House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

Chapter 1 - Major bank levy

Outline of chapter

1.1 The Major Bank Levy Bill will introduce a levy on ADIs with total liabilities of greater than $100 billion. The levy is imposed at a rate of 0.015 per cent on certain liabilities of the ADI that are reported to APRA on a quarterly basis under a reporting standard.

1.2 Schedule 1 to the Treasury Laws Amendment Bill amends the APRA Act, the Collection of Data Act, the ITAA 1997 and the TAA 1953 to specify certain administrative features relating to the major bank levy, including the requirement that the levy is payable to the Commissioner quarterly.

Context of amendments

1.3 In the 2017-18 Budget the Government announced that it would introduce a levy on major banks with liabilities greater than $100 billion (indexed to grow in line with nominal Gross Domestic Product (GDP)).

1.4 The major bank levy will raise $6.2 billion over four years, net of interactions with other taxes. This represents a fair additional contribution from Australia's highly profitable major banks.

1.5 It will contribute to budget repair over the forward estimates period. The levy will also contribute to strengthening the structural position of the budget for the long term - providing greater fiscal capacity to accommodate shocks such as those seen in the global financial crisis.

1.6 The major bank levy is similar to bank levies imposed in other advanced countries, recognising that large leveraged banks are a source of systemic risk in the financial system and the wider economy. Those risks were made evident in the global financial crisis.

1.7 It will complement prudential reforms being implemented by the Government and APRA to improve financial system resilience. These reforms include:

•

setting bank capital levels such that they are 'unquestionably strong';

•

strengthening APRA's crisis management powers; and

•

ensuring banks have appropriate loss absorbing capacity.

1.8 APRA has confirmed that the payment of the major bank levy will not have a material impact on the resilience of the banking system and that it does not harm its prudential policy objectives.

1.9 The major bank levy will also contribute to a more level playing field for smaller, often regional, banks and non-bank competitors. As the House of Representatives Standing Committee on Economics report on the four largest banks found, the major banks' size and market dominance affords them significant funding cost advantages and pricing power at the expense of their customers.

Summary of new law

1.10 The Major Bank Levy Bill will introduce a levy on ADIs with total liabilities of greater than $100 billion. The $100 billion threshold will be indexed to grow in line with nominal GDP.

1.11 The levy is imposed at a rate of 0.015 per cent on certain liabilities of the ADI that are reported to APRA each quarter. The amount of liabilities on which the major bank levy will be payable is the total reported liabilities of the ADI for the quarter, reduced by the sum of:

•

the ADI's total Additional Tier 1 Capital at the end of the quarter; the ADI's total holdings of deposits protected by the Financial Claims Scheme at the end of the quarter;

•

an amount equal to the lesser of the derivative assets and derivative liabilities at the end of the quarter in relation to the ADI; and

•

the exchange settlement account balance held with the Reserve Bank of Australia (RBA) for the quarter in relation to the ADI.

1.12 Schedule 1 to the Treasury Laws Amendment Bill amends various Acts to specify certain administrative features relating to the major bank levy. In particular, the amendments:

•

modify the TAA 1953 to:

•

specify that the major bank levy is payable to the Commissioner;

•

ensure that the ordinary collection and recovery provisions apply in relation to the levy;

•

introduce an anti-avoidance law for the levy; and

•

allow the Commissioner to give information relating to the levy to APRA;

•

modify the ITAA 1997 so that the $100 billion threshold is indexed to grow in line with nominal GDP;

•

modify the Collection of Data Act to allow the APRA reporting standards to include information relating to amounts for the purposes of the major bank levy; and

•

modify the APRA Act to allow APRA to provide information relating to the major bank levy to the Commissioner.

