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Issue 855, 14 June 2022 
In this issue: 

 

Draft ASIC cost recovery implementation statement 2021-22: consultation 

As reported in ASFA Action issue 854, ASIC is consulting on its draft Cost Recovery Implementation Statement (CRIS) for 2021-22. The CRIS outlines ASIC’s estimated regulatory costs for 2021-22 and how these will be recovered as industry levies under the industry funding model. 

The indicative levies published in the draft CRIS are based on ASIC’s planned regulatory work and associated costs for the 2021-22 financial year. 

If you have any feedback on issues you would like ASFA to consider in relation to the proposed levies, please forward it to Andrew Craston by close of business, Tuesday 21 June.  

 

Avoiding ‘greenwashing’ of sustainability-related products: ASIC information sheet 

ASIC has released Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products. The new information sheet aims to help superannuation funds and managed funds avoid ‘greenwashing’ when offering or promoting sustainability-related products. 

ASIC considers ‘greenwashing’ as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical. ASIC undertook a ‘greenwashing’ review of a sample of superannuation and investment products and identified some areas for improvement. In particular, ASIC considers that issuers’ disclosure and promotions need to use clear labels, define the sustainability terminology they use, and clearly explain how sustainability considerations are factored into their investment strategy. 

ASIC Deputy Chair Karen Chester said: 

“Managed funds and super funds are responding to the increasing investor demand for sustainability-focused investments. Investors are not only motivated by their values here, but also by long-term financial returns.
…Our information sheet is simply about helping issuers comply with their existing regulatory obligations. Labels or headline statements about a product’s green credentials should not be misleading. Being ‘true to label’ is not a nice-to-have, it’s a regulatory must-have. It’s also a must-have for investor confidence and trust. And a must-have for both fair and efficient market outcomes here. Misdirected investment here will inevitably be at great economic cost.
We have set out 9 important questions for issuers to ask themselves. We would hope and indeed expect issuers to review their practices against our information sheet”. 

ASIC has also published new information to help investors assess if their values and goals align with a sustainability-related or ESG product. 

 

SPS 310 Audit and Related Matters: APRA’s response to consultation 

APRA has written to registrable superannuation entity (RSE) licensees and auditors to provide its response to its recent consultation on proposed amendments to Prudential Standard SPS 310 Audit and Related Matters. 

The consultation proposed amendments to SPS 310 to reflect changes to the superannuation reporting framework and set out the matters that would be subject to external audit (see ASFA Action issue 837). 

Following feedback from industry regarding timing, APRA has decided to delay the commencement of the proposed amendments to the financial year ending 30 June 2023 — there will be no change to audit requirements for the 2022 financial year.  APRA will provide a further update on any refinements when it finalises SPS 310 later in 2022.  

 

Non-arm’s length expenditure: ATO compliance approach extended 

The ATO has extended its transitional compliance approach in relation to the application of a recent ruling about non-arm’s length income and expenditure (NALI/NALE), to cover the 2022-23 financial year. 

The NALI/NALE provisions are designed to prevent the use of non-arm’s length arrangements to increase the income that is concessionally taxed within the superannuation environment. Where income is deemed to be NALI, it taxable at the top marginal tax rate rather than the 15 per cent concessional superannuation tax rate. 

As reported in ASFA Action issue 816, in July 2021 the ATO issued Law Companion Ruling LCR 2021/2: Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement. This aimed to clarify how recent amendments to the Income Tax Assessment Act 1997 operate in a scheme where the parties do not deal with each other at arm’s length and the trustee of a complying superannuation entity incurs NALE (or where expenditure is not incurred) in gaining or producing ordinary or statutory income.  

Alongside LCR 2021/2, the ATO issued Practical Compliance Guideline PCG 2020/5: Applying the non-arm’s length income provisions to ‘non arm’s length expenditure’ – ATO compliance approach for complying superannuation entities. This set out a transitional compliance approach under which the ATO would not allocate compliance resources to determine whether the NALI provisions applied for the 2018-19 through to 2021-22 income years where the fund incurred NALE of a general nature with a sufficient nexus to all ordinary and/or statutory income derived by the fund. The approach was intended to apply only to general expenditure incurred on or before 30 June 2022.

Following industry concern about some aspects of LCR 2021/2, the former Government announced in late March that it intended to make legislative changes to ensure the NALE provisions operate as envisaged (see ASFA Action issue 847). It was proposed that these changes would apply from 1 July 2022 — immediately after the expiry of the ATO’s transitional compliance approach. As consultation on the legislative amendments had not commenced prior to the election, industry has been advocating for an extension of the transitional compliance approach. ASFA been an active participant in this advocacy and raised the need for an extension most recently in meetings with the ATO Commissioner in late May and with the new Minister last week. 

On 10 June, the ATO issued:  

This means the ATO will not allocate compliance resources in the 2022-23 income year to determine whether the NALI provisions apply to all the income of the fund where it incurs NALE of a general nature on or before 30 June 2023. The ATO has indicated that the extension will “provide the community with greater certainty on our administrative approach while we work on resolving the concerns of industry”. 

 

 

ASFA REGULATORY WATCHLIST

ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations

and other regulatory announcements relevant to superannuation.

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