House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services Minister for Women Minister Assisting the Prime Minister for the Public Service the Hon Kelly O'Dwyer MP)

Chapter 1 - Regulatory reform

Outline of chapter

1.1 Schedule 1 to this Bill makes a number of regulatory improvements to Treasury portfolio laws. The regulatory improvements include:

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amending the superannuation laws to enable the Commissioner to pay certain superannuation amounts directly to individuals with a terminal medical condition;

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amending the Corporations Act 2001 to modify the notification and reporting obligations applying to certain corporations that have property in receivership or property in respect of which a controller is acting; and

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repealing several inoperative Acts as well as amending the taxation law to remove a number of inoperative or spent provisions.

1.2 Under the changes to the Corporations Act 2001, responsible entities of managed investment schemes, licenced trustee companies or custodians will now:

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notify of the appointment of a receiver only on the public documents and negotiable instruments relating to the registered scheme or trust that is in receivership (rather than all public documents and negotiable instruments of the corporation); and

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report to the controller only on the affairs of the registered scheme or trust in respect of which the controller is acting (rather than all the affairs of the corporation).

Context of amendments

Superannuation - terminal medical conditions

1.3 In the 2015-16 Budget, the Government announced a package of measures to reduce red tape for superannuation funds and members by removing redundant reporting obligations and by streamlining lost and unclaimed superannuation administrative arrangements.

1.4 There are legislative impediments to the Commissioner directly paying some lost member balances and other superannuation amounts to individuals with a terminal medical condition. In many circumstances these amounts must first be transferred to an account with a complying superannuation plan before being paid to the individual. This creates unnecessary red tape and delays for those needing immediate access to their superannuation benefits.

Modify 'in receivership' rules

Notification obligations

1.5 Generally, when a receiver is appointed to property of a corporation, that corporation must notify of the receivership on all its public documents and negotiable instruments (the notification obligation). The same obligation applies when a controller is acting in relation to property of a corporation.

1.6 The notification obligations impose unnecessary compliance costs and may cause investor confusion and damage business reputations for certain corporations that are in the business of holding property on trust. These corporations are:

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responsible entities of registered schemes holding scheme property;

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licenced trustee companies that hold property on trust; and

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corporations holding an AFSL authorising the provision of custodial and depository services that hold property on trust ('licenced custodians').

1.7 As these corporations hold property on trust (including bare trusts), liability from receivership is confined to the assets of the particular registered scheme or trust, rather than all assets of the corporation. It is therefore appropriate that the notification obligation be confined to the registered scheme or trust containing the assets under receivership (or assets in respect of which the controller is acting).

1.8 Restricting the notification obligations to the public documents and negotiable instruments relating to the affected registered scheme or trust will reduce unnecessary compliance costs whilst ensuring persons dealing with the corporation are informed of the receivership as required. The modified notification obligation will also reduce investor confusion as only documents and instruments relating to the affected scheme or trust will contain notification of the receivership or that a controller is acting.

1.9 These amendments also specifically address the situation where the scheme property is held by a corporation other than the responsible entity, which is common business practice. Part 5 of Schedule 1 requires the responsible entity of the registered scheme that has property in receivership to notify of the receivership on all its public documents and negotiable instruments that relate to the registered scheme. This is to ensure that persons dealing with the responsible entity are informed of the receivership.

1.10 The policy intent is not to modify notification obligations for corporations generally. While there may be other corporations that hold property on trust, it would be less likely that such corporations would have their other business operations unaffected by the receivership of trust assets. The other policy reason for not extending the modified notification obligations to corporations generally is to safeguard against the risk that a corporation will claim that the relevant assets held under receivership are merely held in trust when this is not the case to avoid having to notify of the receivership on all their public documents or negotiable instruments.

Reporting obligations

1.11 Where a controller is acting in relation to property of a corporation, that corporation's 'reporting officers' must report to the controller on all the affairs of the corporation (reporting obligation) in the prescribed form.

1.12 The purpose of the reporting obligation is to ensure that a controller receives required information on the affairs of the corporation. However, the reporting obligation results in unnecessary compliance costs, without resulting in additional meaningful information to the controller in the case of:

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responsible entities of registered schemes;

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licenced trustee companies; and

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licenced custodians.

1.13 This is because these corporations, in the absence of the changes made by Schedule 1, would be required to report to the controller in respect of all their affairs, including in respect of registered schemes and trusts, or the corporation's own affairs, notwithstanding the affairs are not related to the assets to which the controller was appointed.

