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Issue 816, 3 August 2021 
In this issue: 

 

Common ownership and capital concentration: new Parliamentary inquiry 

The Treasurer has asked the House of Representatives Standing Committee on Economics to conduct an inquiry into the implications of common ownership and capital concentration in Australia. 

According to the terms of reference, the Committee will inquire into matters relating to: 

A date for the Committee to report to Parliament does not yet appear to have been settled, however submissions to the inquiry are due by 13 September. If you have any feedback you would like ASFA to take into account in relation to the inquiry, please forward it to Byron Addison by close of business Monday 30 August. 

 

Your Future, Your Super stapling: employer penalties – draft ATO instruments 

The ATO has released two draft legislative instruments outlining its proposed compliance approach to the penalties that can be imposed where an employer fails to comply with the ‘stapling’ measure introduced under the Your Future, Your Super (YFYS) reforms. 

The YFYS stapling measure broadly requires that where a new employee is ‘stapled’ to an existing superannuation fund and does not choose a fund to receive contributions, their employer is required to make contributions on behalf of the employee into the ‘stapled’ superannuation fund. 

Where an employer fails to comply with the stapling rules, penalties apply under the Superannuation Guarantee Administration Act 1992, including the choice of fund rules. In relation to these penalties, the ATO has now issued:  

This applies to decisions by the Commissioner about whether or not to reduce an employer’s individual SG shortfall for an employee in circumstances where the employer (or their agent) was notified by the Commissioner that a fund was a stapled fund for an employee, the employer attempted to make SG contributions to that stapled fund but they were not accepted, the employee did not have a chosen fund at the time the employer attempted to make the SG contribution, and the employer subsequently made the contribution to a fund after the quarterly due date. 

SPR 2021/D2 notes that during the period 1 November 2021 to 31 October 2022, the Commissioner will apply a transitional approach in these circumstances and will reduce the employer’s SG shortfall to nil if the employer made reasonable attempts to comply with the choice of fund rules when making the late SG contributions. 

If you have any feedback you would like ASFA to consider in relation to the draft instruments, please forward it to Fiona Galbraith by close of business Wednesday 11 August. 

 

Implementation of Your Future, Your Super: APRA expectations and plan 

APRA has written to registrable superannuation entity (RSE) licensees to outline its expectations and implementation plan in relation to the implementation of the Government’s Your Future, Your Super (YFYS) reforms. The reforms, which were announced in the October 2020 Budget, came into effect on 1 July 2021 (see ASFA Action issue 810 for background). 

APRA notes that the best financial interests duty (BFID) sharpens the focus of all RSE licensee decisions, including on expenditure and investments.  

Given the changes to the law are now in effect, APRA is of the view that all RSE licensees must have already: 

APRA notes that its implementation of the YFYS reforms will involve administering the performance test, enhancing standards on investment governance and reporting on the findings from its thematic review of RSE licensee expenditure management.  

Some key points in relation to APRA implementation of the YFYS reforms are as follows: 

 

Superannuation contributions: draft amendments to ATO ruling 

The ATO is consulting on amendments to an existing ruling about superannuation contributions. 

Taxation Ruling TR 2010/1: Superannuation contributions outlines the meaning of ‘contribution’ and how and when a contribution is made, as well as aspects of the tax rules in relation to deduction of personal contributions. 

The ATO has released a draft consolidation of proposed changes to TR 2010/1 - TR 2010/DC - which: 

If you have any feedback that you would like ASFA to consider in relation to the proposed amendments, please forward it to Julia Stannard by close of business Wednesday 18 August. 

 

Non-arm’s length expenditure: ATO ruling 

The ATO has finalised a ruling to clarify recent legislative amendments in relation to non-arm’s length income (NALI) and the treatment of non-arm’s length expenditure (NALE) incurred by the trustee of a superannuation fund. NALI is taxed at the top marginal rate, rather than the concessional 15 per cent rate that typically applies to the income of a complying superannuation fund. 

Law Companion Ruling LCR 2021/2: Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement clarifies how recent amendments to the Income Tax Assessment Act 1997 (ITAA 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. 

The amendments in question were made by the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Act 2019 (see ASFA Action issue 721 for background) and seek to ensure that the NALI rules for superannuation entities apply in situations where and entity incurs NALE in gaining or producing the income. The amendments apply in relation to income derived in the 2018-19 income year and later income years, regardless of when the scheme was entered into. 

