Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 3 - Exemption of senior foreign executives from Superannuation Guarantee
Overview
3.1 Schedule 3 to this Bill amends the Superannuation Guarantee (Administration) Regulations (the SG Regulations), to reinstate with effect from 1 August 1996 a former exemption from the Superannuation Guarantee (SG) for employers. Theformer exemption applied to employers in respect of certain senior foreign executives who met the criteria for the former class 413 overseas executive visa. The exemption will not be extended to the spouses and dependants of such executives.
Summary of the amendments
3.2 The amendments will continue an exemption from SG for employers in respect of certain senior foreign executives who meet equivalent criteria to the former class 413 overseas executive visa.
3.3 The amendments are to apply from 1 August 1996, the date that the exemption was rendered ineffective by the re-numbering of immigration visa classes. [Item 2]
3.4 The Superannuation Guarantee Charge Act 1992 imposes a charge on employers who do not make a minimum level of superannuation contributions in accordance with the Superannuation Guarantee (Administration) Act 1992 (the SG legislation) on behalf of an employee. The minimum level of contributions is based on a percentage of the earnings of the employee.
3.5 Prior to 1 August 1996 certain senior foreign executives and their families were issued with a class 413 visa (overseas executive visa). The senior foreign executive held a 413 visa by satisfying the primary criteria of the visa class while the other family members (spouse and children) held 413 visas by satisfying the secondary criteria of the visa class.
3.6 There was a general exemption from the SG legislation for employers in respect of all persons who held a 413 visa (sub-regulation7(1)of the SG Regulations).
3.7 From 1 August 1996, new visa classes were introduced for all business entrants (the 456 and 457 visa classes) replacing the 413 visa class and several other classes of visas. This had the effect that the exemption no longer applied in respect of holders of the new 456 and 457 visa classes, despite such holders satisfying the criteria of the former 413 visa class.
3.8 Schedule 3 makes amendments to sub-regulation 7(1) of the SG Regulations to implement the Governments announcement of 25 June 1997 (Assistant Treasurers Press Release No. 10) to continue the former SG exemption for senior foreign executives. The announcement provided that the exemption would not extend to spouses and dependants on the basis that this would be likely to give rise to labour market distortions by making non-residents cheaper to employ than similarly skilled Australians.
3.9 The amendments apply from 1 August 1996 because that was the date that the former exemption was rendered ineffective by the re-numbering of immigration visa classes (rather than any change in SG policy or law). The Governments announcement of 25 June 1997 subsequently confirmed that the exemption would continue from 1 August 1996. If the amendments did not apply from that date, employers who have acted in reliance on the re-numbering of immigration visa classes being reflected in the SG Regulations may be liable to the SG charge.
3.10 The amendments have continued the former SG exemption for senior foreign executives on the basis that senior foreign executives are usually in Australia for only short periods and have retirement income arrangements equivalent or greater than SG in their home countries.
3.11 Employers of persons who continue to hold a 413 visa (which from 1 August 1996 have no longer been issued) remain unaffected by the amendments and continue to be subject to the SG exemption for as long as the visa remains effective.
3.12 The amendments continue an exemption from the SG legislation for employers in respect of employees holding either a visa class 456 or 457 in a primary capacity, who meet certain criteria prescribed in the amendments. The prescribed criteria takes into account the primary criteria for the former visa class 413, the new 456 or 457 visa classes and the self assessment nature of SG legislation. [Item 1]
3.13 The criteria that a senior foreign executive must satisfy can be broadly categorised into two sets of criteria depending on the type of visa held by the executive. The executive need only satisfy one set of criteria.
3.14 The first set of criteria is that the senior foreign executive is a 456 visa holder or the holder of an Electronic Travel Authority equivalent (class 956 or 977 visas) and satisfies any of the following three conditions:
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- The visa holder is a national managing executive, deputy national managing executive or state manager of his or her employer.
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- The visa holder is a full-time senior executive carrying substantial executive responsibility and has qualifications which are appropriate for the position (which may include qualifications through prior demonstrated work experience and skills).
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- The visa holder is an employee establishing a business activity in Australia on behalf of his or her employer, the employees position is a full-time position carrying substantial executive responsibility and the employee has qualifications which are appropriate for the position (which may include qualifications through prior demonstrated work experience and skills).
3.15 The second set of criteria is that the senior foreign executive is a 457 visa holder and satisfies any of the following three conditions:
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- The visa holder is a national managing executive, deputy national managing executive or state manager of his or her employer and was nominated for the purposes of the 457 visa application by the employer (including identified under a regional headquarters agreement or labour agreement).
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- The visa holder is a full-time senior executive carrying substantial executive responsibility, has qualifications which are appropriate for the position (which may include qualifications through prior demonstrated work experience and skills) and was nominated for the purposes of the 457 visa application by his or her employer (including identified under a regional headquarters agreement or labour agreement).
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- The visa holder is an employee establishing a business activity in Australia on behalf of his or her employer, the employees position is a full-time position carrying substantial executive responsibility and the employee has qualifications which are appropriate for the position (which may include qualifications through prior demonstrated work experience and skills).
3.16 Bhria is the national managing executive of Silica Valley Australia and has been employed by the company since arriving from the USA in July 1997. Bhria holds a visa class 457 in a primary capacity. She satisfies the first condition of the second set of criteria. Theposition is that of a very senior executive and she was nominated by her employer Silica Valley Australia in her application for a 457 visa. Accordingly, her employer is not subject to the SG legislation in respect of her employment.
3.17 Rembrandt is married to Bhria and accompanies her to Australia in July 1997. Rembrandt commences work in Australia as a shop assistant. As Rembrandt is not the primary holder of the visa class 457, his employer is subject to the SG legislation and therefore must make SG contributions on his behalf in order to avoid paying the SG charge.
3.18 The amendments apply from 1 August 1996. [Item 2]
3.19 Despite the fact that the regulations inserted by this Schedule in the SG Regulations are being enacted, they may be amended or repealed by further SG Regulations. [Item 3]