ASFA Action Issue 957, 30 July 2024
In this issue:
- Payment Times Reporting Scheme: consultation on draft Rules
- Trustee risk reserves: final tax determination
- Lodgement of audited fund financial reports: ASIC reminder
- APRA Prudential Handbook: final version launched
- AFCA: final approach document schedule for 2024-25
Payment Times Reporting Scheme: consultation on draft Rules
The Government has commenced consultation on amendments to Rules supporting the Payment Times Reporting Scheme (PTRS). Under the PTRS, large businesses and government enterprises – including some superannuation funds – must submit payment times reports to the Payment Times Reporting Regulator every 6 months. This includes information on their standard payment terms, actual payment performance, and the use of supply chain financing arrangements.
As reported in ASFA Action issue 954, the Payment Times Reporting Amendment Act 2024 (PTRA Act) was recently passed by Parliament. The Act makes a range of amendments to improve the operation of the PTRS, implementing the Government’s response to a statutory review undertaken last year – see ASFA Action issue 926 for details. The amendments will commence on 7 September.
Treasury has now released for consultation draft Rules that will repeal the Payment Times Reporting Rules 2020 and remake them to support the amendments made by the PTRA Act. The draft Rules prescribe the:
- entity information that a reporting entity or a reporting nominee must provide to the Regulator
- information that must be included in a payment times report, including modified content requirements for special kinds of entities
- method to determine whether an entity is a slow small business payer
- meaning of a qualifying payment time of 20 days or less, for the purposes of determining a fast small business payer
- information relating to the Scheme that may or must be published on the Register
- transitional provisions for reporting periods beginning before 1 July 2024, with the 2020 version of the Rules continuing to apply, on and after 1 July 2024, to a payment times report for these reporting periods
Treasury is seeking submissions on the draft rules by close of business Monday 19 August.
Trustee risk reserves: final tax determination
The ATO has published Taxation Determination TD 2024/6 Income tax: trustee risk reserves – deductibility of payments made by a superannuation fund to its trustee.
The Determination outlines the ATO’s views in relation to the tax implications of actions taken by some funds and trustees in response to amendments to indemnification provisions in section 56 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) that took effect from 1 January 2022. Those amendments made any provision in a fund’s governing rules void to the extent it had the effect of exempting or indemnifying a trustee from certain penalties. Impacted funds and their trustees have taken differing approaches to address the risk of exposure to penalties arising from the amendments. This has included funds making payments to establish or build a trustee risk reserve for this purpose.
The Determination sets out when the ATO will consider such payments to be deductible to the fund under section 8-1 of the Income Tax Assessment Act 1997 (the general deductions provision).
The Determination notes that a payment by the fund to the trustee will not be deductible to the fund under section 8-1 where it is objectively determined on the facts that:
- the trustee is charging the fund the amount for the purpose of building or maintaining a reserve to address the trustee’s risk because of the amendments to section 56 of the SIS Act (‘additional risk reserve payments’), and
- the amount is charged by the trustee as a lump sum or a number of lump sum instalments or an ongoing amount that is separate and distinct from its existing ongoing and recurrent charges for trustee services.
This is because the payments made by the fund are losses or outgoings of capital, or of a capital nature.
A payment by the fund to the trustee will be deductible to the fund under section 8-1 where it is objectively determined on the facts that the fund is making a payment to the trustee for trustee services (‘trustee fees’). These trustee fees are ongoing and recurrent charges for the services provided by the trustee to the fund, which may be increased from time to time in accordance with the powers and terms of the trustee’s engagement to reflect the increased cost of providing its services to the fund. (However, where some of the expenditure incurred by the fund is in relation to gaining or producing exempt income or non-assessable non-exempt income, a reasonable apportionment will be required by the fund in respect of its deduction.)
The ATO consulted on a draft of the determination in December-January (see ASFA Action issue 926). The final determination is substantively identical to the draft.
