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Issue 880, 29 November 2022 
In this issue: 

 

Financial reporting and auditing requirements for superannuation funds: Bill introduced 

The Government has introduced into Parliament reforms to extend the current financial reporting and auditing requirements imposed on registrable superannuation entities (RSEs), to align them with those that apply to public companies. 

The reforms, in Schedule 6 of the Treasury Laws Amendment (2022 Measures No. 4) Bill 2022, are a re-introduction of measures from the previous Government’s Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 (see ASFA Action issue 842). That Bill lapsed when Parliament was dissolved for the election earlier this year. 

The measures amend the Corporations Act 2001, Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Australian Securities and Investment Commission Act 2001 so the financial reporting obligations imposed on RSEs are consistent with those that apply to public companies and registered schemes under the Corporations Act. Currently, the requirements in relation to financial reporting and auditing for RSEs are primarily set out in the SIS Act, with some requirements in the prudential standards. 

The Bill sets out the following reforms: 

The reforms are proposed to apply from 1 July 2023. 

The Bill does not include any measures in relation to the ‘Super Transparency Report’ mentioned in a press release  from the Assistant Treasurer and Minister for Financial Services at the same time the Bill was introduced (see item below in this ASFA Action). 

The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 25 January. The Committee is seeking any submissions on the Bill by close of business Wednesday 7 December. If you have any feedback you would like ASFA to consider in relation to this measure in the Bill, please forward it to Fiona Galbraith  by close of business Friday 2 December. 

 

Taxation of defined benefit pensions: Bill introduced to reverse the Douglas decision 

The Government has introduced into Parliament amendments to the tax treatment of certain defined benefit (DB) pensions, to address issues arising from the 2020 decision of the Full Federal Court in Commissioner of Taxation v Douglas.  

The Douglas decision found that invalidity super pensions paid under the Military Superannuation and Benefits (MSB) and Defence Force Retirement and Death Benefits (DFRDB) schemes which commenced on or after 20 September 2007 should be treated as superannuation lump sums for tax purposes, rather than superannuation income stream benefits. 

Treasury consulted on proposed amendments in July-August (see ASFA Action 861) to ensure that: 

The Government has now introduced amendments to address this issue into Parliament in Treasury Laws Amendment (2022 Measures No. 4) Bill 2022. 

In addition, the explanatory material notes that it was identified during the consultation that there are some non-military superannuation schemes that have DBs paid on the permanent incapacity of their members that the trustees had identified do not meet the current pension standards in the Superannuation Industry (Supervision) Regulations 1994. Where these pensions commenced to be paid on or after 20 September 2007, the pension payments have been treated as superannuation lump sums for tax purposes. Where this lump sum tax treatment was already in place prior to the Douglas decision, the amendments in the Bill preserve the prior tax treatment for this cohort for the 2021-22 income year or earlier income years to avoid retrospectively imposing a different (and possibly disadvantageous) tax treatment on these individuals. 

The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 25 January. The Committee is seeking any submissions on the Bill by close of business Wednesday 7 December. If you have any feedback you would like ASFA to consider in relation to this measure in the Bill, please forward it to Julia Stannard by close of business Friday 2 December. 

 

Miscellaneous amendments to Treasury portfolio laws: Bill introduced 

The Government has introduced into Parliament the Treasury Laws Amendment (Modernising Business Communications and Other Measures) Bill 2022. This omnibus Bill includes proposed amendments to address several measures of relevance to superannuation funds that have all been the subject of previous consultation and/or previously introduced into Parliament: 

Schedule 1 also contains amendments to clarify that regulatory bodies in the Treasury portfolio can hold hearings and examinations using technology. These were the subject of consultation during August–September, see ASFA Action issue 866).
 

Schedule 4 does not contain these measures that were part of the September consultation package:

The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 25 January. The Committee is seeking any submissions on the Bill by close of business Tuesday 10 January. 

 

Financial Accountability Regime: penalty provisions 

Senator Nick McKim, on behalf of the Australian Greens, has circulated amendments  to the Financial Accountability Regime Bill 2022. That Bill, together with the Financial Sector Reform Bill 2022, seeks to implement the Financial Accountability Regime (FAR). 

The proposed amendments include civil penalties that would apply at the individual level – that is, to accountable persons   rather than simply at the entity level. The amendments also include a prohibition on an accountable entity indemnifying an accountable person for the consequences of breaching an obligation under the FAR. Senator McKim had previously recommended, as part of the report by the Senate Economics Legislation Committee into the Bills, the imposition of civil penalties for breaches of individuals’ accountability provisions under the FAR. However, the majority Committee report did not recommend the inclusion of civil penalties at the individual level (see ASFA Action issue 874). 

Late last week, the Government indicated it will consult on the potential inclusion of civil penalties at the individual level. 

The Bills – which are packaged with Bills to introduce the Compensation Scheme of Last Resort   remain before the Senate, awaiting debate. 

See ASFA Action issues 874, 871, 868  for background in relation to the FAR. 

 

Expansion of eligibility for downsizer contributions: Bill passed 

A Bill to reduce the eligibility for downsizer contributions from 60 to 55 years, which was a pre-Election commitment from both the current and former govts, has now concluded its passage through Parliament. The Treasury Laws Amendment (2022 Measures No 2) Bill 2022  was passed by the Senate without amendments. The amendment will commence on the first day of the first quarter after the Bill receives Royal Assent – this means the commencement date is most likely 1 January 2023. 