Comparison of key features of new law and current law

Detailed explanation of new law

1.13 The Major Bank Levy Bill 2017 will introduce the Major Bank Levy Act 2017 (Major Bank Levy Act). [Major Bank Levy Bill, section 1 of the Major Bank Levy Act]

Who is liable to pay the major bank levy

1.14 The major bank levy will be imposed on an ADI for a quarter starting on or after 1 July 2017 if the ADI's total liabilities amount for the quarter exceeds the levy threshold for the quarter. [Major Bank Levy Bill, subsubsection 4(1) of the Major Bank Levy Act]

1.15 An ADI is a body corporate that is an ADI for the purposes of the Banking Act 1959. An ADI is defined under that Act to be a body corporate in relation to which an authority under subsection 9(3) of that Act is in force. [Major Bank Levy Bill, definition of 'ADI' in section 3 of the Major Bank Levy Act]

1.16 In this regard, the major bank levy applies to a body corporate that is a licensed ADI. This includes the business of the ADI ordinarily described as 'foreign bank branch' activity, but does not include other body corporates in the ADI's group (such as foreign or non-banking subsidiaries, or non-operating holding companies).

1.17 A quarter is each period of 3 months ending 31 March, 30 June, 30 September or 31 December. [Major Bank Levy Bill, definition of 'quarter' in section 3 of the Major Bank Levy Act]

1.18 The total liabilities amount in relation to an ADI for a quarter is the amount equal to the total liabilities of the ADI for the quarter, as reported under an applicable reporting standard. [Major Bank Levy Bill, definition of 'total liabilities amount' in section 3 and subsection 4(2) of the Major Bank Levy Act]

1.19 An applicable reporting standard is a standard that:

•

is determined by APRA under section 13 of the Collection of Data Act; and

•

relates to reporting amounts for the purposes of this Act (whether or not it also relates to other matters).

[Major Bank Levy Bill, definition of 'applicable reporting standard' in section 3 of the Major Bank Levy Act]

1.20 In this regard, the total liabilities amount for a quarter, and other amounts for a quarter that are relevant to working out the major bank levy, must be worked out in accordance with:

•

accounting principles - that is, in accordance with accounting standards or, if there are no relevant accounting standards, in accordance with authoritative pronouncements of the Australian Accounting Standards Board that apply to the preparation of financial standards (see the definition of accounting principles in subsection 995-1(1) of the ITAA 1997); and

•

any applicable legislative instrument made by the Minister - a legislative instrument made for these purposes may make provisions in relation to a matter by applying, adopting or incorporating any matter contained in any other instrument or writing as in force from time to time and has effect despite anything in subsection 14(2) of the Legislative Instruments Act 2003.

[Major Bank Levy Bill, sections 7 and 8 of the Major Bank Levy Act]

1.21 The levy threshold, for the quarter starting 1 July 2017, is $100 billion. [Major Bank Levy Bill, definition of 'levy threshold' in section 3 and subsection 4(3) of the Major Bank Levy Act]

1.22 The levy threshold is indexed quarterly by:

•

multiplying the amount ($100 billion) by the indexation factor for the particular quarter; and

•

rounding the result down to the nearest $1 million.

[Major Bank Levy Bill, subsection 4(3) of the Major Bank Levy Act; Treasury Laws Amendment Bill, Schedule 1, items 5 and 9, item 14 of the table in subsection 960-265 and subsection 960-290(1) of the ITAA 1997]

1.23 The levy threshold is not indexed if the indexation factor is one or less. [Treasury Laws Amendment Bill, Schedule 1, item 9, subsection 960-290(2) of the ITAA 1997]

1.24 The indexation factor for a particular quarter is worked out using the formula:

[Treasury Laws Amendment Bill, Schedule 1, items 9 and 11, subsection 960-290(3) and the definition of 'indexation factor' in subsection 995-1(1) of the ITAA 1997]

1.25 The indexation factor is worked out to three decimal places, rounding up if the fourth decimal place is five or more. [Treasury Laws Amendment Bill, Schedule 1, item 9, subsection 960-290(4) of the ITAA 1997]

1.26 For the purposes of working out the indexation factor:

•

the GDP number for the base quarter is the estimate that is, at the end of the quarter to which indexation is to be applied, the estimate of the GDP: Current Prices - Seasonally Adjusted most recently published by the Australian Statistician for the quarter ending on 30 June 2017; and

•

the GDP number for the preceding quarter is the estimate of the GDP: Current Prices - Seasonally Adjusted first published by the Australian Statistician for the quarter preceding the quarter to which the indexation is to be applied.