1.14 Restricting the reporting obligation for such corporations to affairs relating to the particular registered scheme or trust containing the property to which the controller has been appointed addresses this problem whilst ensuring the necessary information flows to the controller.

1.15 A separate problem arises in the case where scheme property is held by a corporation other than the responsible entity of the registered scheme (which is common). The obligation to report to the controller falls on the corporation holding the scheme property (the custodian) rather than the responsible entity, even though the latter has better access to the information sought by the controller. The corporation holding the scheme property generally needs to obtain information from the responsible entity to comply with their reporting obligation, and this increases their compliance costs. These amendments provide that where a licenced custodian holds scheme property, the obligation to report to a controller on the affairs of the particular registered scheme falls solely on the responsible entity.

Repeal of inoperative acts and provisions of the taxation law

1.16 There are various reasons why Acts and provisions within an Act can become spent or cease to be operative.

1.17 Some Acts or provisions in the law are intended to apply only for a limited period. Once this period expires, the provisions are spent and no longer have any effect.

1.18 In other cases, while the Act or provision is intended to apply on an ongoing basis, changes in external circumstances, such as to the way entities behave or other provisions of the law, can mean that in practice the provision no longer applies to anything and has become inoperative.

1.19 While these spent or inoperative Acts and provisions have no application to any entity, they remain on the statute book until repeal by Parliament. Retaining these provisions increases the volume of Commonwealth legislation, without providing any benefit.

Summary of new law

Superannuation - terminal medical conditions

1.20 Part 4 of Schedule 1 amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 , the Small Superannuation Accounts Act 1995 and the Superannuation Guarantee (Administration) Act 1992 to enable the Commissioner to pay unclaimed money of lost members and other superannuation amounts directly to persons with a terminal medical condition.

Modify 'in receivership' rules

1.21 Part 5 of Schedule 1 amends the Corporations Act 2001:

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in the case where scheme property of a responsible entity of a registered scheme, or property held on trust by a licenced trustee company or licenced custodian is in receivership, to require the corporation to notify of the receivership only on the public documents and negotiable instrument related to the particular registered scheme or trust;

•

in the case where a controller is acting in relation to scheme property of a registered scheme, or property held on trust by a licenced trustee company or a licenced custodian, to require the corporation's reporting officers to report to the controller only on the affairs of the particular registered scheme or trust; and

•

in the case where a controller is appointed to scheme property of a registered scheme held by a licenced custodian, to require the controller to only serve a notice on the responsible entity of the registered scheme and require a director or secretary of the responsible entity to report to the controller on the affairs of the scheme.

Repeal of inoperative acts and provisions of the taxation law

1.22 Parts 1, 2, 3 and 6 of Schedule 1 to this Bill repeal several inoperative acts in the Treasury portfolio as well as amending the taxation law to remove a number of inoperative or spent provisions.

Comparison of key features of new law and current law

Detailed explanation of new law

Superannuation - terminal medical conditions

1.23 Amounts in the superannuation system are generally able to be released, tax-free, to individuals with a terminal medical condition.

1.24 The Superannuation (Unclaimed Money and Lost Members) Act 1999 requires superannuation providers to report and transfer unclaimed money to the Commissioner on a twice yearly basis. Individuals are able to claim back unclaimed superannuation amounts from the Commissioner at any time with interest. These unclaimed money amounts include certain lost member accounts, being small lost accounts and inactive accounts of unidentifiable members.

1.25 Part 4A of the Superannuation (Unclaimed Money and Lost Members) Act 1999 only permits the Commissioner to pay claimed lost member accounts directly to an individual, if the individual has reached a certain 'eligibility' age; or the amount is less than $200; and the individual has not died. In all other circumstances, including where an individual has a terminal medical condition, the claimed amount must be first transferred into an account with a complying superannuation plan, before being able to be released from the superannuation system. This creates unnecessary delays and paperwork for the terminally ill wishing to access their superannuation benefits.

