Senate

Supplementary Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

Liquidators and Receivers

Summary of the proposed amendments

The amendment follows the principles of section 215 of the Income Tax Assessment Act 1936, and applies for the purpose of determining the status of superannuation guarantee charge debts where employers that are companies are placed in receivership or liquidation.

Explanation of the proposed amendments

Liquidation

Proposed clause 48A provides that in the event of a company going into liquidation, any superannuation guarantee charge payable by the company has the same priority for payment as debts referred to in paragraph 556(1)(e) of the Corporations Law, ie employee's salary and wages.

The effect of this provision is that a superannuation guarantee charge debt becomes a priority debt once a company commences to be wound up and the liquidator has an obligation to pay the charge in priority to ordinary unsecured debts.

Receivership

While a company is in receivership (but has not commenced to be wound up) the superannuation guarantee charge cannot be a priority debt in terms of the Corporations Law. The receiver (including a receiver and manager) cannot be required to treat the debt in a different way to any other unsecured debt. Accordingly, the proposed amendment only requires the receiver to retain sufficient assets of the company to satisfy the payment of the debt.

Under proposed clause 48B a receiver must notify the Commissioner in writing within 14 days that he or she has taken possession of the company's assets. The Commissioner will then notify the receiver of the amount which the Commissioner considers should be sufficient to cover any superannuation guarantee charge that is or may become payable by the employer (this is called the "notified charge amount").

The receiver is obliged to retain assets of the company sufficient to pay the superannuation guarantee charge and any other prescribed tax owed to the Commissioner. Any other prescribed tax means other taxes and charges, the collection of which is the responsibility of the Commissioner. (A list of these other taxes and charges is set out in the definition section below.)

If the assets of the company are insufficient to meet the superannuation guarantee charge, any other taxes payable to the Commissioner and any other ordinary unsecured debts of the company, the value of the assets which are required to be set aside is determined by the formula in subclause 48B(3). The formula calculates the pro-rata entitlement of the Commissioner, as an ordinary creditor for the superannuation guarantee charge, to be paid out of the assets of the company available to pay all ordinary debts.

The following example illustrates the way the entitlement is to be calculated:

Example

Total value of assets of the company	$500,000
Secured creditors	$100,000
Total value of assets available to pay ordinary debts	$400,000
Amount notified by the Commissioner as income tax payable	$400,000
Amount notified by the Commissioner as fringe benefits tax payable	$ 50,000
Company's notified tax amount	$450,000
Amount notified by the Commissioner under subclause 48B(2) as superannuation guarantee charge payable (the "notified charge amount")	$ 2,000
Sum of company's other ordinary debts	$500,000
Total ordinary debt	$952,000

Value of assets to be set aside (for superannuation guarantee charge under subclause 48B(3)) is:

Total value of assets available to pay ordinary debts * (notified charge amount / (notified charge amount + company's notified tax amount + sum of company's other ordinary debts))
i.e., 400,000 * (2,000 /952,000) = $840


The receiver is liable to pay the superannuation guarantee charge to this extent.

Until notified by the Commissioner, the receiver is not allowed to part with the company's assets except to pay debts of the company which are not "ordinary debts" [paragraph 48B(3)(a) and subclause 48B(5)] . An "ordinary debt" is defined in subclause 48B(6) to mean a debt which is an unsecured debt and is not a debt that, under a Commonwealth, State or Territory law, is payable in priority to some or all of the other debts of the employer.

It is an offence for a receiver to contravene clause 48B or fail to pay the required superannuation guarantee charge [subclause 48B(7)] . On conviction, the maximum penalty is $1,000.

Definitions

Some of the terms used in clause 48B are explained below:

Company's "notified tax amount" is used in the formula set out in subclause 48B(3). It is the amount of other taxes and charges which the Commissioner has notified the company or the receiver is payable. These other taxes and charges are:

•

fringe benefits tax;

•

income tax;

•

unpaid company tax;

•

trust recoupment tax;

•

sales tax;

•

Territories pay-roll tax;

•

petroleum resource rent tax;

•

tobacco charge;

•

training guarantee charge;

•

wool tax.

"Superannuation guarantee charge" is defined to include late payment penalty imposed under clause 46 or penalty charge imposed under Part 7 of the Bill. Both of these penalties are referred to as additional superannuation guarantee charge.