuation fund or a RSA provider on behalf of their employees (subject to limited exemptions) to avoid a SG charge. If an employer does not make the required level of contributions on behalf of their employees by 28 July, in relation to the previous income year, the SG charge applies.

The ATO is responsible for the collection and distribution of the SG charge. The charge is made up of an administration component, a nominal interest component and the SG shortfall. The interest and shortfall components are redistributed to the employees to whom the shortfall relates.

Where a SG shortfall is recovered from an employer, the Commissioner sends each affected employee a notification advising that the amount can be placed in a complying superannuation fund, ADF or RSA. Attached to the notice is a voucher which the employee presents to the superannuation fund, ADF or RSA provider. The fund or provider subsequently presents the voucher to the Commissioner seeking payment of the employee's SG shortfall amount.

Problem

Presently, some 52% of vouchers issued by the Commissioner (representing approximately $95.2 million), have not been claimed or redeemed. The amount of these unclaimed vouchers is increasing rapidly. By not presenting the voucher, employees are missing out on any earnings on their entitlements, and potentially the entitlements themselves.

Objective

The objective is to strengthen the retirement incomes system by improving the application, efficiency, and effectiveness of the SG system, whilst not imposing additional costs on employers.

Identification of Options

Options considered in respect of meeting this objective:

Option 1 - retain existing arrangements

There would be no change to the existing arrangements for distributing SG shortfall amounts to employees.

Option 2 - amend SG Regulations to permit payment directly to an identified superannuation fund, ADF or RSA provider

This proposal introduces flexibility in paying SG shortfalls to employees' superannuation accounts.

Firstly, where the employee has not nominated an alternative account, the Commissioner will be able to pay any recovered SG shortfall amounts directly to an employee's complying superannuation fund, ADF or RSA, identified from information already held by the Commissioner. The employee will effectively nominate a fund or RSA, either by taking no action i.e. by default, or by expressly nominating another relevant fund.

Secondly, superannuation funds, ADFs or RSA providers will be able to approach the ATO, with the employee's consent, seeking payment of any outstanding SG shortfall amounts directly to the employee's account.

Superannuation funds, ADFs or RSA providers wishing to utilise the proposed facility will have to enter into an agreement which will include any security and privacy measures as prescribed by the Commissioner.

Assessment of impacts (costs and benefits) of each option

Impact group identification

The following key stakeholders will be affected by the proposed changes:

• employees;

• superannuation providers; and

• the ATO.

	Option 1 existing arrangements	Option 2 amend SG Regulations
COSTS
Employees	No change	No costs on employees
Superannuation providers	No change	Some potential for reverse workflows where the Commissioner pays amounts to a fund after a member has closed their account. Where the fund initiates the request to identify outstanding SG vouchers this cost will not arise. If funds choose to use the facility they will have to enter into a security/privacy agreement with the ATO. It is a voluntary cost and will be insignificant.
ATO	No change
BENEFITS
Employees	No change	Reuniting employees with their superannuation entitlements will increase their end benefits. That is, interest will be received in the superannuation fund, whereas no interest is payable on unclaimed SG vouchers
Superannuation providers	No change	Increased account balances, making small accounts more cost effective to administer
ATO	No change	Increased efficiencies in administering unclaimed SG vouchers/shortfalls

Consultation

The ATO, through the Superannuation Industry Liaison Group, has engaged in consultation with a number of representative superannuation industry organisations. These include the Association of Superannuation Funds of Australia, the Investment and Financial Services Association, the CPA Australia, the Bankers Trust and the National Australia Funds Management.

The industry is fully supportive of the proposed Regulations and see it as of great benefit to the superannuation industry. They also believe this is a positive move to protect individuals' superannuation entitlements.

Recommendation

Of the above 2 options, it is option 2 that satisfies the objectives by providing an alternative avenue in reuniting employees' superannuation entitlements, whilst not placing any costs on business or restrictions on any competition. It also benefits superannuation funds by simplifying the process of locating unclaimed superannuation monies. By consolidating their superannuation into one account, members will also benefit from low administration fees and charges imposed by superannuation funds, thus maximising their investment earnings and returns.

Option 1 does not achieve the objective of strengthening the retirement incomes system. This option does not improve the application, efficiency, and effectiveness of the SG system.