[Treasury Laws Amendment Bill, Schedule 1, item 9, subsection 960-290(3) of the ITAA 1997]

1.27 In this regard, indexation will first apply to the quarter starting on 1 October 2017 (which ends on 31 December 2017). The nominal GDP for that quarter is due to be published on 7 March 2018, which is after the date on which the liability for major bank arises. Therefore, the indexation factor is worked out by reference to the nominal GDP published by the Australian Statistician for the quarter preceding the quarter to which the indexation is to be applied.

1.28 In addition, if the nominal GDP for a particular quarter is revised in a subsequent quarter, the denominator in the indexation formula is based on the estimate of the GDP: Current Prices - Seasonally Adjusted that is most recently published by the Australian Statistician for the quarter ending on 30 June 2017.

1.29 Consequential amendments switch off general provisions in the ITAA 1997 that apply to indexation factors. [Treasury Laws Amendment Bill, Schedule 1, items 6 to 8 and 12, subsections 960-270(3), 960-275(6), 960-280(6) and the definition of 'index number' in subsection 995-1(1) of the ITAA 1997]

Example 1.1

The major bank levy first applies for the quarter starting on 1 July 2017 (which ends on 30 September 2107). The levy threshold for that quarter is $100 billion.

The levy threshold ($100 billion) will be indexed for the quarter starting on 1 October 2017 (which ends on 31 December 2017). The indexation factor for that quarter will be worked out using the following formula:

The levy threshold ($100 billion) will be indexed again for the quarter starting on 1 January 2018 (which ends on 31 March 2018). The indexation factor for that quarter will be worked out using the following formula:

Working out the amount of the major bank levy

1.30 The amount of the levy payable by the ADI for a quarter is 0.015 per cent of the applicable liabilities amount for the quarter in relation to the ADI. [Major Bank Levy Bill, subsection 5(1) of the Major Bank Levy Act]

1.31 The applicable liabilities amount for the quarter is the total liabilities amount of the ADI for the quarter, reduced by the sum of:

•

the total Additional Tier 1 Capital for the quarter in relation to the ADI, as reported under an applicable reporting standard;

•

Additional Tier 1 Capital are the liabilities that the ADI owes in relation to Additional Tier 1 Capital instruments that fall within the meaning of the prudential standards determined by APRA and in force under section 11AF of the Banking Act 1959;

•

the total holdings of deposits held, to the extent that they would be protected by the ADI Financial Claims Scheme, for the quarter in relation to the ADI, as reported under an applicable reporting standard;

•

an amount equal to the lesser of the derivative assets and derivative liabilities at the end of the quarter in relation to the ADI, as reported under an applicable reporting standard;

•

a derivative is, broadly, an agreement or instrument the value of which changes in response to a specific underlying variable or variables, requires no or limited initial net investment and is settled at a future date;

•

the exchange settlement account balance, held with the RBA, for the quarter in relation to the ADI, as reported under an applicable reporting standard;

•

an exchange settlement account is an account held at the RBA which is used for the daily final settlement obligations between exchange settlement account holders; and

•

any other amounts of a kind determined by the Minister in a legislative instrument - a legislative instrument made for these purposes may make provisions in relation to a matter by applying, adopting or incorporating any matter contained in any other instrument or writing as in force from time to time and has effect despite anything in subsection 14(2) of the Legislative Instruments Act 2003.

[Major Bank Levy Bill, definitions of 'applicable liabilities amount' and 'ADI financial claims scheme' in section 3 and subsections 5(2) and (4) to (6) of the Major Bank Levy Act]

1.32 The methods for working out any of these amounts may be set out in an applicable reporting standard (including the standard mentioned in subsection 4(2)). [Major Bank Levy Bill, subsection 5(3) of the Major Bank Levy Act]

1.33 This means that the amount determining the levy for each ADI should be in line with the amounts that the ADI reports to APRA under a standard determined under section 13 of the Collection of Data Act.