LCR 2021/2 provides a number of examples of how the NALE provisions will be applied. While most of the examples involve self-managed superannuation funds, the ATO has made it clear that the NALI/NALE provisions are also applicable to APRA-regulated superannuation funds. In particular, the ATO has noted: 

It is particularly important for trustees of large APRA-regulated superannuation funds to have appropriate internal controls and processes in place to enable trustees to demonstrate that they have made reasonable attempts to determine arm’s length expenditure amounts when making acquisitions from related parties. Appropriate internal controls and processes will be dependent on several factors including the size and nature of the arrangement. Having appropriate controls and processes should form part of the fund’s tax risk management and governance framework. 

Where the ATO determines that the NALE incurred by a fund has a sufficient nexus to all of the ordinary and/or statutory income derived by the fund, the nexus between the expenditure and all the income derived by the fund is sufficient for all the income to be NALI. 

LCR 2021/2 acknowledges that a “finding that general fund expenses are non-arm’s length is likely to have a very significant tax impact on the complying superannuation fund, even where the relevant expenses are immaterial”. For this reason, from 1 July 2022, where the ATO applies any compliance resources for such general fund expenses, they will only be directed, for a large APRA-regulated superannuation fund: 

toward reviewing supporting documentation that evidences that appropriate internal controls and processes are in place and that reasonable steps were taken to determine an arm’s length expenditure amount. 

The ATO notes that this compliance approach does not impact the approach set out in 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. PCG 2020/5 sets out a compliance approach with respect to non-arm’s length expenditure of a general nature that has a sufficient nexus to all ordinary and/or statutory income derived by the complying superannuation fund that is incurred on or before 30 June 2022. 

See ASFA Action issues 758 and 723 for background in relation to the development of LCR 2021/2, (which was released in draft as LCR 2019/D3) and PCG 2020/5. 

 

Consequential amendment of RG 221 Facilitating digital financial services disclosures 

ASIC has made minor consequential amendments to RG 221Facilitating digital financial services disclosures (RG 221) to include the written consent to deduct fees under an ongoing fee arrangement among lists of disclosures that may be notified or given to a client in electronic form or sent electronically.  

This follows the commencement from 1 July 2021 of advice fee consent requirements and consequential amendment of other ASIC guidance as ASIC announced in June 2021. The revisions, being minor in nature, did not result in amendment of the RG 221 issue date. 

As RG 221 is focused on disclosures under Parts 7.6 – 7.9 of the Corporations Act 2001, the written consent to deduct fees under a non-ongoing fee arrangement is not included in its lists of disclosures. This is because that consent is provided for under section 99FA of the Superannuation Industry (Supervision) Act 1993. 

However, that consent may also be given electronically and this is outlined in a note within the RG 221 Appendix on page 35. 

 

TPD insurance: ASIC report 

ASIC has released a report on how life insurers have addressed consumer harms identified in Report 633 Holes in the safety net: A review of TPD insurance claims  (REP 633). 

Report 696 TPD insurance: progress made but gaps remain (REP 696) focuses on steps taken by nine life insurers, covering around 75 per cent of the Australian TPD insurance market. REP 696 provides an update on insurers’ progress and outlines the key changes they have made and are planning to make to address consumer harm. The key changes primarily relate to the use of restrictive TPD definitions and onerous claims handling practices. While some insurers are more advanced than others, ASIC’s review found that all nine insurers: 

REP 696 also sets out residual gaps and areas where it considers improvements are still needed, particularly in the ability of insurers and superannuation trustees to use data to improve both product design and claims handling. 

ASIC Deputy Chair Karen Chester said that while REP 696 focuses on insurers: 

…superannuation trustees must also engage with TPD design issues and work on lifting standards, for the benefit of their members. While some trustees have taken positive steps in this direction, others have more work to do. Of the nine million Australians that have TPD cover most hold it through their superannuation fund.  Trustees are clearly in the ‘driver’s seat’ in delivering good outcomes for their members through well designed TPD cover. 

REP 633 was released in late 2019 -  see ASFA Action issue 724 for background. 

 

Remission of additional Superannuation Guarantee charge: draft guidelines 

The ATO is consulting on draft guidance in relation to the remission of additional Superannuation Guarantee (SG) charges imposed where an employer fails to provide SG statements or information to the ATO when required to do so. 

Under Part 7 of the Superannuation Guarantee Administration Act 1992, the ATO can impose additional SG (the ‘Part 7 penalty’) if: 

Law Administration Practice Statement PS LA 2021/D1: Remission of additional superannuation guarantee charge sets out the principles that an ATO officer should take into account and the process they should follow when deciding whether to make a decision about remission of a penalty. 

The ATO is seeking comments on the draft guidance by 27 August. 

 

 

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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