1.26 Similarly, the Commissioner also administers small accounts under the Small Superannuation Accounts Act 1995 and shortfall superannuation guarantee amounts under the Superannuation Guarantee (Administration) Act 1992. Section 65 of the Small Superannuation Accounts Act 1995 enables direct withdrawal of account balances in certain circumstances, including on retirement on the ground of disability. Similarly, section 66 of the Superannuation Guarantee (Administration) Act 1992 requires the Commissioner to pay an amount of shortfall component directly to a former employee that has retired due to permanent incapacity or invalidity. Accounts under the Small Superannuation Accounts Act 1995 and shortfall amounts under the Superannuation Guarantee (Administration) Act 1992 can also be transferred to a complying superannuation plan. However, there is no specific provision in either the Small Superannuation Accounts Act 1995 or the Superannuation Guarantee (Administration) Act 1992 to enable the Commissioner to pay these amounts directly to someone with a terminal medical condition.

1.27 Part 4 of Schedule 1 will amend the Superannuation (Unclaimed Money and Lost Members) Act 1999 to enable the Commissioner to pay amounts held in respect of lost member accounts directly to individuals with a terminal medical condition. The Commissioner will also be required to make direct payments of account balances under the Small Superannuation Accounts Act 1995 and shortfall amounts under the Superannuation Guarantee (Administration) Act 1992, on request, to individuals with a terminal medical condition. [Schedule 1, item 24, section 14 of the Small Superannuation Accounts Act 1995; Schedule 1, items 25 and 26, section 16 of the Small Superannuation Accounts Act 1995; Schedule 1, items 27 and 28, sections 62 and 65A of the Small Superannuation Accounts Act 1995; Schedule 1, items 29 and 30, subsection 65(1) and section 66A of the Superannuation Guarantee (Administration) Act 1992; Schedule 1, items 31 and32, paragraph 24G(2)(d) and subsection 24G(2A) of the Superannuation (Unclaimed Money and Lost Members) Act 1999]

1.28 A terminal medical condition exists in relation to an individual if two registered medical practitioners, at least one of whom is a specialist; have certified that a person suffers from an illness or injury that is likely to result in their death within the certification period of 24 months or less. A payment of an amount, under the Small Superannuation Accounts Act 1995 or Superannuation Guarantee (Administration) Act 1992, or a lost member amount under subsection 24G(2) of the Superannuation (Unclaimed Money and Lost Members) Act 1999, by the Commissioner to an individual with a terminal medical condition will be a superannuation benefit. These types of superannuation benefits under the ITAA 1997 are tax-free in the hands of the individual concerned. [Schedule 1, items 21 to 23, items 4 and 7 of the table in subsection 307-5(1) of the Income Tax Assessment Act 1997]

Modify 'in receivership' rules

Modified notification obligations

1.29 Part 5 of Schedule 1 modifies the notification obligations for the following corporations:

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a responsible entity of a registered scheme where scheme property is in receivership or a controller is acting in relation to such property;

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a licenced trustee company, where property held on trust is in receivership or a controller is acting in relation to such property; and

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a corporation holding an AFSL that authorises the provision of custodial or depository services, where property held on trust is in receivership or a controller is acting in relation to such property.

1.30 These corporations must include a statement that a receiver (or receiver and manager) has been appointed or a controller is acting only on the public documents and negotiable instruments relating to the particular registered scheme or trust under receivership or in respect of which the controller is acting. [Schedule 1, item 38, subsection 428(2A) of the Corporations Act 2001]

1.31 The corporation may specify, in the public document or negotiable instrument, the relevant affected scheme or trust to provide further clarity regarding the assets in respect of which the receiver (or receiver and manager) or controller has been appointed. [Schedule 1, item 38, subsection 428(2A) of the Corporations Act 2001]

1.32 The modified notification obligations apply only to a licenced custodian; that is, a corporation holding an AFSL authorising the provision of custodial or depository services, including where the licenced custodian holds the property on bare trust (where the beneficiary is absolutely entitled to the trust property and can call for immediate payment). [Schedule 1, item 38, subsection 428(2A) of the Corporations Act 2001]

1.33 While the property must be held by a corporation that holds an AFSL authorising the provision of custodial or depository services, it is not necessary that the property be held in connection with the provision of custodial or depository services. This is to ensure that the modified notification obligation applies to licenced custodians holding scheme property of a registered scheme. As paragraph 766E(3)(b) of the Corporations Act 2001 provides that 'holding the assets of a registered scheme' does not constitute providing a custodial or depository service, not requiring the property to be held in connection with the provision of custodial and depository services ensures that a licenced custodian holding scheme property of a registered scheme under receivership will only need to notify of the receivership on public documents and negotiable instruments relating to the scheme, which is the policy intent. [Schedule 1, item 38, subsection 428(2A) of the Corporations Act 2001]

