Monthly technical roundup - April 2024

Paid Parental Leave amendments

On 20 March 2024, the Paid Parental Leave Amendment (More Support for Working Families) Act 2023 (Cth) received Royal Assent.

The Act implements the second tranche of changes to the eligibility criteria of the Paid Parental Leave (PPL) scheme by:

• extending the maximum entitlement of the PPL scheme by two weeks each year from 1 July 2024, reaching a total of 26 weeks from 1 July 2026
• increasing the reserved period for certain claimants who are partnered at the time of their first effective claim by one week each year from 1 July 2025, reaching a total of 4 weeks from 1 July 2026
• increasing the number of days that can be taken concurrently by multiple claimants to 4 weeks by 1 July 2025
• making minor and technical amendments relating to eligibility criteria for claimants in exceptional circumstances.

First Tranche of Quality of Advice reforms

On 27 March 2024, the Government announced that it had introduced the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Cth) to Parliament which contained the first tranche of legislation aimed at reducing unnecessary regulatory red tape and increasing the accessibility and affordability of financial advice.

The reforms contained in the Bill, which implements the Government’s response to the Quality of Advice Review include:

• clarifying the legal basis in the Superannuation Industry (Supervision) Act 1993 (Cth) for superannuation trustees to pay financial advice fees from a member’s superannuation account at the request of the member, as well as provide legal certainty that payments of certain personal advice fees by a superannuation trustee are deductible from the superannuation fund’s assessable income
• streamlining the ongoing fee renewal and consent requirements, including the removal of the requirement to provide a fee disclosure statement
• providing more flexibility around how the Financial Services Guide (FSG) requirements can be met
• simplifying and clarifying the provisions governing conflicted remuneration in the Corporations Act 2001 (Cth), such as the removal of the exception to conflicted remuneration rules for the issue of financial products where advice has not been provided in the previous 12 months.

If passed, the amendments contained in the Bill will come into effect at various times after it receives Royal Assent.

CSLR cost estimates released

On 18 March 2024, the Government registered the two legislative instruments below, which contained the estimated costs of the Compensation Scheme of Last Resort’s (CSLR) first two levy periods.

• Corporations (Financial Services Compensation Scheme of Last Resort - First Levy Period Cost Estimates) Determination 2024
• Financial Services Compensation Scheme of Last Resort Levy (Collection) (Initial Cost Estimates for 2024-25 Levy Period) Determination 2024

Below is a summary of the estimated cost to each sub-sector for the first (2024) and second (2024-25) levy periods:

*The costs to each associated sector for the first levy period will be funded by the Government.

Buy Now, Pay Later exposure draft legislation released

On 12 March 2024, the Government announced the release of an exposure draft bill, regulations and explanatory material seeking feedback on the proposed regulation of Low Cost Credit Contracts (LCCC), which includes Buy Now, Pay Later (BNPL) arrangements.

The Bill amends the National Consumer Credit Protection Act 2009 (Cth) (the Credit Act) and the National Credit Code to bring LCCC into the existing regulatory framework, which will subject LCCC providers to the:

• licensing requirements, such as to hold and maintain an Australian credit license, and complying with the relevant licensee obligations
• mandatory disclosure obligations relating to interest rates and charges if the LCCC provider charges interest on the provision of credit

LCCC providers can choose whether to comply with the modified Responsible lending obligations regime for LCCCs, or with all of the existing responsible lending requirements.

The consultation period closed on 9 April 2024.

Super defined benefits and Division 296 tax

On 15 March 2024, the Government released exposure draft regulations and an explanatory statement seeking industry feedback on its proposed provisions to enable Division 296 tax to be calculated for interests in a defined benefit scheme, to ensure commensurate treatment is applied to defined benefit superannuation interests.

This includes outlining methods to value defined benefit interests as well as modifying the Division 296 earnings formula to appropriately capture notional contributions to defined benefit interests.

Additionally, existing methods for calculating notional contributions for defined benefit interests are updated in the draft regulations to reflect current economic limits, as these methods are out-of-date and do not reflect the current social and economic climate.

Submissions can be made until 26 April 2024.

Proposed transfer balance cap amendments for defined benefit income streams

On 3 April 2024, the Government released an exposure draft consulting on proposed changes to the transfer balance cap legislation, aimed at addressing unintentional transfer balance cap issues that may arise when a member’s capped defined benefit income stream is moved to another superannuation fund due to a merger or successor fund transfer.

Under the current legislation, where a capped defined benefit income stream ceases and a new one recommences, the value of the new capped defined benefit income stream that is credited to the member’s transfer balance account may be higher than the original income stream, and this could be detrimental to some members.