1.34 Section 3 of the Collection of Data Act sets out that the object of that Act is to enable APRA to collect information for a range of purposes. An amendment is being made to that Act to clarify that those purposes include the purpose of reporting amounts for the purposes of the major bank levy. [Treasury Laws Amendment Bill, Schedule 1, item 2, paragraph (3)(1)(d) of the Collection of Data Act]

1.35 The Collection of Data Act is also being amended to clarify that the APRA reporting standards can include matters that relate to the reporting of amounts for the purposes of the Major Bank Levy Act. [Treasury Laws Amendment Bill, Schedule 1, item 3, subsection 13(2B) of the Collection of Data Act]

1.36 A reporting standard made for these purposes may make provision in relation to a matter that relates to these amounts by applying, adopting or incorporating any matter contained in any other instrument or writing as in force from time to time and has effect despite anything in subsection 14(2) of the Legislative Instruments Act 2003. [Treasury Laws Amendment Bill, Schedule 1, item 3, subsections 13(2C) and (2D) of the Collection of Data Act]

1.37 Consequently, the instructions for filling in a report prescribed under the standard may refer to definitions and instructions outlined elsewhere, including those in this Act and any legislative instruments made under this Act.

1.38 Consistent with amounts currently being reported under a standard determined under section 13 of the Collection of Data Act, entities are required to comply with reporting requirements, including having appropriate quality control processes in place.

1.39 The amounts for a quarter are generally the relevant amount as at the end of the last day in the quarter. [Major Bank Levy Bill, subsection 6(1) of the Major Bank Levy Act]

1.40 However, for the following amounts, the relevant amounts for a quarter are worked out using the method statement in subsection 6(3):

•

the total liabilities amount, but only to the extent that they consist of liabilities relating to:

•

debt securities - debt securities are borrowed funds that must be repaid and that can be traded, including instruments like commercial paper and bonds;

•

repurchase agreements;

•

loans between the ADI concerned and another ADI;

•

loans between the ADI concerned and a foreign bank - a foreign bank is defined in section 128A of the Income Tax Assessment Act 1936 to mean a non-resident (foreign) company that carries on banking business;

•

the exchange settlement account balance held with the RBA; and

•

any amount of a kind determined by the Minister in a legislative instrument - a legislative instrument made for these purposes may make provisions in relation to a matter by applying, adopting or incorporating any matter contained in any other instrument or writing as in force from time to time and has effect despite anything in subsection 14(2) of the Legislative Instruments Act 2003.

[Major Bank Levy Bill, subsections 6(2) and (4) to (6) of the Major Bank Levy Act]

1.41 In these cases, the relevant amount for a quarter is worked out on a quarterly average basis applying the following steps:

•

Step 1 - For each day in the quarter, work out the relevant amount as at the end of that day.

•

Step 2 - Add all the step 1 amounts together.

•

Step 3 - Divide the step 2 amount by the total number of days in the quarter.

[Major Bank Levy Bill, subsection 6(3) of the Major Bank Levy Act]

1.42 The requirement for these amounts to be quarterly averaged will minimise any market disruptions resulting from the incentives to reduce outstanding liabilities immediately before the end of a quarter.

Major bank levy is payable to the Commissioner of Taxation

1.43 The Commissioner has the general administration of the major bank levy. As a consequence, the Major Bank Levy Act will be a taxation law (as defined in subsection 995-1(1) of the ITAA 1997). [Treasury Laws Amendment Bill, Schedule 1, items 20 and 21, sections 356-1 and 356-10 of Schedule 1 to the TAA 1953]

1.44 An ADI that is liable to pay the major bank levy must give the Commissioner a quarterly return relating to the levy. An amount of levy is payable when an ADI's last Pay-As-You-Go (PAYG) instalment within an instalment quarter is due. [Treasury Laws Amendment Bill, Schedule 1, item 15, section 115-1 of Schedule 1 to the TAA 1953]

1.45 If an ADI incurs expenditure for major bank levy, the ADI can claim an income tax deduction for the whole of the amount incurred. [Treasury Laws Amendment Bill, Schedule 1, item 4, paragraph 25-5(1)(cb) of the ITAA 1997]

1.46 The return relating to the levy must be given by the ADI to the Commissioner in the approved form on or before the MBL reporting day for the quarter. [Treasury Laws Amendment Bill, Schedule 1, item 15, subsections 115-5(1) and (2) of Schedule 1 to the TAA 1953]

1.47 The MBL reporting day for the quarter is the day by which the ADI is required to give APRA a report in accordance with an APRA reporting standard that:

•

relates to the quarter; and

•

states the total liabilities amount for the purposes of the major bank levy for the quarter in relation to the ADI.

