SENATE

Explanatory Memorandum

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

Chapter 4 - Deposits on Reserve

Overview

4.1 This chapter sets out the manner and type of deposits which may be made to the Reserve.

Purpose of the provisions

4.2 The provisions set out the manner and type of payments which may be made, by employers, into the Superannuation Holding Accounts Reserve administered by the ATO for employees.

4.3 The term 'deposit' is only a label used to facilitate a general understanding of the operation of the Reserve. The Reserve, however, in no way operates as a bank or financial institution. This is to clarify any doubt that may arise through the use of terms such as 'deposit' and 'account'.

Explanation of the provisions

Deposits by employers

4.4 An employer of an individual may pay an amount to the Commissioner by way of a deposit in respect of an individual. Such deposits are made instead of making a superannuation contibution in respect of an individual. Where an employer makes such a payment the employer is said to have made a deposit in respect of an individual. [Clause 24 of Part 3]

4.5 Deposits to the Reserve are intended to be, but are not, limited to deposits instead of SG contributions.

4.6 The Reserve will accept any deposits that satisfy the requirements of this Bill. Where an employer is not subject to SG (for example; where monthly salary or wages of the employee is less than $450) that employer may still make deposits to the Reserve on behalf of those employees. This is because there may be no superannuation funds willing to accept those small accounts but the employer still wishes to provide superannuation support for those employees.

Example where employer not subject to SG

4.7 Jenny is 15 years old in year 10 at school. Jenny has a casual job working as a shop assistant in a department store. She works 4 hours on Friday nights and three hours on Saturday mornings. Jenny earns $105 a week (a total of $420 per month). Although Jenny's employer is not required to provide superannuation support for Jenny he or she is aware of the benefits of superannuation and decides to contribute $4.20 per week for Jenny's superannuation. Where the employer is unable to find a superannuation fund willing to accept these contributions the employer may pay an amount instead of those contributions into the Reserve for Jenny's benefit. The advantage of this is that by the end of the year Jenny's account will have a minimum balance of $218.40 plus any interest credited to the account.

4.8 When Jenny obtains full-time employment at say age 18 her account balance will be at least $660 and she may then have the balance of her account transferred to a superannuation fund of her choice.

4.9 The advantage of the Reserve is that Jenny can obtain superannuation support where previously the employer may not have been able to provide that support. Also by using the Reserve Jenny's employer's contributions are not eroded by fees and charges as was the case for Karen in the example in at paragraphs 1.10 and 1.11.

Deposit forms

4.10 The following information in a form approved by the Commissioner is to accompany any deposit to the Reserve:

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the employers name and address;

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a declaration that the depositor is an employer, or former employer of the individual [clause 27 of Part 4];

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a declaration that the deposit is made in respect of the employment or former employment of an individual and that the deposit is made instead of a superannuation contribution, of an equal amount of the deposit, in respect of that employee or former employee [clause 28 of Part 4];

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a declaration that the deposit does not contravene any other law, award or enforceable agreement. This requirement is to clarify the fact that deposits to the Reserve will not overide any liability that the employer may have under any other law, award or by virtue of any other legally enforceable agreement. The making of a payment to the Reserve will not be a defence for any failure on the employer's behalf to satisfy any other obligation that the employer may have in relation to the provision of superannuation benefits for employees [clause 29 of Part 4];

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a declaration that to the best of the depositor's knowledge, during the period to which the deposit relates, the individual was under the age of 65 [clause 30 of Part 4];

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the individual's tax file number (if known to the employer) [subclause 26(d) of Part 4]; and

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the deposit form must be signed by or on behalf of the employer [subclause 26(e) of Part 4].

4.11 This information is needed;

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to enable the ATO to locate the employee to advise them of their account balances;

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to be provided to a superannuation fund of the employee's choice when the employee requests the ATO to transfer their account balance to that nominated fund; and

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to allow the ATO to pay the employee's account balance either directly to the employee or to the employee's deceased estate where necessary.

Consequences of false declarations

4.12 A failure to provide the information required on the deposit form will not result in the deposit being held to be invalid. However, where such information is not provided the deposit may be refunded to the employer. Where the failure is not discovered on lodgment the deposit form will be processed as a valid deposit form. Where the failure is discovered at lodgment the Commissioner is not obliged to accept the deposit and may return it to the employer requesting all the required information to be provided. The operation and consequences of the refund provisions are contained in chapter 8. [Clause 31 of Part 4]

4.13 It should be remembered that a false or misleading statement may result in criminal liability under Part III of the Taxation Administration Act 1953 , the disallowance of an income tax deduction and the potential liability to a SGC.

Deposit form may deal with multiple payments

4.14 Where a person makes a deposit that relates to several employees and the deposit form is accompanied by a single cheque, a single money order or a single amount of cash covering the payments it will be considered that the employer had made the payment by a separate cheque for each individual employee separately. This will enable the Commissioner to refund only amounts that do not satisfy the requirements of the Bill without effecting the validity of the other payments. For example if the employer makes a deposit for 100 employees but one employee is described as Mickey Mouse then the Commissioner would only refund the amount that represents the deposit for Mickey Mouse without effecting the payment for the other 99 employees. [Clause 32 of Part 4]

Deposit not held on trust

4.15 Money credited to an individual's account in the Reserve is not held on trust nor is it special public money for the purposes of section 16 of the Financial Management and Accountability Act 1995 . Consequently, the Commonwealth is not able to deal with the money except in a manner provided by this Bill. This provision is to ensure that there is no misunderstanding as to the nature and status of the Superannuation Holding Accounts Reserve. [Subclauses 33(1) and (2) of Part 4]

4.16 The provision deeming money credited to an individual's account in the Reserve as not constituting special public money for the purposes of section 16 of the Financial Management and Accountability Act 1995 does not have effect until the commencment of the Financial Management and Accountability Act 1995 . [Subclause 33(3) of part 4]