House of Representatives

Explanatory Memorandum
(Incorporating Correction)

(Circulated by the authority of the Minister for Employment and Workplace Relations and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Self managed superannuation funds supervisory levy arrangements

This Bill amends the Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991 and the Superannuation (Self Managed Superannuation Funds) Taxation Act 1987 to reform the self managed superannuation fund (SMSF) supervisory levy arrangements. The changes ensure that the levy is collected from SMSFs in a more timely way, and the Australian Taxation Office's costs of regulating the sector are fully recovered.

Date of effect: 1 July 2013.

Proposal announced: This measure was announced in the 2012-13 Mid-Year Economic and Fiscal Outlook on 22 October 2012.

Financial impact: The reform of the SMSF levy arrangements will have the following impact on the underlying cash balance. The table includes both the increase in levy receipts and additional funding for administration of the change.

Human rights implications: The Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights, Chapter 1, paragraphs 1.26 to 1.32.

Compliance cost impact: Nil.

Chapter 1 - Self managed superannuation funds supervisory levy arrangements

Outline of chapter

1.1 This Bill amends the Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991 (Imposition Act) and the Superannuation (Self Managed Superannuation Funds) Taxation Act 1987 (Taxation Act) to reform the self managed superannuation fund (SMSF) supervisory levy arrangements.

1.2 The changes ensure that the levy is collected from SMSFs in a more timely way, and the Australian Taxation Office's (ATO) costs of regulating the sector are fully recovered.

Context of amendments

1.3 From 1 July 1999, regulation of SMSFs was transferred from the Australian Prudential Regulation Authority (APRA) to the ATO.

1.4 All superannuation funds are subject to a supervisory levy to fund the regulatory costs of ensuring funds comply with the superannuation legislation. Separate levy arrangements apply to SMSFs and to registrable superannuation entities to recover the costs of their regulation by the ATO and APRA respectively.

1.5 The current SMSF supervisory levy does not fully recover the ATO's costs of regulating the sector. The reforms will ensure that the ATO's costs of regulating the SMSF sector are fully recovered.

1.6 The reforms also change the timing for collection of the SMSF levy to ensure consistency between the collection of the superannuation supervisory levy paid by funds regulated by APRA and the levy paid by those funds regulated by the ATO.

1.7 As at June 2011, there were 442,987 SMSFs and average assets per SMSF were $963,002.

Summary of new law

1.8 This Bill increases the maximum levy payable by a trustee of an SMSF for a year of income from $200 to $300, effective from the 2013-14 income year.

1.9 This Bill also provides that the regulations may specify when the SMSF levy is due and payable so that the amount may be levied and collected in the same income year.

Comparison of key features of new law and current law

Detailed explanation of new law

1.10 This Bill amends the Imposition Act and the Taxation Act to reform the SMSF supervisory levy arrangements.

1.11 These amendments follow the Government's announcement in the Mid-Year Economic and Fiscal Outlook (MYEFO) for 2012-13 that it would reform the SMSF levy arrangements.

1.12 This Bill:

•

amends the amount of the SMSF supervisory levy;

•

changes the timing for the payment of the SMSF supervisory levy; and

•

makes other minor amendments to facilitate the new arrangements.

Amount of the SMSF supervisory levy

1.13 Currently the Imposition Act provides that the maximum SMSF supervisory levy for income year is $200.

1.14 The specific amount of the levy payable for an income year is set out in the Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Regulations 1991 (Imposition Regulations).

1.15 This Bill amends the Imposition Act to provide that the amount of levy payable for an income year is an amount not exceeding $300, as specified in the Imposition Regulations. [Schedule 1, item 3, section 6 of the Imposition Act]

1.16 This amendment allows the Government to fully recover the ATO's costs of regulating the SMSF sector.

Timing for payment of the SMSF supervisory levy

1.17 Under the current arrangements the SMSF supervisory levy is payable on lodgment of a return under section 35D of the Superannuation Industry (Supervision) Act 1993 (SIS Act).