[Treasury Laws Amendment Bill, Schedule 1, items 13 and 15, definition of 'MBL reporting day' in subsection 995-1(1) of the ITAA 1997 and subsection 115-5(3) of Schedule 1 to the TAA 1953]

1.48 The Commissioner is taken to have made an assessment of the amount of major bank levy when an ADI gives a return to the Commissioner. [Treasury Laws Amendment Bill, Schedule 1, items 16 and 17, paragraph 155-5(2)(i) and item 5 of the table in subsection 115-15(1) of Schedule 1 to the TAA 1953]

1.49 This will ensure that, among other things, the Commissioner can amend the assessment of the major bank levy if necessary and gives an ADI the right to object to the assessment under Part IVC of the TAA 1953 (see section 155-90 of Schedule 1 to the TAA 1953).

1.50 The amount of major bank levy that an ADI is liable to pay for a quarter is due and payable on or before the first day:

•

that occurs on or after the MBL reporting day for the quarter; and

•

on which the last instalment that the ADI is liable to pay within an instalment quarter is due under the PAYG instalment provisions.

[Treasury Laws Amendment Bill, Schedule 1, item 15, section 115-10 of Schedule 1 to the TAA 1953]

1.51 In this regard, ADIs that are subject to the major bank levy are generally monthly instalment payers for PAYG instalment purposes. Therefore, the major bank levy that is payable for a particular quarter is generally due and payable on or before the 21st day of the third month in the quarter that follows the quarter to which the levy relates.

1.52 However, as a transitional rule, in relation to the major bank levy that an ADI is liable to pay for the quarter ending on 30 September 2017, the due date for payment will be deferred by a quarter. [Treasury Laws Amendment Bill, Schedule 1, subitem 23(2)]

1.53 Therefore, in practical terms, for the 2017-18 income year, the major bank levy will be due and payable on or before the following dates:

•

the major bank levy for the quarter ending on 30 September 2017 will be due and payable on or before 21 March 2018;

•

the major bank levy for the quarter ending on 31 December 2017 will be due and payable on or before 21 March 2018;

•

the major bank levy for the quarter ending on 31 March 2018 will be due and payable on or before 21 June 2018; and

•

the major bank levy for the quarter ending on 30 June 2018 will be due and payable on or before 21 September 2018.

1.54 Consequently, an applicable reporting standard will not require an ADI to give APRA a report for the quarter ending on 30 September 2017 until at least January 2018.

1.55 If an amount of major bank levy remains unpaid after it is due and payable, the ADI is liable to pay general interest charge on the unpaid amount for each day in the period that:

•

started at the beginning of the day by which the amount was due to be paid; and

•

finishes at the end of the last day at the end of which either the amount, or the general interest charge on the amount, remains unpaid.

[Treasury Laws Amendment Bill, Schedule 1, items 14 and 15, item 45A in the table in section 8AAB(4) of the TAA 1953 and section 115-10(2) of Schedule 1 to the TAA 1953]

1.56 Consequential amendments ensure that:

•

a liability to pay the major bank levy will be a tax-related liability; and

•

the Major Bank Levy Act will be a BAS provision.

[Treasury Laws Amendment Bill, Schedule 1, items 10 and 18, the definition of 'BAS provisions' in subsection 995-1(1) of the ITAA 1997 and item 136 of the table in subsection 250-10(2) of Schedule 1 to the TAA 1953]

1.57 This will ensure that, among other things, the provisions in the TAA 1953 relating to the collection and recovery of tax related liabilities will apply to the major bank levy.