Scheme property not held by a responsible entity

1.34 Where a receiver is appointed to scheme property of a registered scheme that is not property of the responsible entity of the registered scheme, the responsible entity of the registered scheme must notify of the receivership on every public document or negotiable instrument that relates to the registered scheme. [Schedule 1, item 38, subsection 428(2B) of the Corporations Act 2001]

1.35 It is common business practice for scheme property of a registered scheme to be held by a person other than the responsible entity of the scheme. Typically, the scheme property is held by a custodian agent (or sub-custodian) of the responsible entity on trust for the responsible entity who holds the beneficial interest on trust for the members of the registered scheme. [Schedule 1, item 38, subsection 428(2B) of the Corporations Act 2001]

1.36 In the absence of this provision, the responsible entity would not have been required to notify of the receivership on its public documents and negotiable instruments and persons dealing solely with the responsible entity would not have been informed of the receivership. Requiring the responsible entity to notify of the receivership ensures that persons that only have dealings with the responsible entity in relation to scheme property under receivership will be informed of the receivership. [Schedule 1, item 38, subsection 428(2B) of the Corporations Act 2001]

1.37 For the same reason, where a controller is acting in relation to scheme property that is not held by the responsible entity of the registered scheme, the responsible entity must now notify that a controller is acting on all public documents and negotiable instruments relating to the particular registered scheme. [Schedule 1, item 38, subsection 428(2C) of the Corporations Act 2001]

1.38 The notification obligations imposed on the responsible entity are in addition to the notification obligations applying to the corporation holding the property. For example, if scheme property of a particular registered scheme under receivership were held by a licenced custodian (that is, a corporation holding an AFSL authorising the provision of custodial or depository services), the custodian would be required to notify of the receivership only on those public documents and negotiable instruments relating to the registered scheme. [Schedule 1, item 38, subparagraph 428(2A)(b)(ii) of the Corporations Act 2001] On the other hand, if the scheme property were held by another corporation (for example, an unlicensed custodian), the unlicensed custodian would be required to notify of the receivership on all its public documents and negotiable instruments, under subsection 428(1) of the Corporations Act 2001.

1.39 Failure to comply with the notification obligations in this Schedule is a strict liability offence [Schedule 1, item 39, subsection 428(3) of the Corporations Act 2001], carrying a maximum penalty of 15 penalty units. [Schedule 1, item 50, item 120 in the table in Schedule 3 to the Corporations Act 2001]

1.40 The offence previously carried a maximum penalty of 10 penalty units or imprisonment for 3 months, or both. The offence remains a strict liability offence but the penalty has been changed to ensure it is consistent with the Attorney-General's Department Guide to Framing Criminal Offences. [Schedule 1, items 39 and 50, subsection 428(3)of, and item 120 in the table in Schedule 3 to, the Corporations Act 2001]

1.41 Strict liability, and the level of penalty, is appropriate, for the following reasons:

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notification of receivership or that a controller is acting is critical information that must be communicated to persons dealing with an insolvent entity, and the use of strict liability is necessary to protect the integrity of the regime;

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the requirement is clear and easy to understand, and the offence depends entirely on the action or non-action of the person who is liable for the offence;

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the offence no longer carries a term of imprisonment, making it consistent with section 2.2.6 of the Guide to Framing Criminal Offences which states that imprisonment should not be used for strict liability offences; and

•

following the removal of the possible 3 month term of imprisonment, the offence now attracts a maximum penalty of 15 penalty units, consistent with the fine/imprisonment ratio of 5 penalty units for each month's imprisonment, which the Guide to Framing Criminal Offences indicates should be followed unless there are cogent reasons to depart from it (section 3.1.3).

[Schedule 1, items 39 and 50, subsection 428(3)of, and item 120 in the table in Schedule 3 to, the Corporations Act 2001]

Modified reporting requirements

1.42 Subsection 429(2) of the Corporations Act 2001 requires the reporting officer of a corporation that has property to which a controller has been appointed, to report to the controller on all the corporation's affairs.

1.43 Part 5 of Schedule 1 modifies this reporting obligation for the following corporations that have property to which a controller has been appointed:

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a responsible entity of a registered scheme, in the case of scheme property;

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a licenced trustee company that holds the property on trust; and

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a corporation that holds an AFSL authorising the provision of custodial or depository services that holds the property on trust.