Lodgement of audited fund financial reports: ASIC reminder
ASIC has reminded trustees that recent reforms to the financial reporting and auditing obligations for superannuation funds commenced on 1 July, with trustees now required to lodge audited financial reports for each fund within three months of the end of the fund’s financial year with fees incurred for late lodgement. For most funds, the first deadline will be 30 September 2024. (See ASFA Action issues 906 and 904 for background.)
Audited financial reports must include the financial statements and notes, directors’ declaration, auditor’s report and director’s report, which contains remuneration disclosure.
ASIC has emphasised that:
- signing off on financial reports is one of the key duties of a director. High quality financial reporting drives a culture of strong financial discipline, effective management and control of fund assets, and supports public confidence in superannuation. Trustee directors are required to take all reasonable steps to comply with, or to secure compliance with, financial record keeping and reporting obligations of funds as well as auditor independence obligations.
- the reforms also promote greater transparency by requiring trustees to make fund financial reports publicly available on the fund website and by giving ASIC the power to enforce compliance with the accounting and auditing standards as it has with other entities of economic significance (for example, listed companies).
- ASIC has built a new electronic transaction available in ASIC’s Regulatory Portal to accept lodgement of reports. To reduce regulatory burden for trustees and auditors, ASIC has worked with APRA to facilitate a single lodgement point, with trustees now able to lodge compliance reports required under APRA’s prudential standard SPS 310 Audit and Related Matters with ASIC at the same time as their audited financial reports. Once lodged, audited financial reports of superannuation funds will be publicly available free of charge on ASIC’s website.
- trustees will be subject to increased scrutiny on the quality of their financial reports in relation to superannuation funds, as they will be part of financial reporting and audit surveillance program for the first time. Where there are significant deficiencies in disclosure or concerns about possible material misstatements identified in the financial report, the fund will be subjected to a financial reporting surveillance. Auditors will also be subject to increased scrutiny on the quality of their audit work in relation to superannuation funds. (This was foreshadowed in May – see ASFA Action issue 947.)
ASIC has also drawn attention to its inventory of superannuation trustee transparency and disclosure obligations (INFO 278), which it updates periodically. (Note – while an update had been scheduled for the first half of the 2024 calendar year, this has not yet occurred – the published version is current as at 31 October 2023.)
APRA Prudential Handbook: final version launched
APRA has launched the final version of its new digital Prudential Handbook following the release of the beta version in June (see ASFA Action issue 952).
The Handbook brings together all of APRA’s prudential standards, prudential practice guides and relevant supporting information into one place. The digital format ensures the Prudential Handbook can be easily navigated and caters to a range of different users across regulated industries and in the broader community.
The release of the Handbook completes APRA’s project to modernise the prudential architecture. The project commenced in 2021 with the goal of making APRA’s regulatory framework clearer to understand, simpler to navigate, and more adaptable to ongoing changes in the operating environment.
Since its commencement, the project has delivered changes to the design and presentation of APRA’s prudential framework to enable:
- better regulation – improving the design of the framework, which is now structured in clear pillars, and rationalising and consolidating standards and guidance where it makes sense to do so
- a ‘digital first’ approach – using technology to make it easier to access and manage the standards, guidance and supporting policy information
- new risks, new rules – responding in an adaptable and agile way to emerging risks in a manner that integrates with – rather than adds to – the existing framework.
AFCA: final approach document schedule for 2024-25
AFCA has published its finalised schedule for issuing new or updated Approach documents during 2024-25. AFCA’s Approach documents are intended to support consumers’ and financial firms’ understanding of AFCA’s approach to certain issues and how it reaches decisions.
In relation to superannuation, AFCA has indicated it will:
- issue a new Approach to subsections 29(6) and (7) of the Insurance Contracts Act 1984
- update its current Approach to delayed insurance claims in superannuation (last updated in May 2022)
- update its current Approach to superannuation death benefit complaints (last updated in January 2022)
AFCA consulted on a draft of the schedule in June – see ASFA Action issue 951 for background.
Consultation on the new and updated Approach documents will take place in due course.
AFCA has also issued a consultation feedback document indicating that it will consider developing an Approach document on underwriting of insurance within superannuation for the 2025–26 financial year. (This Approach document was requested by ASFA on behalf of our members.)
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.