1.58 A further consequential amendment will ensure that the Commissioner can make binding public, private and oral rulings in relation to the major bank levy. [Treasury Laws Amendment Bill, Schedule 1, item 22, paragraph 357-55(fd) of Schedule 1 to the TAA 1953]

Anti-avoidance law

1.59 A new anti-avoidance law will apply to deter ADI's from entering into schemes to obtain major bank levy benefits (MBL benefits). If the sole or dominant purpose of entering into a scheme is to give an entity an MBL benefit, then the Commissioner may negate the benefit an entity gets from the scheme by making a determination. [Treasury Laws Amendment Bill, Schedule 1, item 15, section 117-1 of Schedule 1 to the TAA 1953]

1.60 The new anti-avoidance law is consistent with other general anti-avoidance provisions in the taxation law. The object of the anti-avoidance law is to deter schemes to give entities benefits that reduce or defer major bank levy liabilities. [Treasury Laws Amendment Bill, Schedule 1, item 15, section 117-5 of Schedule 1 to the TAA 1953]

When does the new anti-avoidance law apply

1.61 The anti-avoidance law applies if:

•

an entity gets or got an MBL benefit from a scheme;

•

taking into account certain specified matters, it is reasonable to conclude that an entity that (whether alone or with others) entered into or carried out the scheme, or a part of the scheme, did so for the sole or dominant purpose of that entity or another entity getting an MBL benefit from the scheme; and

•

the scheme has been entered into at or after 7.30 pm by legal time in the Australian Capital Territory on 9 May 2017, or has been or is carried out or commenced at or after that time (and was not entered into before that time).

[Treasury Laws Amendment Bill, Schedule 1, item 15, subsection 117-10(1) of Schedule 1 to the TAA 1953]

1.62 For the purposes of applying the anti-avoidance law, it does not matter whether the scheme, or any part of the scheme, was entered into or carried out inside or outside Australia. [Treasury Laws Amendment Bill, Schedule 1, item 15, subsection 117-10(2) of Schedule 1 to the TAA 1953]

1.63 An entity gets an MBL benefit from a scheme if:

•

an amount of major bank levy that is payable by an entity (apart from under Division 117 of Schedule 1 to the TAA 1953) is, or could reasonably be expected to be, smaller than it would be apart from the scheme or a part of the scheme - for these purposes, the circumstances in which a liability will be smaller include a case where a liability is zero, or where there is no such liability for a particular quarter; or

•

all or part of an amount of major bank levy that is payable by an entity (apart from under Division 117 of Schedule 1 to the TAA 1953) is, or could reasonably be expected to be, payable later than it would have been apart from the scheme or a part of the scheme.

[Treasury Laws Amendment Bill, Schedule 1, items 13 and 15, definition of 'MBL benefit' in subsection 995-1 of the ITAA 1997 and section 117-15 of Schedule 1 to the TAA 1953]

1.64 Matters that can be taken into account in considering an entity's purpose in entering into or carrying out a scheme, or a part of the scheme, are:

•

the manner in which the scheme was entered into or carried out;

•

the form and substance of the scheme;

•

the time at which the scheme was entered into and the length of the period during which the scheme was carried out;

•

the effect that the Major Bank Levy Act, and any other taxation law to the extent that it applies in relation to that Act, would have in relation to the scheme (apart from Division 117 of Schedule 1 to the TAA 1953);

•

any change in financial position of the entity that has resulted, or may be reasonably expected to result, from the scheme;

•

any change that has resulted, or may be reasonably expected to result, from the scheme in the financial position of an entity that is a connected entity - a connected entity is an entity that has or had a connection or dealing with the entity, whether the connection or dealing is or was of a business or other nature;

•

any consequences for the entity, or for a connected entity, of the scheme having been entered into or carried out; and

•

the nature of the connection (whether of a business or other nature) between the entity and a connected entity.

[Treasury Laws Amendment Bill, Schedule 1, item 15, section 117-20 of Schedule 1 to the TAA 1953]

1.65 The anti-avoidance rule is intended to target schemes that have a sole or dominant purpose of avoiding the major bank levy, including through reducing or delaying the liability to the major bank levy. Similar to Part IVA of the Income Tax Assessment Act 1936, the anti-avoidance rule is focused on arrangements, or parts of arrangements, that are artificial or contrived.