1.44 The modified reporting obligation means the reporting officers of these corporations must report to the controller only on the affairs of the corporation to the extent they relate to the particular registered scheme or trust containing property in respect of which the controller is acting. [Schedule 1, item 45, subsection 429A(1) of the Corporations Act 2001; Schedule 1, item 38, subsection 429(2A) of the Corporations Act 2001]

1.45 Requiring these corporations to report only on the affairs relating to the particular affected registered scheme or trust will reduce unnecessary compliance and reporting burdens, whilst ensuring the controller (and ASIC) receive the required information regarding the property in respect of which the controller has been appointed.

1.46 When property is held by a custodian, the modified reporting obligations will only apply to licenced custodial arrangements (where the custodian holds an AFSL authorising the provision of custodial or depository services). [Schedule 1, item 40, subparagraph 429(2A)(a)(ii) of the Corporations Act 2001] Where the custodian is unlicensed, the custodian must continue to report to the controller on all its affairs (including in relation to other trusts to which the controller has not been appointed), as required under subsection 429(2) of the Corporations Act 2001.

Scheme property not held by a responsible entity

1.47 Where a person becomes a controller of scheme property of a registered scheme that is held by a licenced custodian and not the responsible entity of the registered scheme, the controller must not serve a notice on the licenced custodian. [Schedule 1, item 45, subsection 429A(2) of the Corporations Act 2001]

1.48 Instead, the controller must, as soon as practicable, serve a notice on the responsible entity of the affected registered scheme. [Schedule 1, item 45, paragraph 429A(3)(e) of the Corporations Act 2001] A director or secretary of the responsible entity must report to the controller, in the prescribed form, on the affairs of the relevant registered scheme as at the control day, within 14 days (or any further period allowed, as explained in paragraph 1.53). [Schedule 1, item 45, paragraph 429A(3)(f) of the Corporations Act 2001].

1.49 Requiring the controller to issue a notice to the responsible entity recognises that the responsible entity is in a much better position to provide a report to the controller on the affairs of the relevant scheme. [Schedule 1, item 45, subsection 429A(3) of the Corporations Act 2001]

1.50 The corporation holding the scheme property continues to have an obligation to report to the controller where the corporation holding the scheme property is:

•

a licenced trustee company, but only in respect of the affairs of the particular scheme; or

•

another corporation (for example, an unlicensed custodian or sub custodian), in respect of all the affairs of the custodian (paragraph 429(2)(b) of the Corporations Act 2001). In the case of an unlicensed custodian, the custodian may not have many affairs that do not relate to the scheme which is one reason the policy intent is not to limit the reporting obligations of unlicensed custodians (and sub-custodians).

[Schedule 1, item 40, subsection 429(2A) of the Corporations Act 2001]

1.51 The requirement in subparagraph 429(2)(c)(i) of the Corporations Act 2001 - that the controller must lodge a copy of the report with ASIC within one month of receiving it from the reporting officers, including either a notice setting out any comments the controller sees fit to make or a notice indicating the controller did not see fit to make any comments - applies to the report from the responsible entity [Schedule 1, item 45, paragraph 429A(3)(g) of the Corporations Act 2001]. The amendments provide the controller will have qualified privilege in relation to comments made [Schedule 1, item 36, paragraph 426(b) of the Corporations Act 2001], consistent with the position relating to other reports received by the controller.

1.52 The controller must send a copy of the report, as lodged, to the responsible entity, as well as to the corporation that holds the scheme property, unless the scheme property is held by a licenced custodian. [Schedule 1, item 45, paragraph 429A(3)(h) of the Corporations Act 2001]

1.53 Subsections 429(3) to (5) of the Corporations Act 2001 set out the process by which a reporting officer of a corporation that has been served a notice by a controller to report on the affairs of the corporation may apply for an extension of time by which to report. The amendments replicate those rules for a reporting officer of a responsible entity that has been served a notice to report by a controller. [Schedule 1, item 45, paragraph 429A(3)(g) of the Corporations Act 2001] This means that:

•

a director or secretary of the responsible entity may apply to the controller or the Court for an extension of time by which to report to the controller;

•

if the application is made to the controller, the controller may agree to the extension if they believe there are special reasons for doing so and must give notice in writing of the extension and lodge that notice as soon as practicable after it is granted; or

•

if the application is made to the Court, the Court may make an order extending the period for reporting to the controller and a director or secretary of the responsible entity must, as soon as practicable, lodge a copy of that order with ASIC.

