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Issue 573, 2 July 2015 

In this issue: 


Terminal medical condition: regulations extend certification period 

On 29 June 2015, the government registered the Tax and Superannuation Laws Amendment (Terminal Medical Conditions) Regulation 2015 (the regulation). The regulation implements the government’s announcement in May 2015 that it would extend the certification period for a terminal medical condition for the purposes of releasing benefits from superannuation and the tax-free treatment of those benefits. 

The Income Tax Assessment Act 1997, in conjunction with the Income Tax Assessment Regulations 1997 (ITA Regulations), provide that a superannuation lump sum paid to a person who has a terminal medical condition is tax-free. 

The Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) contain a condition of release that allows persons with a ‘terminal medical condition’ to access the full amount of their superannuation benefits without restriction. 

The ITA Regulations and SIS Regulations each contain the same definition of terminal medical condition. This definition currently prescribes that a terminal medical condition exists if two registered medical practitioners, at least one of whom is a specialist, have certified that a person suffers from an illness or injury which is likely to result in their death within the certification period of 12 months or less. 

The regulation amends the definition of terminal medical condition in the ITA Regulations and the SIS Regulations to extend the maximum certification period from 12 to 24 months. The amendment commences on 1 July 2015. 

The explanatory statement to the regulation notes that it is common for superannuation trustees to also offer members insurance products that pay a benefit in the event of a terminal medical condition, and these products use similar definitions based on a 12-month certification period. 

The regulation makes no amendment to require that such insurance products be offered on a 24-month certification period. Regulation 4.07D of the SIS Regulations provides that a trustee must not provide an insured benefit unless the insured event is consistent with certain conditions of release (including on the grounds of a terminal medical condition), to ensure that insured benefits are able, in all circumstances, to be released to members. A 12-month period for insurance purposes is consistent with the condition of release based on a 24-month certification period, because the insurance benefit would be able to be released to the affected member. 

The government undertook a limited consultation on the regulation with superannuation industry stakeholders (including ASFA) and cancer-related charities. This consultation identified that superannuation funds are aware of the need to inform affected members of any differences between their superannuation and insurance benefits, and of any impacts that might have for the member (including, for example, the need to retain money in the superannuation fund to pay insurance premiums). 


Income tax relief for MySuper transfers within a fund 

On 29 June 2015, the Assistant Treasurer, the Hon. Josh Frydenberg MP, announced that the government will amend the income tax law to ensure that the existing MySuper tax relief covers the consequences of transfers within a superannuation fund, where the transfer is required under the law. 

Superannuation funds are required to transfer the existing balances of fund members who are in default products to a MySuper product by 1 July 2017. MySuper products provide a simple, cost effective default superannuation product. 

Tax relief is currently provided for transfers into a MySuper product in a different fund, but not for transfers within the same fund structure. As a result, default members of some funds may incur adverse and unintended consequences when their account balances are transferred. 

Taking effect from 29 June 2015, superannuation funds that transfer their default members’ balances to a MySuper product within their fund structure will also be able to access this tax relief. Fund members will benefit from the extension of the MySuper tax relief. 

This change ensures the policy intent of the MySuper reforms is delivered, and that the retirement savings of members are not diminished when their balances are transferred. 

Scope of the relief 

ASFA welcomes the Assistant Treasurer’s announcement. ASFA identified this as an issue in 2013 with the advent of MySuper, and advocated that relief was needed. 


APRA letter: proposed changes to governance prudential framework 

On 26 June 2015, APRA sent a letter to all registrable superannuation entity (RSE) licensees, outlining proposed changes to APRA’s governance prudential framework. 

As advised in ASFA Action Issue 572, the government recently released draft legislation that will require boards of all APRA-regulated superannuation funds to have an independent chair and at least one-third independent directors. 

Funds will also be required to disclose in their annual reports on an ‘if not, why not’ basis whether they have a majority of independent directors. 

To support the government’s proposed governance reforms, APRA is proposing amendments to Prudential Standard SPS 510 Governance and the introduction of a new standard, Prudential Standard 512 Governance Transition. 

APRA’s letter indicates that it is proposing to provide additional guidance in key areas, including amendments to SPS 510 to reflect the independent director requirements such as: 

The letter to trustees is available from the APRA website. 


Super fund lookup and member verification system information display issues 

The Australian Taxation Office (ATO) has advised ASFA that it is currently experiencing ongoing systems issues with the display of some fund’s regulation details on super fund lookup (SFLU). There are also issues with some member’s details not displaying correctly on the member verification system (MVS). 

These systems issues mean that in some cases, funds and administrators may not be able to automatically verify a fund’s regulation details through Super Fund Lookup, and, in other cases, it may not be possible to automatically verify a fund’s membership through the Member Verification system. 

The ATO has advised that it is working to resolve these issues, and has in place alternative processes for funds to contact the ATO to verify a fund’s regulation status and SMSF member details. 


New FOFA regulations 

On 29 June 2015, the government registered the Corporations Amendment (Financial Advice) Regulation 2015, which come into effect on 1 July 2015. 

The regulation makes a number of amendments to the Corporations Regulations 2001, in relation to the Future of Financial Advice (FOFA) provisions of the Corporations Act 2001. 

The government has consulted on a number of the changes previously, and they are intended to improve the operation of FOFA by alleviating a number of unintended consequences of the original FOFA laws. 

The changes include clarification of the treatment of advice to employers about default funds. The effect of the amendment is that the person providing the employer with financial advice about default funds must treat the employer as a retail client, and as a result, is subject to the FOFA provisions in relation to that advice. 


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