1.66 The major bank levy is not intended to prevent an ADI from moving to more stable sources of funding. This anti-avoidance rule will not apply to schemes that have the effect of decreasing, on an ongoing basis, an ADI's applicable liabilities amount to the extent that this reflects a genuine change in the composition of the ADI's funding and activities.

Example 1.2

In complying with other regulatory obligations, an ADI that is liable to pay the major bank levy reduces its short term debt liabilities and increases its Additional Tier 1 Capital on issue. This has the effect of reducing the amount of major bank levy that the ADI is liable to pay.

Having regard to the matters listed in section 117-20 of Schedule 1 to the TAA 1953, this is not likely to be a scheme to which the anti-avoidance rule applies:

•

the manner in which the scheme was entered into - in this case, the change to the bank's funding mix has been implemented in a straightforward way by raising Additional Tier 1 Capital consistent with its regulatory requirements and using the proceeds to retire short-term debt;

•

the form and substance of the scheme - in this case, the substantive effect of the change is to increase the bank's reliance on stable funding sources and puts the bank in a stronger prudential position (substance follows form);

•

the time at which the scheme was entered into and the length of the period during which the scheme was carried out - this matter looks at whether the scheme operates around the end of a quarter, and the duration of the scheme itself. In this case, the change to the bank's funding mix is long term (that is, the change is not made to achieve a temporary effect); and

•

any change in financial position of the entity - in this case, the ADI has effected a real change in its financial position through making itself less reliant on short term funding and increasing its Additional Tier 1 Capital on issue.

1.67 Similarly, the major bank levy is not intended to prevent an ADI from reducing its liabilities where there has been a reduction in its funding needs. For example, the anti-avoidance provisions are not intended to apply to the permanent repayment of a loan asset in the ordinary course of business, with the effect that any associated funding has been repaid or any associated derivative liability has been closed out.

1.68 Types of arrangements that could potentially be subject to the anti-avoidance rule include those that involve:

•

temporary reductions in liabilities before the end of a quarter that have the effect of reducing liability to the major bank levy which are not explicable by the ordinary operations of the ADI - for example:

•

an arrangement whereby, on request from the ADI, a customer changes the form of its monies held with the ADI over a quarter end with the effect of decreasing its applicable liabilities amount where, in compensation for the temporary change, the bank pays the customer a fee or offers other services at a below market rate;

•

an arrangement that has the effect of 'bed and breakfasting' liabilities with a related party over a quarter end; and

•

an arrangement that has the effect of 'window dressing' to achieve a temporary effect over a quarter end.

•

permanent reductions in liabilities that do not involve any substantive change in the activities or risks of the ADI - for example, an arrangement where a loan asset and funding liability is shifted to a subsidiary and the risk and benefits brought back to the ADI through the use of derivatives, with the effect that there is no significant change in the activities that the ADI performs or the risks that it is exposed to, but there is a permanent reduction in the liabilities of the ADI.

Consequences that arise when the new anti-avoidance law applies

1.69 For the purpose of negating an MBL benefit an entity gets or got from a scheme, the Commissioner may:

•

make a determination stating the amount that is (and has been at all times) the entity's major bank levy liability for a specified quarter that has ended; or

•

make a determination stating the amount that is (and has been at all times) a particular amount of a liability that is relevant to working out the applicable liabilities amount for a specified quarter that has ended.