1.54 Consistent with the existing rules, Schedule 1 addresses the appointment of an additional or replacement controller to scheme property not held by a responsible entity. Where this occurs, the amendments provide the controller is not required to issue a notice to the responsible entity where that person became a controller to act either with an existing controller or in place of a controller who has died or ceased to be controller. [Schedule 1, item 41, subsection 429(6) of the Corporations Act 2001] Not requiring the new controller to issue the notice is appropriate given the requirement to issue the notice would already have been fulfilled by the incumbent controller.

1.55 If, however, the replacement controller is appointed due to the death or cessation of a previous controller and the previous controller did not issue the required notice prior to their death or cessation, the amendments provide the replacement controller must issue the required notice to the responsible entity. [Schedule 1, items 42 and 43, subsection 429(6A) of the Corporations Act 2001]

1.56 Subsection 429(7) of the Corporations Act 2001 provides that where a corporation is being wound up and the same person acts as both controller and liquidator, the rules for reporting to a controller, broadly, continue to apply. These amendments extend the operation of this subsection to also cover cases where the property to which the controller has been appointed is scheme property. [Schedule 1, item 44, subsection 429(7) of the Corporations Act 2001]

Consequential amendments

1.57 These amendments move two definitions from section 761A of the Corporations Act 2001 to section 9 of that Act:

•

'custodial or depository services', which cross-references to the definition in section 766E of the Corporations Act 2001; and

•

'licenced trustee company', which cross-references to the definition in Chapter 5D of the Corporations Act 2001.

[Schedule 1, item 33, section 9 of the Corporations Act 2001; Schedule 1, item 47, section 761A of the Corporations Act 2001]

1.58 These changes are necessary as the terms 'custodial or depository services' and 'licenced trustee company' no longer operate exclusively in Chapters 7 and 5D respectively and it is, therefore, appropriate that definitions of these terms be in section 9. [Schedule 1, item 33, section 9 of the Corporations Act 2001; Schedule 1, item 47, section 761A of the Corporations Act 2001]

1.59 Minor amendments have been made to the references to 'custodial or depository services' in paragraph 601RAC(3)(b) of the Corporations Act 2001 and section 766E of that Act as this term is no longer exclusively used in Chapter 7. [Schedule 1, item 46, paragraph 601RAC(3)(b) of the Corporations Act 2001; Schedule 1, item 48, subsection 766E(1) of the Corporations Act 2001; Schedule 1, item 49, paragraph 766E(2)(a) of the Corporations Act 2001]

1.60 Likewise, minor amendments have been made to the references in paragraphs 53(b) of the Corporations Act 2001 and paragraph 283(1)(aa) of that Act to 'licenced trustee company' as this term is no longer exclusively used in Chapter 5D. [Schedule 1, items 34 and 35, paragraphs 53(b) and 283AC(1)(aa) of the Corporations Act 2001]

1.61 A new heading - 'Property of corporation' has been included to improve the readability of section 428 of the Corporations Act 2001. [Schedule 1, item 37, subsection 428(1) of the Corporations Act 2001]

Repeal of inoperative acts and provisions of the taxation law

Repeal of the Commonwealth Borrowing Levy

1.62 Part 1 of Schedule 1 repeals the Commonwealth Borrowing Levy Act 1987 and the Commonwealth Borrowing Levy Collection Act 1987. [Schedule 1, items 1 and 2, the whole of the Commonwealth Borrowing Levy Act 1987 and the Commonwealth Borrowing Levy Collection Act 1987]

1.63 These Acts imposed and provided for the collection of the Commonwealth Borrowing Levy - a tax on borrowings by certain commonwealth-controlled entities. Since changes to the governance framework for Commonwealth-controlled entities in 1997, the rate of the levy has been set at zero by the Commonwealth Borrowing Levy Regulations. As a result, no tax is payable as a result of the levy.

1.64 Additionally, the levy only ever applied to a small group of entities listed in the Schedule to the Commonwealth Borrowing Levy Act 1987, most of which have now either ceased to exist, or been privatised and exempted from the levy.

1.65 Given this, neither the Commonwealth Borrowing Levy Act 1987 nor the Commonwealth Borrowing Levy Collection Act 1987 have any ongoing operative effect.

1.66 The repeal of these Acts will also result in the Commonwealth Borrowing Levy Regulations lapsing as a result of the repeal of the provision enabling the regulations to be made.