As reported in ASFA Action issue 871, the Superannuation Legislation Amendment (Broadening Contribution Rules) Regulations 2022  were made in late September. These include amendments to the Superannuation Industry (Supervision) Regulations 1994 and the Retirement Savings Account Regulations 1997 to allow funds and retirement savings accounts to accept downsizer contributions for individuals aged 55 years or over. The amendments to the Regulations will apply from the date the legislative amendments commence. 

 

Increased penalties for data breaches: Bill passed 

The Privacy Legislation Amendment (Enforcement and Other Measures) Bill 2022 has concluded its passage through Parliament and is awaiting Royal Assent. As reported in ASFA Action issue 876, the Bill proposes significant increases to the maximum penalties for serious or repeated privacy breaches. It also provides for enhancements to the enforcement powers of the Australian Information Commissioner and the information sharing powers of the Commissioner and the Australian Communications and Media Authority. 

Last week the Senate Legal and Constitutional Affairs Committee tabled a report  from its inquiry into the Bill, recommending that the Bill be passed with some amendments. These included clarifying the definitions of key thresholds around ‘serious interference’ and ‘repeated’ interference with the privacy of an individual. These amendments were not supported as the Bill progressed through the Senate, on the basis they were better considered as part of the separate, broader review of privacy legislation that is currently underway (see ASFA Action issue 833). 

 

YFYS performance test for faith-based products: proposed modification withdrawn 

The Government has withdrawn from the Treasury Laws Amendment (2022 Measures No 3) Bill 2022  a proposed modification to the Your Future, Your Super (YFYS) performance test for faith-based products (see ASFA Action issue 861 for background). 

As reported in ASFA Action issue 879, while the majority of the Senate Economics Legislation Committee recommended the passage of the Bill, the Coalition and Australian Greens members of the Committee recommended that the YFYS performance test modification not proceed. 

The Government has indicated  that removal of the measure from the Bill “will enable the Government to consider the treatment of faith-based superannuation products as part of the broader review of the Your Future, Your Super reforms”. 

Late yesterday the House of Representatives agreed to the Senate’s removal of the YFYS measure from the Bill and its passage through Parliament was concluded. The Bill did not contain any other superannuation-related measures. 

 

Increase in penalty unit: Bill passed 

The Crimes Amendment (Penalty Unit) Bill 2022, which proposes to increase the amount of a Commonwealth penalty unit from $222 to $275, has been passed by both houses of Parliament and now awaits Royal Assent (see ASFA Action issue 878 for background on this Bill). 

 

Super Transparency Report: Government announcement 

The Assistant Treasurer and Minister for Financial Services has announced  that the Government will introduce a ‘Super Transparency Report’. 

The Government has not yet released any additional detail in relation to the Report, however it has been reported in the media that this it will involve APRA publishing an annual report bringing fund-level expense information into a single document that will include details of donations, directors’ fees, executive remuneration, property fees, investment management costs and marketing expenditure, as well as dividends paid to related parties. The media reports indicate that the Government intends the Report to be in place for the next financial year. 

 

Annual member meeting notice regulations: notice of disallowance motions 

As reported in ASFA Action issue 876, a motion by Independent Senator Pocock to disallow the Superannuation Industry (Supervision) Amendment (Annual Members’ Meetings Notices) Regulations 2022 was defeated on 25 October. Those regulations amend the disclosure requirements for registrable superannuation entities’ annual members’ meeting notices.
Subsequently, notice has been given of a further two motions to disallow the regulations, by: 

 An attempt by the Opposition to introduce into the Treasury Laws Amendment (2022 Measures No 3) Bill 2022  amendments that would have effectively reinstated the original annual members’ meeting notice requirements in legislation (rather than regulations) was unsuccessful. 

See ASFA Action issues 876, 870, 868, and 867 for background). 

 

APRA to intensify supervision re non-compliance with CPS 234: Information Security 

APRA has indicated it will “intensify its supervision of all entities not meeting the Information Security Prudential Standard CPS 234”. 

CPS 234 took effect from 1 July 2019 and contains requirements designed to ensure APRA-regulated entities have in place appropriate information security capabilities to be resilient against information security incidents. 

Providing the update in the context of advising APRA’s interim response to the recent Medibank Private cyber breach, APRA Member Suzanne Smith said: 

“Recent cyber-attacks reinforce the need for ongoing vigilance and focus by boards on operational resilience. They are a stark reminder for boards to ensure they can answer these fundamental questions: Do you know what data you are holding? Do you know where it is? How do you know it is safe? And do you need to retain it?  

Cyber security is a highly significant risk area for all regulated entities and we remind banks, insurers and superannuation funds to remain vigilant in order to protect their beneficiaries and the Australian community”. 

 

Updated prudential standards: governance, investment governance 

APRA has formally determined two prudential standards relevant to superannuation that will take effect on 1 January.  

 

National Housing Infrastructure Facility: broadened remit 

The Government has registered the National Housing Finance and Investment Corporation Investment Mandate Amendment (Social and Affordable Housing) Direction 2022.
This instrument broadens the remit of the National Housing Infrastructure Facility (NHIF), to provide flexibility for NHIF financing to be used to attract more private capital into the social and affordable housing sector, including from superannuation funds and other institutional investors. 

This implements an announcement made following the Government’s Jobs + Skills Summit in September. Treasury conducted a brief consultation on the amendments earlier in November (see ASFA Action issues 878 and 867 for background). 

 

 

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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