House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

Chapter 3 - First Home Saver Accounts Supervisory Levy

Outline of chapter

3.1 This chapter outlines the structure of the prudential supervisory levy that will be imposed on First Home Saver Accounts (FHSA) providers.

Context of amendments

3.2 The Australian Prudential Regulation Authority (APRA) is funded by its regulated entities on a user-pays basis through financial sector levies. Certain operations of the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO) are also funded by the financial sector levies.

3.3 The Financial Institutions Supervisory Levies Collection Act 1998 (Financial Institutions Levy Collection Act) establishes the administrative framework for collecting levies.

3.4 Separate levy imposition Acts establish the framework for imposing levies on each industry. These include authorised deposit-taking institutions (ADIs), general insurers, life insurers, retirement savings account (RSA) providers, superannuation entities and non-operating holding companies. The First Home Saver Accounts Providers Supervisory Levy Imposition Bill 2008 (FHSA Supervisory Levy Bill) will mirror these arrangements for FHSA providers.

3.5 This framework for imposing the FHSA providers supervisory levy is modelled on the framework for the RSA providers supervisory levy. All FHSA providers will be subject to this new levy.

3.6 Consistent with the financial institutions levy collection framework, the amount of levy for providers from each industry will be set through a ministerial determination. The levy determinations may make different provisions for different classes of providers.

Summary of new law

3.7 This new levy imposition framework will apply to all FHSA providers.

3.8 For trustees, their FHSA trusts would be a separate levy-paying entity. For ADIs and life insurance companies, liability for the levy would be calculated according to the aggregate balance of their FHSAs.

3.9 The FHSA providers supervisory levy would be administered under the existing financial institutions levy collection framework. That is, the Treasurer would make a determination under each levy imposition Act that specifies how to determine assets as well as the amount of levy payable.

Comparison of key features of new law and current law

Detailed explanation of new law

3.10 The Financial Institutions Levy Collection Act establishes the framework for administering and collecting financial institutions supervisory levies. The levy imposition Acts establish the framework for imposing levies on each industry. These include ADIs, general insurers, life insurers, RSA providers, superannuation entities and non-operating holding companies.

3.11 These levy imposition Acts create the framework for imposing levies on each sector, by defining the methodology for calculating levies. This enables the Treasurer to make determinations, one for each sector, that specify the parameters for calculating each levy. Additionally, the Treasurer makes another determination under paragraph 50(1)(b) of the Australian Regulation Authority Act 1998 , to recoup the cost to the Commonwealth of providing, through ASIC and the ATO, relevant market integrity and consumer protection functions.

3.12 The new supervisory levy imposition framework for FHSA providers is modelled on the RSA providers supervisory levy imposition framework.

Amendments to the Financial Sector Levy Collection Act

3.13 The FHSA Supervisory Levy Bill will be administered as part of the financial institutions levy collection framework. The term 'leviable FHSA entity' will be added to the list of leviable bodies in the Financial Institutions Levy Collection Act. [Schedule 3, items 2 and 3 of the FHSA (Further Provisions) Bill]

3.14 A leviable FHSA entity will be an ADI or life insurance company that has notified APRA of its intention to offer FHSAs or a trustee that has become authorised as an FHSA provider. [Schedule 3, item 5 of the FHSA (Further Provisions) Bill]

3.15 These amendments enable APRA to administer and collect FHSA levies following the same process as other financial institutions levies. The processes include issuing invoices to leviable bodies, enforcing late payments and imposing penalties for late payment or non-payment. [Schedule 3, item 4 of the FHSA (Further Provisions) Bill]

The FHSA Supervisory Levy Bill

3.16 The FHSA Supervisory Levy Bill will apply to all leviable FHSA entities and is modelled on existing financial institutions levy imposition Acts. [Definition of 'leviable FHSA entity', section 5 of the FHSA Supervisory Levy Bill]

3.17 This levy will be collected from the 2009-10 financial year. [Section 2 of the FHSA Supervisory Levy Bill]

3.18 The FHSA supervisory levy will have two components: the restricted component (related to the cost of supervision) and the unrestricted component (related to potential system impact and vertical equity considerations). Both components are determined as a proportion of assets, with minimum and maximum limits for the restricted component. [Definition of 'statutory upper limit' in section 5 and section 7 of the FHSA Supervisory Levy Bill]

3.19 The FHSA Supervisory Levy Bill will give the Treasurer the flexibility to make a determination that has different provisions for different classes of leviable FHSA entities, such as providers from different industries, where this is appropriate. [Subsection 7(9) of the FHSA Supervisory Levy Bill]

3.20 For leviable FHSA entities that are trustees, the FHSA levy will be calculated on the assets in the FHSA trust. For leviable FHSA entities that are ADIs and life insurers, the assets value that is equivalent to the aggregate balance of their FHSAs (FHSA providers are already required to report the total balance of their FHSAs in reporting standards issued by APRA). [Subsection 7(7) of the FHSA Supervisory Levy Bill]

3.21 The term levy imposition day is defined as the date on which the ADI or life insurer notifies APRA of its intention to offer FHSAs, or the date on which the trustee becomes authorised to offer FHSAs. This clarifies when FHSA providers begin to be liable to pay a levy without imposing an additional reporting requirement. [Definition of 'levy imposition day' in section 5 of the FHSA Supervisory Levy Bill]

3.22 Consistent with the other financial institutions levy imposition Acts, the FHSA Supervisory Levy Bill establishes the calculation of the indexation factor used to establish the statutory upper limits applying to the restricted levy component in later years. This indexation factor allows the statutory upper limit to increase at three percentage points annually in excess of movements in the Consumer Price Index. [Section 8 of the FHSA Supervisory Levy Bill]

Amendments to other Levy Imposition Acts

3.23 ADIs and life insurers' assets that are used in calculating the FHSA providers supervisory levy will not be used in calculating the ADI supervisory levy or the life insurance supervisory levy. [Schedule 3, items 1 and 6 of the FHSA (Further Provisions) Bill]

3.24 In other words, an ADI's assets equivalent to its aggregate FHSA deposit balance would be excluded from calculations of the ADI supervisory levy. Likewise, a life insurer's assets equivalent to its aggregate FHSA policy liabilities would be excluded from calculations of the life insurance supervisory levy.

Amendment to the FHSA Act

3.25 FHSA providers that are ADIs and life insurance companies would be able to notify APRA when they have ceased to provide, and to offer to provide, FHSAs. On giving this notice, the entities would cease to be a leviable FHSA entity and would no longer be liable to pay FHSA levies. [Schedule 2, item 36 of the FHSA (Further Provisions) Bill]

3.26 This notice may be given when the balances of all FHSAs have been paid out according to the payment rules in section 31 of the FHSA Act and all accounts have been closed, or when the entity has transferred all of its FHSA business to another provider.