Repeal of the concession for equity investments by lenders in small and medium enterprises

1.67 Part 2 of Schedule 1 repeals Division 11B of the ITAA 1936. [Schedule 1, item 10, Division 11B of the ITAA 1936]

1.68 Division 11B broadly allows entities that acquire at least 10 per cent of the ordinary shares of an enterprise in the course of a business of lending money, to treat any profit or loss from the disposal of those shares as being a capital gain rather than ordinary income.

1.69 The intention of this provision was to improve access to finance by small and medium enterprises by providing a tax incentive for banks and other entities to lend to and invest in these businesses. It did so by treating the gains or losses that financial institutions made from the disposal of an eligible equity interest in the small or medium enterprise as capital gains or losses that were subject to capital gains tax rather than ordinary income or general deductions, allowing the lending entity to apply indexation to reduce the value of any gain that arose (see paragraph 5.4 to 5.15 of the Explanatory Memorandum to the Taxation Laws Amendment (No.3) Bill 1996).

1.70 Subsequently, changes were made to the taxation law to freeze indexation for all existing capital gains tax assets from 11:45 am on 21 September 1999 and remove access to indexation for all assets subsequently acquired by taxpayers.

1.71 As a result of the removal of indexation, the 'concession' in Division 11B no longer provides any benefit to financial institutions. There is no evidence that any entities are currently accessing the provisions, leaving them, in practice, inoperative.

Repeal of Papua and New Guinea Loan (International Bank) Act 1970

1.72 Part 6 of Schedule 1 repeals the Papua and New Guinea Loan (International Bank) Act 1970. The Act approved a Commonwealth guarantee of US$4.5 million on a loan made to Papua New Guinea by the International Bank for Reconstruction and Development, and came into effect on 31 December 1973. [Schedule 1, item 51, the whole of the Papua and New Guinea Loan (International Bank) Act 1970]

1.73 The Papua and New Guinea Loan (International Bank) Act 1970 prescribes the terms of the guarantee agreement between the Australian Government and the International Bank for Reconstruction and Development, as well as the terms of the loan agreement between Papua New Guinea and the International Bank for Reconstruction and Development (both signed on 24 June 1970). Under the loan amortisation schedule, the longest dated loan covered under the loan agreement was scheduled to mature on 15 June 1994. The International Bank for Reconstruction and Development has confirmed that the loan has been repaid in full.

Repeal of the Statistical Bureau (Tasmania) Act 1924

1.74 Part 6 of Schedule 1 repeals the Statistical Bureau (Tasmania) Act 1924. The Act approved an agreement made between the Commonwealth and Tasmania to facilitate the integration of the statistical office of Tasmania into the Australian Government, and for the Commonwealth to compile and issue statistics specifically for Tasmania. This Act is now redundant due to the completion of the integration. [Schedule 1, item 52, the whole of the Statistical Bureau (Tasmania) Act 1924]

Repeal of Statistics (Arrangements With States) Act 1956

1.75 Part 6 of Schedule 1 repeals the Statistics (Arrangement with States) Act 1956. The enabling provisions of this Act are duplicated in other legislation, mainly section 6 of the Australian Bureau of Statistics Act 1975 and section 6 of the Census and Statistics Act 1905. As a result, this Act is considered redundant. [Schedule 1, item 53, the whole of the Statistics (Arrangement with States) Act 1956]

Termination payments tax

1.76 Part 6 of Schedule 1 repeals the Termination Payments Tax (Assessment and Collection) Act 1997 and the Termination Payments Tax Imposition Act 1997. The Acts were enacted in 1997 when the termination payments tax was introduced and formed part of a package of legislation designed to give a legislative framework for the introduction of a superannuation contributions surcharge for high income earners. [Schedule 1, items 54 and 55, the whole of the Termination Payments Tax (Assessment and Collection) Act 1997 and Termination Payments Tax Imposition Act 1997]

1.77 The termination payment tax applied to termination payments made after 7:30pm, by legal time in the Australian Capital Territory, on 20 August 1996 and before 1 July 2005.

1.78 A termination payment is generally the taxable component of certain types of employment termination payments.

1.79 It has almost been 10 years since the last termination payment was made that was subject to the tax. Relevant assessments have been issued and the general amendment period has expired for almost all taxpayers. The termination payments tax Acts have become inoperative and are therefore being repealed.

