Commonwealth Numbered Regulations - Explanatory Statements

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SUPERANNUATION SUPERVISORY LEVY REGULATIONS 1991 NO. 154

EXPLANATORY STATEMENT

STATUTORY RULES 1991 No. 154

ISSUED BY AUTHORITY OF THE TREASURER

SUPERANNUATION SUPERVISORY LEVY ACT 1991

SUPERANNUATION SUPERVISORY LEVY REGULATIONS

AND

OCCUPATIONAL SUPERANNUATION STANDARDS ACT 1987

OCCUPATIONAL SUPERANNUATION STANDARDS REGULATIONS (AMENDMENT)

LEGISLATIVE BASIS FOR THE REGULATIONS

These two sets of Regulations are related. Section 7 of the Superannuation Supervisory Levy Act 1991 and Section 22 of the Occupational Superannuation Standards Act 1987 provide that the Governor-General may make regulations for the purposes of those Acts.

BACKGROUND

The Superannuation Supervisory Levy Act 1991 (the Levy Act) imposes a levy payable in accordance with section 15DA of the Occupational Superannuation Standards Act 1987 (the OSS Act). Paragraph 6(1)(a) of the Levy Act refers to the amount, called the basic levy amount, ascertained in accordance with the regulations.

The OSS Act provides operating standards and other relevant conditions with which superannuation funds, approved deposit funds and pooled superannuation trusts are required to comply in order to be eligible for taxation concessions under the Income Tag Assessment Act 1936.

Sections 12, 14 and 15B of the OSS Act Provide that if a superannuation fund, approved deposit fund or unit trust lodges an approved return with the Insurance and Superannuation Commission (ISC), along with appropriate certificates, in respect of a year of income, the Insurance and Superannuation Commissioner (the Commissioner) shall give a notice to the fund or trust as to whether it has satisfied the relevant conditions, although the Commissioner may refuse to give the notice if an amount of levy payable on the lodgment of the return remains unpaid.

Section 15DA of the OSS Act provides that trustees who lodge a return with the Commissioner under subsection 12(1), 14(1) or 15B(1) of the Act are liable to pay a levy on that lodgment.

Regulations have been made for the purposes of the OSS Act and are called the Occupational Superannuation Standards Regulations (the OSS Regulations).

PURPOSE OF THE REGULATIONS

The Regulations:

•       prescribe a method of ascertaining the basic levy amount for the purposes of paragraph 6(1)(a) of the Levy Act (the Superannuation Supervisory Levy Regulations); and

•       prescribe that if a return for a year of income commencing before 1 July 1990 is lodged after 31 December 1991. the trustee lodging the return is liable to pay a late lodgment fee, and prescribe the amount of that fee (the Occupational Superannuation Standards Regulations (Amendment)).

In accordance with Section 7 of the Levy Act the Superannuation Supervisory Levy Regulations were developed in consultation with representatives of the superannuation industry including the Association of Superannuation Funds of Australia (ASFA) and the Life Insurance Federation of Australia (LIFA) as well as other related professional organisations.

The background to and content of the regulations is set out below.

Superannuation Supervisory Levy Regulations

The purpose of the regulations is to establish a basic levy amount which is generally determined on the basis of the asset size of the fund or trust which lodges a return.

The Government announced in its 1990 Budget Statement that the existing lodgment fee would be replaced with a new levy commencing with the annual returns for the 1990-91 year of income. The Levy Act, along with amendments to the OSS Act made by the Occupational Superannuation Laws Amendment Act 1991 have given effect to the Government's announcement.

The intention of the legislation is to effect full cost recovery for the supervision by the Commissioner of the superannuation industry. When the ISC was established in 1987, the Government decided to recover the costs of superannuation supervision and a lodgment fee of a flat $30 was set (since increased to $40). Costs recovered under that fee have only been approximately half of the costs of relevant superannuation functions because the number of funds lodging returns has been less than half what was expected from Taxation Office records.