[Treasury Laws Amendment Bill, Schedule 1, item 15, subsection 117-25(1) of Schedule 1 to the TAA 1953]

1.70 The determination is not a legislative instrument. [Treasury Laws Amendment Bill, Schedule 1, item 15, subsection 117-25(2) of Schedule 1 to the TAA 1953]

1.71 The Commissioner may take such action as the Commissioner considers necessary to give effect to the determination. [Treasury Laws Amendment Bill, Schedule 1, item 15, subsection 117-25(3) of Schedule 1 to the TAA 1953]

1.72 For the purpose of making an assessment, a statement in a determination made for these purposes has effect according to its terms, despite any other provisions in a taxation law. [Treasury Laws Amendment Bill, Schedule 1, item 15, section 117-30 of Schedule 1 to the TAA 1953]

1.73 For the purposes of making the determination, the Commissioner may:

•

treat a particular event that actually happened as not having happened;

•

treat a particular event that did not actually happen as having happened and, if appropriate, treat the event as having happened at a particular time and having involved particular action by a particular entity; and

•

treat a particular event that actually happened as having happened at a different time from the time it actually happened or having involved particular action by a particular entity (whether or not the event actually involved any action by that entity).

[Treasury Laws Amendment Bill, Schedule 1, item 15, section 117-35 of Schedule 1 to the TAA 1953]

1.74 To avoid doubt, statements relating to different quarters and different MBL benefits may be included in a single determination. [Treasury Laws Amendment Bill, Schedule 1, item 15, section 117-40 of Schedule 1 to the TAA 1953]

1.75 The Commissioner must give a copy of a determination to the entity whose liability for major bank levy is stated in the determination. However, a failure to comply with this requirement does not affect the validity of the determination. [Treasury Laws Amendment Bill, Schedule 1, item 15, section 117-45 of Schedule 1 to the TAA 1953]

1.76 If the Commissioner makes a determination for the purpose of negating an MBL benefit, the entity may be liable to an administrative penalty, consistent with the administrative penalties that apply in other circumstances when an entity enters into a scheme, the effect of which is negated because of an anti-avoidance law (subparagraph 284-145(1)(b)(i) of Schedule 1 to the TAA 1953).

1.77 If an ADI to whom a determination relates is dissatisfied with the determination, the ADI may object against it in the manner set out in Part IVC of the TAA 1953. [Treasury Laws Amendment Bill, Schedule 1, item 15, section 117-50 of Schedule 1 to the TAA 1953]

Exchange of information between the Commissioner and APRA

1.78 The provisions in the tax law relating to the confidentiality of taxpayer information are being amended so that it is not an offence for the Commissioner to give information to APRA for the purposes of administering the major bank levy. [Treasury Laws Amendment Bill, Schedule 1, item 19, item 6 of the table in subsection 355-65(3) of Schedule 1 to the TAA 1953]

1.79 Similarly, the APRA Act is being amended so that it is not an offence for APRA to give information to the Commissioner in relation to the major bank levy. [Treasury Laws Amendment Bill, Schedule 1, item 1, subsection 56(5D) of the APRA Act]

Application and transitional provisions

1.80 The Major Bank Levy Act will apply from and commence on the day after the Act receives Royal Assent. [Major Bank Levy Bill, section 2 of the Major Bank Levy Act]

1.81 The amendments to the APRA Act and the Collection of Data Act apply from the commencement of the Major Bank Levy Act. [Treasury Laws Amendment Bill, item 2 of the table in subsection 2(1)]

1.82 The amendments to the ITAA 1997 and the TAA 1953 major bank levy will apply in relation to quarters starting on or after 1 July 2017, and commence from the commencement of the Major Bank Levy Act. [Treasury Laws Amendment Bill, item 3 of the table in subsection 2(1); Schedule 1, item 23]

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Major Bank Levy Bill 2017

Treasury Laws Amendment (Major Bank Levy) Bill 2017

1.83 These Bills are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

1.84 The Major Bank Levy Bill will introduce a levy on ADIs with total liabilities of greater than $100 billion. The levy is imposed at a rate of 0.015 per cent on certain liabilities of the ADI that are reported to APRA on a quarterly basis under a reporting standard.

1.85 Schedule 1 to the Treasury Laws Amendment Bill amends the APRA Act, the Collection of Data Act, the ITAA 1997 and the TAA 1953 to specify certain administrative features relating to the major bank levy, including the requirement that the levy is payable to the Commissioner quarterly.

Human rights implications

1.86 These Bills do not engage any of the applicable rights or freedoms.

Conclusion

1.87 These Bills are compatible with human rights as they do does not raise any human rights issues.