1.80 The repeal of these Acts will also result in supporting regulations lapsing as a result of the repeal of the provisions enabling the regulations to be made.

Consequential amendments

1.81 Schedule 1 includes a number of consequential amendments to remove references to the repealed provisions and Acts in the taxation law and other Commonwealth legislation. [Schedule 1, items 3 to 8, 11 to 18 and 20, Part 7 of the AeroSpace Technologies of Australia Limited Sale Act 1994, section 52 of the CSL Sale Act 1993, Schedule 3 to the Medibank Private Sale Act 2006, section 54 to the Moomba-Sydney Pipeline System Sale Act 1994, section 28 to the Qantas Sale Act 1992, section 42 of the Snowy Mountains Engineering Corporation Limited Sale Act 1993, subsection 272-90(10) in Schedule 2F to the ITAA 1936, the items headed 'small-medium enterprises (SME)' and 'shares' in the table in section 10-5, the items headed 'small-medium enterprises (SME)' and 'shares' in the table in section 12-5, item 7 in section 109-60, items 9 of the table in section 112-97, items 1 and 2 in subsection 713-140(5) in the Income Tax Assessment Act 1997, and the whole of the Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Act 1996]

1.82 Schedule 1 also includes a number of consequential amendments to remove references to the termination payments tax in the taxation law and other Commonwealth legislation. [Schedule 1, items 56 to 74, paragraph 24(3)(c) of the Long Service Leave (Commonwealth Employees) Act 1976, paragraph 202(l) and subsection 202DH(1) and 202DJ(1) of the ITAA 1936, sections 12-5, 26-65 and 995-1 of the ITAA 1997, section 16 and subsections 136(1) and 147A(2) and (3) of the Retirement Savings Accounts Act 1997, sections 299W of the Superannuation Industry (Supervision) Act 1993, subsection 8AAB(4) and 250-10(2) in Schedule 1 to the TAA 1953 and Part IID of the Taxation (Interest on Overpayments and Early Payments) Act 1983]

Application and transitional provisions

Superannuation - terminal medical conditions

1.83 The amendments in Part 4 of Schedule 1 will commence at the beginning of the first quarter following Royal Assent. [Schedule 1, clause 2, item 1 in the table]

Modify 'in receivership' rules

1.84 The amendments apply from the date of Royal Assent. [Schedule 1, clause 2, item 6 in the table]

Repeal of inoperative acts and provisions of the taxation law

Application dates

1.85 The amendments relating to the Commonwealth Borrowing Levy apply from the day after the Bill receives Royal Assent. The amendments cannot make any entity liable to pay Commonwealth Borrowing Levy that would not have already had such a liability without these amendments. [Item 2 in the table in Clause 2; Schedule 1, item 9]

1.86 The amendments relating to equity investment in small and medium enterprises in relation to income tax assessments for 2017-18 and later income years. [Schedule 1, subitem 19]

1.87 However, to ensure the measure can have no effect on arrangements entered into prior to the repeal, the amendments will not apply in respect of threshold interests acquired on or before the day Part 2 of Schedule 1 commences. [Schedule 1, subitem 19(2)]

1.88 The remaining repeals generally commence on Royal Assent. However, some consequential amendments commence at the beginning of the first quarter following Royal Assent. [Items 7 and 8 in the table in Clause 2]

Transitional rules

1.89 Schedule 1 also includes general savings provisions. These provisions, which are standard when there are repeals of tax legislation that has become inoperative, preserve the rights and obligations of taxpayers and the Commissioner in relation to past years. This ensures that the repeal can have no effect on liabilities and entitlements in prior income years, even where these liabilities or entitlements are not identified until after the repeal commences. [Schedule 1, items 75 to 79] Statement of Compatibility with Human Rights

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

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

Regulatory reform

1.90 This Schedule is 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

1.91 Schedule 1 to this Bill makes a number of regulatory improvements to Treasury portfolio laws. The regulatory improvements include:

•

amending the superannuation laws to enable the Commissioner to pay certain superannuation amounts directly to individuals with a terminal medical condition;

•

amending the Corporations Act 2001 to modify the notification and reporting obligations applying to certain corporations that have property in receivership or property in respect of which a controller is acting; and

•

repealing several inoperative Acts as well as amending the taxation law to remove a number of inoperative or spent provisions.

Human rights implications

1.92 This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

1.93 This Schedule is compatible with human rights as it does not raise any human rights issues.