In his second reading speech in introducing the bill for the Levy Act to the House of Representatives, the then Minister Assisting the Treasurer, Mr Crean, explained that the amount of basic levy payable would generally be determined on the basis of fund or trust asset size although, where appropriate, other bases for determining the levy may be used. Small funds (those with assets of $0.5m or less) would pay a levy which approximates only the cost of actually processing the forms as this closely approximates the call of those funds on ISC resources. Large funds would pay a larger levy, generally depending on fund size, with a maximum levy applying at a level which would recoup all of the relevant costs. Mr Crean also explained that it would be possible to impose different scales of levy on different categories of funds or trusts so that, where appropriate, superannuation funds might pay a different scale of levy compared to pooled superannuation trusts or approved deposit funds.

The content of the proposed regulations has only been finalised after extensive consultation between the ISC, ASFA and LIFA. For the first few years, until accurate asset profiles of funds and trusts are available, it will be difficult to accurately estimate the revenue which will be generated each year by a prescribed levy which is graduated according to asset size. However consultations between the Department of Finance and the ISC regarding the costs of superannuation supervision have concluded with agreement that $7m is the revenue target for the 1990-91 returns. The basic levy amount ascertained in accordance with the regulations is based on this revenue target.

The basic levy amount is generally $40 for each $0.5m of fund assets or part thereof, to a maximum of $5,000. There are, however, a number of exceptions to this. These exceptions, and the reasons for them, are:

•       foreign superannuation funds as defined. in the Income Tax Assessment Act 1936 (the Tax Act) are to pay $40 notwithstanding their asset size; this is to recognise that the ISC will treat such funds as satisfying the superannuation fund conditions whether they actually do so or not, due to the special circumstance of their meeting the Tax Act definition, which in turn means that they have no Australian members or Australian management and control; the levy amount is simply to recover the cost of processing the return:

•       unit trusts which wish to be treated as pooled superannuation trusts (PSTs) and receive a notice of compliance with the PST conditions from the ISC are to lodge a return with the ISC under the provisions of Section 15B of the OSS Act; the levy amount to be paid is $200 notwithstanding their asset size which is to recognise firstly the expected cost of the supervision of PSTs required by the OSS Act, and also to avoid "double counting" the levy paid separately by the superannuation funds and approved deposit funds which are predominantly the investors in PSTs; and

•       funds which wind up or otherwise cease to exist during a ,year of income may wish to lodge a return with the ISC in respect of that year; in that circumstance they simply pay $40 which reflects the cost of processing the return.

For the purposes of the regulations, the assets of funds is taken to be the net balance of the fund obtained from the audited accounts of the fund at the end of the year of income to which the return relates. However, where the fund consists entirely of policies of life insurance on the lives of individual members of the fund and the trustee does not know the amount which the insurer assesses the current value of those policies to be, the policies will be regarded as having a value of $20,000 each.

The regulations commence on 1 July 1991 in order to establish the levy amount to be paid by funds and trusts which lodge a return in respect of 1990-91 after that date.

Occupational Superannuation Standards Regulations (Amendment)

The regulations insert a new Regulation 25A in the OSS Regulations.

Regulation 25A establishes a liability on a trustee to pay a late lodgment fee if the trustee lodges, after 31 December 1991, a return in respect of a year of income prior to 1990-91. The amount of late lodgment fee, if any, is also prescribed in the regulation.

This is the first time that a late lodgment fee has been prescribed for returns lodged in respect of years prior to 1990-91. Up until now, while the superannuation industry has been developing experience in the processes of seeking and obtaining notices as to compliance, the ISC has been willing to rely on encouraging funds and trusts to lodge in time and publicising due dates for lodgment in the return forms themselves and in it's Information Circulars.

Notwithstanding this, returns for all years from and including the first year for which returns could be lodged, 1986-87, are still being lodged, in most cases well after the publicised due date. It can be reasonably expected that such returns will continue to be lodged.

The Levy Act provides that the new levy for 1990-91 and subsequent years must include a late lodgment amount if a return is lodged some time after the return lodgment day specified in the approved form of return. This was a matter covered in the Government's decision which led to this legislation, to the effect that the costs to be recovered by the new levy should include additional costs associated with processing returns which are lodged late. In his second reading speech to introduce the Levy Act to the House of Representatives the then Minister Assisting the Treasurer, Mr Crean, said that the late lodgment amount was also to encourage timely lodgment of returns.

It is consistent with this intention that a late lodgment fee, set at a level which is reasonable having regard to the cost of processing late returns and the need to encourage timely lodgment of any remaining returns, apply to returns in respect of years prior to 1990-91 which are lodged from now on.

