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Treasury Laws Amendment (2018 Measures No 2) Bill 2018 [2018] AUSStaCSBSD 40 (14 February 2018)

Treasury Laws Amendment (2018 Measures No. 2) Bill 2018

Broad administrative powers ^[122]

1.154  Section 926B  of the Corporations Act 2001 (Corporations Act) currently provides that regulations made under that Act may exempt certain persons and financial products from all or specified provisions of Part 7.6 of the Corporations Act, which relate to the licensing of financial services providers. Section 110 of the National Consumer Credit Protection Act 2009 (NCCP Act) similarly provides that regulations made under that Act may exempt certain persons and credit activities from all or specified provisions to which Part 2.6 of the NCCP Act applies. Part 2.6 of the NCCP Act applies to the licensing of persons who engage in credit activities.

1.155 Item 2 of Schedule 1 to the bill seeks to amend  section 926B  of the Corporations Act, to provide that:

• an exemption from particular requirements under the Corporations Act (that is, the requirements in subsection 911A(1)) may apply unconditionally or be subject to conditions;^[123]

• if a condition is imposed on a person, the person must comply with that condition. The Australian Securities and Investments Commission (ASIC) may apply to the court for an order enforcing compliance with a condition;^[124] and

• such an exemption may empower ASIC to make decisions relating to how that exemption starts or ceases to apply to a person or class of persons.^[125]

1.156 Item 5 of Schedule 2 seeks to make virtually identical amendments to section 110 of the NCCP Act, in relation to exemptions from subsection 29(1) of that Act to enable the testing of particular credit activities. In both cases, the bill seeks to permit the regulations to empower ASIC to determine when the relevant exemption starts or ceases to apply to a person or class of persons, thereby conferring a broad discretionary power on ASIC to determine when particular exemptions apply.

1.157 With regard to these matters, the explanatory memorandum states:

The amendment empowers ASIC to make decisions regarding how the exemption starts and ceases to apply to a person or class of persons. This is necessary so that ASIC can respond to minimise risks and protect consumers where unintended and undesirable behaviour from firms is identified.
As a result of this amendment, ASIC can respond to identified non-compliance with prescribed conditions and prevent misconduct or fraudulent behaviour in...business's provision of products or services to consumers. If a provider is not compliant with any of the conditions set out in the regulations, ASIC can stop the provider from relying on the exemption or seek an order from the court that a condition should be complied with in a particular way. ASIC could prevent a provider from relying on the exemption in appropriate circumstances (for example, if the provider had been involved in previous misconduct or repeatedly failed to adhere to legal requirements).
[By] allowing ASIC to make decisions about how the exemption starts and ceases to apply, ASIC has the flexibility to provide arrangements to transition providers effectively from the exemption to being licensed.^[126]

1.158 The committee notes the explanation provided in the explanatory memorandum. However, the committee remains concerned that the bill would permit the regulations to confer a broad power on ASIC to determine when particular exemptions apply. The committee is also concerned that, while the explanatory memorandum provides some guidance around when ASIC's powers would be exercised, this guidance is not reflected on the face of the bill.

1.159 With respect to the character (that is, legislative or otherwise) of decisions by ASIC as to when exemptions start or cease to apply, the explanatory memorandum further states that:

[a]s the regulations would be subject to disallowance, ASIC's powers to make decisions relating to how the exemption starts or ceases to apply to a person or class of persons will be subject to appropriate Parliamentary scrutiny.^[127]

1.160 The committee acknowledges that the relevant regulations would be disallowable legislative instruments. However, it is not apparent that decisions made under those regulations, as to when exemptions would start and cease to apply, would also be legislative instruments. The committee is therefore concerned that proposed paragraphs 926B(5) and 110(4) would permit ASIC to make relatively significant decisions relating to the application of exemptions without subjecting those decisions to appropriate levels of parliamentary scrutiny.

1.161 The committee seeks the Treasurer's more detailed justification for enabling the regulations to confer on ASIC a broad power to make decisions relating to how particular exemptions start and cease to apply.

1.162 The committee also seeks the Treasurer's advice as to whether a decision of this nature would be a legislative instrument, and would therefore be subject to parliamentary scrutiny.

Retrospective application^[128]

1.163 Item 18 of Schedule 2 to the bill seeks to amend section 102R of the Income Tax Assessment Act 1936 (1936 Act) to provide that, in determining whether a unit trust is a public trading trust under that section, any interest disregarded under subsection 275-10(4A) of the Income Tax Assessment Act 1997 is also to be disregarded for the purposes of section 102R of the 1936 Act. Item 19 of Schedule 2 to the bill then provides that the amendment made by item 18 applies in relation to income years on or after 1 July 2016. The amendment therefore applies retrospectively.

1.164 The committee has long-standing concerns about provisions which apply retrospectively, as such provisions challenge a basic value of the rule of law that, in general, laws should only operate prospectively. The committee will be particularly concerned if the legislation has, or may have, a detrimental effect on individuals. Where proposed legislation applies retrospectively, the committee would therefore expect the explanatory materials to explain why retrospective application is necessary, and to specify if and how any person is likely to be adversely affected.

1.165 In this instance, the explanatory memorandum states:

The amendments made by Part 4 [item 18] apply in relation to the 2016-17 year of income and later income years. This amendment applies retrospectively to ensure the law operates as it always was intended to operate. This ensures that trusts that acted in a manner that complied with the intended operation of the law are not adversely impacted by a technical omission that was made in the Tax Laws Amendment (Tax Incentives for Innovation) Act 2016.^[129]

1.166 The committee notes that the explanatory memorandum does not specify whether any person has been, or may be, adversely affected by the retrospective application. Additionally, the explanatory memorandum indicates that the retrospective commencement of the proposed amendment is intended to ensure that trusts that complied with the intended operation of the law are not adversely affected by an omission in a previous amending Act. It is unclear whether trusts that complied with the law as written (including the omission) could be adversely affected by the retrospective application of the amendments in the present bill.

1.167 The committee seeks the Treasurer's more detailed advice as to why the amendment proposed by item 18 of Schedule 2 to the bill is intended to apply retrospectively from the 2016-17 income year, and whether this will cause detriment to any individual.

[122] Schedule 1, item 2, proposed subsection 926B(5); and Schedule 1, item 5, proposed subsection 110(4). The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(ii).

[123] See proposed subsection 926B(3).

[124] See proposed subsection 926B(4).

[125] See proposed subsection 926B(5).

[126] Explanatory memorandum, pp. 7-9.

[127] Explanatory memorandum, pp. 8-9.

[128] Schedule 2, item 19. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(i).

[129] Explanatory memorandum, p. 22.