This document has been archived and is no longer in use.

New investments - further advice on collection of tax file numbers by investment bodies

• New investments - further advice on collection of tax file numbers by investment bodies
• Background
• Quotation for new investments by existing clients
• Investment facilities
• General rules for new investments

New investments - further advice on collection of tax file numbers by investment bodies

This Compliance Note aims to clarify and supplement the advice already given in the Privacy Commissioner's Compliance Note 1/90, and the Australian Taxation Office Guidelines for the preparation of tax file number forms, both issued in March 1990.

Application forms which adhere to this advice are approved for the purposes of tax file number quotation and will not require formal approval by the Australian Taxation Office. Any departure from the advice must be referred to the Australian Taxation Office for approval.

The Compliance Note has been prepared jointly by the Commissioner of Taxation and the Privacy Commissioner and represents an agreed position reached after extensive consultation with representatives of investment body associations.

Back to Top

Background

The Privacy Commissioner recognises the importance of implementing Stage 2 of the Tax File Number system in a way which balances three important objectives:

• meeting the requirements of taxation law;
• compliance with the privacy safeguards attached by Parliament to the operation of the tax file number system;
• minimising the cost and inconvenience to individuals and investment bodies.

An important feature of the privacy safeguards is the principle of voluntary quotation - no-one is required by law to quote in relation to investments, although the consequences of non-quotation may be financially onerous for many individuals. Taxation law provides that from July 1 1990 a person may quote their TFN in connection with an investment in a manner approved by the Commissioner of Taxation (ss.202DB and DC of the Income Tax Assessment Act 1936, as amended). There is no explicit provision, other than in relation to shareholdings in public companies, for quotation for an initial investment to take effect automatically in respect of future investments.

Back to Top

Quotation for new investments by existing clients

The Privacy Commissioner takes the view that, in the light of Tax File Number Guidelines 1.2 and 2.2, and the voluntary quotation principle of the tax law, it is essential that individuals should be given the opportunity to decide for each investment whether or not they wish to quote their TFN.

1. Where the investment body already holds a TFN in respect of previous investments by the same client, the client's approval may take the form of a "negative option", i.e. a question, which, if not answered, can be taken to imply the application of the TFN to the new investment; for example,

"Please tick the box if you do not wish your tax file number, already quoted, to be applied to this investment."

Back to Top

Investment facilities

The voluntary quotation principle and TFN Guidelines would normally suggest that the choice should be exercised at the time that the decision to take out a new investment is made. However, investment bodies have put to the Commissioners several examples of common investment arrangements whereby an individual is offered a facility within which a succession of separate investments are made but which the client would perceive as being merely separate deposits within the one facility. A parallel can be drawn between this sort of arrangement and repeat investments in a public company which is considered by Tax law to be a single investment. Examples of an investment facility include:

• common fund investments by Trustees;
• sub-accounts offered by credit unions to members under a single membership/account number;
• term deposits offered by banks.

In such cases, it is considered unduly onerous for clients to be asked to decide whether to quote their TFN at the time each new investment is taken out - which in some cases can be weekly or even daily, and may not involve more than a signature or telephone call to initiate.

2. In the case of investment facilities of the kind mentioned, to offer individuals the opportunity to quote for each new investment in these "facility" situations is not necessary. It should however by noted that investment bodies must be able to allow the original quotation to be made in relation to some investments and not others if the individual volunteers such a choice, and must be able to report on an individual basis to the ATO.

In the case of investment facilities of this kind the Privacy Commissioner endorses the following manner of collection,

3. Where an investment body has already collected certain personal information from an individual in connection with the taking out of an initial investment, and offers a facility for the making of additional investments without requiring the same formal application procedures, then the TFN may be requested along with the other initial information and automatically applied to subsequent investments. This procedure may be adopted provided that it is clearly explained to the investor, when being invited to quote their TFN, that it will be applied automatically to future investments within the terms of the facility unless the investor indicates at any time that he/she does not wish to quote for a particular investment.

It follows from these prescribed circumstances that:

4. For investments from existing clients which require a full repeat application procedure, involving the collection of name, address and other details, the opportunity to decline to quote a TFN should be explicitly given. This may be in the form of the negative option explained above, although if the same application forms are to be used for new clients as well, the option will necessarily have to be in the positive, along with a space for first-time quotation of the TFN.

Back to Top

General rules for new investments

Application forms and prospectuses for new investments must also be in accordance with the other requirements of the previous (March 1990) ATO forms guidelines and Compliance Note 1/90.

5. In particular, they should ensure that the following elements are all included; are positioned in reasonable proximity to each other; and are clearly distinct from other information requested:

• a statement of the authority for collection and of the voluntary quotation principle;
• Collection of tax file numbers is authorised by the tax law. Quotation is not compulsory but tax may be taken out of your (dividend/interest/distribution) if you do not quote your number or an exemption;
• authorised by the investor to (quote a TFN or exemption for the first time/apply a TFN or exemption already quoted*/decline to apply a TFN already quoted) in relation to this (investment/investment facility**);
• if the positive option is offered, then the default assumption, if no indication is given, must be non-quotation;
• if quotation is invited for an investment facility, an explanation must be given of the consequences in terms of automatic carry over of the TFN to subsequent investment under the facility;
• a statement concerning sources of further information.

6. If forms are intended to be retained after data input and accessed for purposes unrelated to the tax file number requirements, then they should be designed to allow prior deletion or removal of the tax file number, access to which must be restricted to staff involved in tax related functions

14 September 1990

For further information please contact

Privacy Commissioner GPO Box 5218 Sydney NSW 1042

Privacy Hotline: 1300 363 992 Telephone: (02) 9284 9800 Fax: (02) 9284 9666

E-mail: privacy@privacy.gov.au

Back to Top