House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Minister for Financial Services, Superannuation and Corporate Law, the Hon Chris Bowen MP

Chapter 8 - Amendments relating to levies

Outline of chapter

8.1 Schedule 4 of the Bill amends the Financial Institutions Supervisory Levies Collection Act 1998.

8.2 Schedule 5 of the Bill amends the Authorised Deposit-taking Institutions Supervisory Levy Imposition Act 1998; the Life Insurance Supervisory Levy Imposition Act 1998; the General Insurance Supervisory Levy Imposition Act 1998; the Retirement Savings Account Providers Supervisory Levy Imposition Act 1998; the Superannuation Supervisory Levy Imposition Act 1998; and the First Home Saver Account Providers Supervisory Levy Imposition Act 2008 ( the levy imposition Acts).

8.3 Schedule 7 of the Bill repeals the Authorised Non-operating Holding Companies Supervisory Levy Determination Validation Act 2000; the General Insurance Supervisory Levy Determination Validation Act 2000; the Life Insurance Supervisory Levy Determination Validation Act 2000; the Retirement Savings Account Providers Supervisory Levy Determination Validation Act 2000; and the Superannuation Supervisory Levy Determination Validation Act 2000.

Context of amendments

8.4 APRA's capacity to undertake the various elements of its prudential supervision task is funded through industry levies which are determined annually by the Government.

8.5 The levies also cover consumer protection and market integrity functions of ASIC and the Australian Taxation Office in relation to APRA-regulated institutions.

8.6 The legislative framework for levies comprises the following arrangements:

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the Financial Institutions Supervisory Levies Collection Act 1998 which prescribes the timing of payment and the collection of levies; and

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the levy imposition Acts which impose levies on regulated entities and prescribe related matters.

8.7 On 1 July 2008, the then Assistant Treasurer announced an examination of the methodologies governing the determination of financial sector levies. This was in response to industry views on the methodologies and the fact that the methodologies had not been considered for some time.

8.8 The review of the levy methodologies was undertaken by Treasury and APRA. As a result of this work, the review team recommended the following legislative changes to the Assistant Treasurer:

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that a drafting error in subparagraph 9(2)(a)(i) of the Financial Institutions Supervisory Levies Collection Act be corrected;

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that the levy date for new starters under the Superannuation Supervisory Levy Imposition Act 1998 should be amended so as to bring it into line with the other imposition Acts; and

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that the imposition Acts be amended to provide more flexibility by enabling a valuation basis other than assets to be used on a case-by-case basis in the annual determinations.

8.9 In addition, it has been identified that the following Acts are redundant: the Authorised Non-operating Holding Companies Supervisory Levy Determination Validation Act 2000; the General Insurance Supervisory Levy Determination Validation Act 2000; the Life Insurance Supervisory Levy Determination Validation Act 2000; the Retirement Savings Account Providers Supervisory Levy Determination Validation Act 2000; and the Superannuation Supervisory Levy Determination Validation Act 2000.

Summary of new law

8.10 Schedules 4 and 5 of the Bill improve the methodologies governing the determination of financial sector levies by implementing recommendations of the 2009 Report of the Review of Financial Sector Levies and making related amendments.

8.11 Schedule 4 of the Bill replaces the reference to 'Treasurer' in paragraph 9(2)(a)(i) of the Financial Institutions Supervisory Levies Collection Act 1998 with a reference to 'trustee'.

8.12 Schedule 5 of the Bill:

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amends section 7 of the Superannuation Supervisory Levy Imposition Act 1998 so that the levy payable by a new starter is based on the entity's asset value on the day it became a superannuation entity; and

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replaces all references to 'asset value' in the levy imposition Acts with references to 'levies base' so that a valuation basis other than assets can be used in determining levies payable.

8.13 In addition, schedule 7 of the Bill repeals the redundant Acts identified above.

Comparison of key features of new law and current law

Detailed explanation of new law

Subparagraph 9(2)(a)(i) of the Financial Institutions Supervisory Levies Collection Act

8.14 Currently subparagraph 9(2)(a)(i) of the Financial Institutions Supervisory Levies Collection Act 1998 establishes that the levy payable for a financial year by a trustee of a superannuation entity is due and payable on a business day that is specified in a notice given by APRA to the Treasurer, if the entity is a superannuation entity on 1 July of the financial year and became a superannuation entity before that day.

8.15 The Bill amends subparagraph 9(2)(a)(i) of the Act to refer to 'a notice given by APRA to the trustee' instead of 'a notice given by APRA to the Treasurer' . [Schedule 4, item 3, subparagraph 9(2)(a)(i) of the Financial Institutions Supervisory Levies Collection Act 1998]

8.16 The present reference to 'Treasurer' in the subparagraph is a drafting error. The amendment corrects this error.

Regulated levy component for new starters under the Superannuation Supervision Levy imposition Act

8.17 The Superannuation Supervisory Levy Imposition Act 1998 imposes a levy on superannuation entities. Section 5 of the Levy Act defines a 'superannuation entity' to mean a superannuation entity within the meaning of the Superannuation Industry (Supervision) Act, other than a self-managed superannuation fund.

8.18 Under section 7 of the Superannuation Supervisory Levy Imposition Act, the levy comprises two components: a restricted levy component and an unrestricted levy component. Each component requires the application of a levy percentage to the superannuation entity's asset value.