1.18 The Bill provides that a trustee of a superannuation entity that is an SMSF at any time during an income year is liable (or, if there is more than one trustee, the trustees are jointly and severally liable) to pay a levy for that year of income. [Schedule 1, item 6, section 15DA of the Taxation Act]

1.19 The Bill also amends the Taxation Act to provide that the levy payable for a year of income in respect of an SMSF is due and payable on the day specified in the regulations. [Schedule 1, item 7, subsection 15DB(1) of the Taxation Act]

1.20 This amendment allows the Superannuation (Self Managed Superannuation Funds) Taxation Regulations 1999 (Taxation Regulations) to specify that the SMSF supervisory levy may be collected in the same income year in which it is levied.

1.21 This will ensure consistency within the superannuation industry as other superannuation funds regulated by APRA pay the superannuation supervisory levy in the same financial year that it is levied. Collection of the SMSF levy in the financial year in which it is levied is appropriate for a cost-recovery levy.

Application and transitional provisions

1.22 The amendments in the Bill apply in relation to the 2013-14 income year and later income years. [Schedule 1, item 9]

1.23 Regulations may provide that an amount of the levy payable for the 2013-14 income year in respect of an SMSF is due and payable on a different specified day to the rest of the levy for the year in respect of the entity. [Schedule 1, subitem 10(1)]

1.24 If there are regulations made in respect of the levy payable for the 2013-14 income year, the provision imposing the liability to pay the levy applies separately in relation to each amount of the levy. [Schedule 1, subitem 10(2)]

1.25 This amendment provides flexibility in transitioning to the new arrangements by allowing regulations to stagger the payment of the SMSF levy for the 2013-14 income year.

Consequential amendments

1.26 The Bill makes a number of other consequential amendments including aligning the definition of 'superannuation entity' to that contained in the SIS Act and amending headings in the Imposition Act and Taxation Act. [Schedule 1, items 1, 2, 4, 5 and 8]

Statement of compatibility with human rights

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

Superannuation Legislation Amendment (Reform of Self Managed Superannuation Funds Supervisory Levy Arrangements) Bill 2013

1.27 This Bill 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

1.28 The Bill increases the maximum levy threshold payable by a trustee of a self managed superannuation fund (SMSF) for a year of income from $200 to $300 from the 2013-14 income year onwards. The actual levy amount for a specific income year is prescribed in the relevant regulations.

1.29 All superannuation funds are subject to a supervisory levy to fund the regulatory costs of ensuring funds comply with the superannuation legislation. Separate levy arrangements apply to SMSFs and other superannuation entities to recover the costs of their regulation by the Australian Taxation Office (ATO) and by the Australian Prudential Regulation Authority (APRA) respectively. The establishment of an SMSF is a choice made by individuals to manage their retirement savings more directly than might be available through other superannuation vehicles.

1.30 Regulation of the SMSF sector by the ATO is compliance based and on a cost-recovery basis. The number of SMSFs has increased rapidly between the years ended 30 June 2008 to 30 June 2012. The number of SMSFs increased from almost 376,000 to over 478,000, representing growth of over 27 per cent. The money collected from the SMSF supervisory levy covers the costs incurred by the ATO (for example, annual compliance activities to ensure trustees comply with rules on contributions, benefit payments and superannuation investments) in regulating this rapidly growing and diverse SMSF sector. The SMSF supervisory levy does not currently fully recover the ATO's costs of regulating the sector. These amendments ensure that the ATO's costs of regulating the SMSF sector are fully recovered.

1.31 The Government announced in the 2012-13 Mid-Year Economic and Fiscal Outlook that the SMSF levy would be levied and collected in the same income year. Collection of the SMSF levy in the financial year in which it is levied is appropriate for a cost-recovery levy. This will also ensure consistency within the superannuation industry as other superannuation funds regulated by APRA pay the superannuation supervisory levy in the same financial year that it is levied.

Human rights implications

1.32 This Bill does not engage any of the applicable rights or freedoms.

Conclusion

1.33 This Bill is compatible with human rights as it does not raise any human rights issues.

Index

Schedule 1: Amendments