Kelly O'Dwyer (Higgins, Liberal Party, Minister for Revenue and Financial Services) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The coalition government is introducing a new era of superannuation guarantee enforcement.

This government has introduced a robust package of legislation into parliament that will, when enacted, mean dodgy employers can't hide from their obligations to pay employees their full superannuation entitlements. This bill gives the ATO the tools it needs to detect future noncompliance and punish it appropriately, including with criminal sanctions in the most egregious cases.

But we know that historical noncompliance has been significant. Last year the Australian Taxation Office found that, while 95 per cent of superannuation guarantee obligations are paid in full, in 2014-15, around $2.85 billion went unpaid.

Some superannuation guarantee underpayment is malicious on the part of dodgy employers. Some is inadvertent, or is as a result of poor payment systems, often in stressed small business employers. However, in all cases, it's the employees who miss out.

This bill introduces a one-off amnesty to employers who come forward and do the right thing by their employees by rectifying historical noncompliance with their superannuation guarantee obligations.

To qualify, employers will have to come forward voluntarily, without direct prompting from the ATO. And they will have to pay all of their employees' entitlements.

We want employers to bring these debts out into the open and pay them off so that their employees can receive the superannuation that they are entitled to and would otherwise miss out on.

The bill offers both a carrot and a stick approach to encourage non-complying employers to come forward.

The bill does not reduce employees' entitlements by one cent. Everything that an employer owes its employees must still be paid, and paid in full.

Rather, the bill removes the penalties and fees paid to the Commonwealth that might otherwise apply to historical superannuation guarantee noncompliance by employers that are eligible for the amnesty.

Employers who do the right thing and come forward during the amnesty period will also be able to claim tax deductions for payments made under the amnesty, which is the same outcome as if they had paid on time.

Those are the carrots.

The stick will be reserved for employers that could come forward during the amnesty but choose not to do so and are subsequently caught by the ATO. Their failure to come forward will be taken into account by the ATO, which will generally impose a minimum 50 per cent penalty on the employer on top of the other penalties and charges that are ordinarily associated with late payment of superannuation guarantee obligations.

Of course, throughout the amnesty period, the ATO will still continue its usual enforcement activity against employers for any historical noncompliance that they don't own up to voluntarily.

The amnesty runs for twelve months, beginning today, and applies to any historical superannuation guarantee debts up to and including the March quarter of 2018.

The bill also introduces an employer shortfall exemption certificate for certain employees with multiple employers. Currently, employees can breach the concessional contributions cap from compulsory contributions where they have multiple employers.

This measure will allow certain employees to avoid this outcome by applying to the Commissioner of Taxation for an exemption certificate in respect of one or more of their employers. A certificate will mean that their employer does not have to make superannuation guarantee contributions for them for up to one year. It will also mean employees are not forced to breach their concessional cap and enable those employees to instead choose to negotiate with their employer to receive the superannuation guarantee contribution as part of their cash or non-cash remuneration.

To be eligible for a certificate, an employee must be likely to have excess concessional contributions for the financial year and have at least one other employer who is required to make superannuation guarantee contributions for them in that year. This targets the measure to those employees likely to breach the concessional cap because they have multiple employers and ensures that employees still receive superannuation guarantee contributions from their employment.

The bill also introduces reforms to further support the operation and integrity of the superannuation taxation reform package announced in the 2016-17 budget. These measures ensure our superannuation system is fair, sustainable and used for its core purpose of providing income in retirement to substitute or supplement the age pension. The amendments also improve confidence in the system by reducing the extent that superannuation is used for tax minimisation and estate planning.

The amendments address the possibility of self-managed superannuation fund members' circumventing the cap on tax-free retirement phase assets through limited recourse borrowing arrangements or non-arm's-length income.

The bill includes the outstanding value of limited recourse borrowing arrangements—or LRBAs—in the total superannuation balance of SMSF members at particular risk of entering into certain tax minimisation strategies. This measure will stop those members using LRBAs to circumvent the $1.6 million limit on non-concessional contributions.

The bill also amends the existing non-arm's-length income rules to also capture non-arm's-length expenses. This will ensure that superannuation funds cannot circumvent the contribution caps by using non-arm's-length expenditure to inflate their overall income, for example, by borrowing money from a member at a reduced interest rate.

Full details of the measures are contained in the explanatory memorandum.

Debate adjourned.