8.19 Subparagraph 7(1A)(a)(ii) of the Superannuation Supervisory Levy Imposition Act provides that if the superannuation entity was an unregulated entity on 30 June of the previous financial year ('a new starter') then, for the purpose of working out the restricted levy component, the restricted levy percentage is applied to the entity's asset value on 30 June of the previous financial year.

8.20 This method of calculating the restricted levy component is not appropriate for new starters. For example, under the present arrangements if a fund becomes a regulated superannuation fund on 1 October of a particular financial year, its restricted levy component is to be worked out by applying the restricted levy percentage to its asset value as at 30 June in the previous financial year. However, as the fund is a new starter it is unlikely to have had any assets, or have been in existence, on 30 June of the previous financial year. As a result, the fund is likely to pay only the minimum amount for this component, which could be less than commensurate with the costs of APRA's supervisory resources.

8.21 The Bill rectifies this situation by amending subparagraph 7(1A)(a)(ii) of the Superannuation Supervisory Levy Imposition Act so that the restricted levy component for a new starter is the restricted levy percentage of the entity's levy base on the day when it became a superannuation entity . [Schedule 4, item 30, subparagraph 7(1A)(a)(ii) of the Superannuation Supervisory Levy Imposition Act 1993]

8.22 The amendments bring the levy arrangements for superannuation entities into line with those applicable to ADIs, general insurers, life insurers, retirement savings account providers and leviable first home saver account providers. The respective levy imposition Acts in relation to those entities presently provide that the valuation day for a new starter is the day that it becomes regulated.

8.23 The Bill also amends subsection 7(1B), which relates to the unrestricted levy component, to align its structure with that adopted in subsection 7(A) and to ensure that it operates consistently with subsection 7(A) . [Schedule 4, item 32, subsection 7(1B) of the Superannuation Supervisory Levy Imposition Act 1993]

Valuation basis for determining levies

8.24 From inception, gross assets have been used as the primary measure for determining levies. This has generally proved to be a reasonable measure, but from time to time it has generated particular anomalies. For example, using assets as a valuation basis may not be appropriate for a financial institution which has a large volume of transactions but holds minimum assets and as a result is subject to the minimum levy, or where a participant otherwise does not conform to the general characteristics of other entities within the industry.

8.25 The Bill addresses this by amending the imposition Acts to provide flexibility so that a valuation basis other than assets can be used by the Minister in determining levies on a case-by-case basis. This is achieved by replacing all relevant references to 'asset value' in the imposition Acts with references to 'levy base' . [Schedule 5, items 1 to 4, 6 to 21, 23 to 29, 31 and 33, section 7 of the Authorised Deposit-taking Institutions Supervisor Levy Imposition Act 1998, section 7 of the First Home Saver Account Providers Supervisory Levy imposition Act 2008, section 8 of the General Insurance Supervisory Levy Imposition Act 1998, section 7 of the Life Insurance Supervisory Levy Imposition Act 1998, section 7 of the Retirement Savings Account Providers Supervisory Levy Imposition Act 1998, and section 7 of the Superannuation Supervisory Levy Imposition Act 1998]

8.26 As a consequence of this amendment, the Bill also repeals subsection 7(4A) of the Life Insurance Supervisory Levy Imposition Act 1998 and subsection 7(4A) of the Authorised Deposit-taking Institutions Supervisory Levy Imposition Act 1998. These provide that the asset value of a life insurance company or ADI must exclude an amount equal to the total balances of all first home saver accounts (within the meaning of the First Home Saver Accounts Act) . [Schedule 5, items 5 and 22, subsection 7(4A) of the Authorised Deposit-taking Institutions Supervisor Levy Imposition Act 1998 and subsection 7(4A) of the Life Insurance Supervisory Imposition Act 1998]

8.27 The provisions are not desirable due to the above mentioned amendments that replace references to 'asset value' with references to 'levy base'. As a result of the change to 'levy base', it is preferable that any relevant adjustments to levies payable be done in the ministerial annual determinations.

Repeal of redundant Acts

8.28 Schedule 7 of the Bill repeals the following Acts:

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the Authorised Non-operating Holding Companies Supervisory Levy Determination Validation Act 2000;

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the General Insurance Supervisory Levy Determination Validation Act 2000;

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the Life Insurance Supervisory Levy Determination Validation Act 2000;

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the Retirement Savings Account Providers Supervisory Levy Determination Validation Act 2000; and

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the Superannuation Supervisory Levy Determination Validation Act 2000. [Schedule 7, items 1 to 5, the Authorised Non-operating Holding Companies Supervisory Levy Determination Validation Act 2000, General Insurance Supervisory Levy Determination Validation Act 2000, the Life Insurance Supervisory Levy Determination Validation Act 2000, the Retirement Savings Account Providers Supervisory Levy Determination Validation Act 2000 and the Superannuation Supervisory Levy Determination Validation Act 2000]

8.29 The five Acts validate levy determinations made on 11 August 1998, before they were notified in the Gazette on 13 August 1998. According to the validation Acts, the determinations are taken to be effective on and at all times after 1 July 1998. The Acts provided legal support to relevant levy collection actions taken from 1 July 1998 to 13 August 1998.

8.30 The Acts are now redundant as the relevant levy determinations were revoked in 1999.