Regulation 25A prescribes a late lodgment fee of $5 for each month or part month in the period from 1 July 1989 or 1 July in the financial year immediately following the date on which the return was due, whichever is the later, to the date of lodgement, subject to a maximum late lodgment fee of $200.

The late lodgment fee applies only to returns for years of income from and including 1986-87 to 1989-90, which are lodged after 31 December 1991.

Because of varying "due dates" for lodgment for funds in respect of the 1986-87 and 1987-88 years of income, it is administratively simpler for the funds and the ISC for a single "due date" to apply. Consequently for these years of income the regulations set the date of 1 July 1989 as the due date for lodgment. This is a "generous" date, which will require some funds to pay a substantially lesser amount than might otherwise be the case.

The date on which returns in respect of the years of income 1988-89 and 1989-90 were due was the date on which the fund or trust was required to lodge a Tax Form F with the Taxation Office for those years. It is recognised that there could be circumstances such as the approval of the Taxation Office for a substituted accounting period, and the approval. of the Taxation Office for an extension of time for the Tax Form to be lodged which would effectively mean that the due date is later than a year after 30 June in the financial year to which the return relates.

Consequently for the years of income 1988-89 and 1989-90, it is intended that where a return is lodged after 31 December 1991, the period on which the late lodgment fee is based would commence on 1 July 1990 and 1 July 1991 respectively. However, if at the time of lodging the return, the fund trustee is able to clearly demonstrate that the actual requirement to lodge a Tax Return for the year was after the relevant date, the period on which the late lodgment fee is based would commence on the 1 July next following.

The regulations commence on 1 July 1991.

Details of the regulations are set out in the Attachment.

ATTACHMENT

CONTENTS OF THE REGULATIONS

Superannuation Supervisory Levy Regulations

Regulation 1 provides that these Regulations be cited as the Superannuation Supervisory Levy Regulations.

Regulation 2 provides that the Regulations commence on 1 July 1991.

Regulation 3 inserts a number of definitions in the Regulations.

Regulation 4 provides the meaning of the basic levy amount. The regulation:

•       provides the basic levy amount payable in respect of returns lodged by categories of funds and trusts. The basic levy amounts are:

-       in respect of foreign superannuation funds within the meaning of the Income Tax Assessment Act

1936 - $40;

-       in respect of unit trusts - $200;

-       in respect of funds which cease to exist in the year of income to which the return applies - $40;

-       in respect of any other fund - $40 for each $500,000 of assets or part thereof, or $5,000, whichever is the lesser.

•       provides the definition of assets for the purposes of these regulations, as follows:

-       if a superannuation fund consists entirely of policies of life insurance on the lives of individual members, the insurer's assessment of the current value of those policies; and

-       in any other case, the net balance of the superannuation fund, approved deposit fund or unit trust as obtained from the audited accounts of the fund or trust at the end of the year of income to which the return relates.

•       provides that if the value of a particular policy on the life of an individual member is not known by the fund, the policy is to be regarded as having a value of $20,000.

Occupational Superannuation Standards Regulations (Amendment)

Regulation 1 provides that the regulations commence on 1 July 1991.

Regulation 2 is a formal provision.

Regulation 3 inserts a new regulation 25A in the Occupational Superannuation Standards Regulations, which:

•       provides that if a return for a year of income beginning before 1 July 1990 is lodged after 31 December 1991, a late lodgment fee will be payable by the relevant trustee;

•       provides that the late lodgment fee is the lesser of $200 and:

-       if the return relates to a year of income commencing on either 1 July 1986 or 1 July 1987 - $5 for each month or part month between 1 July 1989 and the day on which the return is lodged; and

-       in any other case - $5 for each month or part of a month between 1 July in the financial year beginning immediately after the return was due and the day on which the return is lodged.

•       provides that the late lodgment fee is payable when the return is lodged.

•       provides that 'return' has the same meaning as in sub-paragraph 12(1)(b)(ii), 14(1)(b)(ii) or 15H(1)(b)(ii) of the Occupational Superannuation Standards Act 1987 as in force immediately before the commencement of the Occupational Superannuation Laws Amendment Act 1991.


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