SENATE

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

General outline and financial impact

This Bill provides a legislative framework for employers to make payments to the Superannuation Holding Accounts Reserve (the Reserve) instead of making small superannuation contributions to a superannuation fund.

Date of effect: 1 July 1995

Proposal announced: The system was announced in the Government's Statement of Superannuation Policy Measures, as circulated by the Treasurer on 28 June 1994.

Financial impact: It is estimated that the cost of establishing the Reserve will be approximately $5.6 million. The annual cost of administering the Reserve is estimated at between $7.0 and $7.5 million. These annual running costs are expected to be offset by earnings on the funds held in the Reserve.

Compliance cost impact: The design of the Superannuation Holding Accounts Reserve is to overcome operational difficulties for employers in some areas of superannuation legislation. The Reserve is also designed to assist employers who have been unable to readily find a superannuation fund willing to accept small, particularly one off, contributions on behalf of their employees. Consequently, the availability of the Reserve should reduce employers' compliance costs and at the same time provide for the protection of employees' superannuation entitlements.

Specific areas of reduction are considered to include:

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Savings of administrative costs for employers continually trying to find a superannuation fund that will accept small contributions. Where an employer is unable to readily find a fund willing to accept small contributions they can make payments to the Reserve.

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Reduction in the liability to the superannuation guarantee charge (SGC). Previously where an employer could not find a fund willing to accept small contributions they may have become subject to the SGC. This include an administration charge, an interest charge and the amount of the superannuation contribution. The payment of the SGC is also not allowable as an income tax deduction. Because of the introduction of the Reserve the employer can pay an amount to the Reserve and will not be subject to the SGC. Also payments to the Reserve will be allowable as an income tax deduction (up to $1,200 per employee per period) to the employer.

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A reduction in the costs for professional advice. The Bill has been drafted in the emerging drafting style of the Tax Law Improvement Project and has utilised plain English drafting. The style of the Bill should make it easier for both employers and their advisers to understand.

Areas which may increase compliance costs include the following:

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An increase in cost or time in either writing to the Australian Taxation Office (ATO) or physically attending the ATO in order to obtain deposit forms for the Reserve.

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The potential for duplication where an employer who has a superannuation fund that accepts regular payments for the employer's full-time employees but which does not accept small, irregular or one-off contributions. In this circumstance the employer will have to calculate and pay superannuation contributions for its full-time and casual staff separately. This split workload may also lead to the increased potential for error.

It is considered that on balance the introduction of the Reserve should not increase an employer's compliance costs and has potential to decrease those costs.