The proposed legislation amends the transfer balance credit provisions so that the credit and debit arising due to a successor fund transfer for individuals with a capped defined benefit income stream are equal, ensuring the member’s transfer balance account is not impacted by the transfer.

These amendments would apply retrospectively to transfer balance credits resulting from successor fund transfers occurring on or after 1 July 2017. However, in specific cases where members might be disadvantaged, such as some holders of life expectancy and market‑linked pensions, the amendments wouldn’t apply retrospectively.

The consultation period closes on 24 April 2024.
 

Medicare levy lump sum exemption

On 5 April 2024, the Government released exposure draft legislation seeking feedback on a proposal which was outlined in the 2023–24 Federal Budget to exempt certain lump sum payments in arrears from the Medicare levy from 1 July 2024.

If legislated, the Bill would amend the Medicare Levy Act 1986 (Cth) to prevent low‑income earners from paying a higher Medicare levy amount as a result of receiving an eligible lump sum payment such as compensation for underpaid wages.

To be eligible for the exemption, the individual must:

• qualify for a reduction in the Medicare levy in the two most recent years, or income year, to which the lump sum accrues
• satisfy the eligibility requirements of the existing lump sum payment in arrears tax offset, which includes that the lump sum constitutes at least 10 per cent of their income in the year of receipt.

The consultation period is open until 23 April 2024.

Superannuation performance test

On 8 March 2024, the Government announced the release of a consultation paper seeking feedback on design options to improve the sophistication of the Annual Superannuation Performance Test (the test) in the longer term.

The Government stated they had evidence that the test may have influenced the investment decisions of trustees to the detriment of members, including discouraging investments in certain asset classes that may otherwise be in the best interest of their members.   

In considering enhancements to the test, the Government is seeking feedback on four broad options to improve the test, with the aim of making the test sector-neutral, so as not to create a barrier to invest in assets that provide strong returns for its members. The options include:

• Status quo – retain and improve the existing testing framework
• Alternative single-metric – applying a different single-metric framework that would better assess performance, such as using the Sharpe ratio, a peer comparison or a simple-reference portfolio frontier
• Multi-metric framework – applying a multiple metric framework that would provide a more fulsome assessment of performance, such as aligning the framework with the APRA heatmaps
• Alternative framework – allowing stakeholders to put forward an alternative proposal they see as most fitting to improve the operation of the performance test

The consultation period closes on 19 April 2024.

Aged care taskforce final report released

On 12 March 2024, the Government announced the release of the Final report of the Aged Care Taskforce (the Report), which examines the recommendations proposed by the Aged Care Taskforce to support an aged care system that is sustainable and financially sound.

The Report contained 23 recommendations which were centred around supporting older people to age in their homes, funding measures that are sustainable and equitable, and proposals to drive innovation and transparency.

Some of the recommendations that may impact the financial planning and advice industry include:

• establishing a new Support at Home Program to address issues with home care and to better support older people to age in their own home
• establishing a fee-for-service model with clearly defined service lists, so that home care participants only pay for services received
• continue the significant role of government funding of aged care services and not recommend a specific tax or levy
• to conduct an independent review of the accommodation funding model, and potentially phasing out refundable accommodation deposits as a form of payment
• grandfathering current aged care arrangements to ensure existing aged care participants are not adversely affected by any changes. 

Super fund expense data to be published

On 27 March 2024, APRA announced that it intends to publish data on how members’ funds are being invested and spent by superannuation trustees.

The initiative comes after APRA consulted with industry stakeholders last year, where APRA sought feedback on its proposals to treat some data it collects on fund expenses and asset allocation as ‘non confidential’, in order for APRA to make it available for publication.

From August 2024, the new expenditure data to be published will provide details that include:

• the breakdown of expenses for the whole industry, and for each fund, with more detailed categories including administration, advice, member services, marketing, trustee board, and other corporate overheads
• recipients of payments made by each fund to industrial bodies and related parties, relating to promotion, marketing or sponsorship expenses and any political donations.

Additionally, APRA will publish information on the type of investments the industry holds in relation to property and infrastructure, alternative strategy funds, listed equity, and private equity.

Wholesale investor test inquiry

The Parliamentary Joint Committee on Corporations and Financial Services commenced an inquiry on 20 March 2023 into the wholesale investor test for offers of securities and the wholesale client test for financial products and services (wholesale investor/client tests).

The inquiry will:

• review the current wholesale investor/client tests
• consider any proposals to change the wholesale investor/client tests
• consider any potential adjustments to proposals to change the wholesale investor/client tests to address the concerns of stakeholders.

The consultation period closes on 15 May 2024. The committee intends to report to the Parliament by the end of 2024.