Monthly technical roundup - July 2024

2023-24 Federal Budget superannuation and small business support measures

On 28 June 2024, the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Act 2024 (Cth) received Royal Assent.

The amendments contained in the act include:

Non-arm’s length expense rules for superannuation entities

The act amends the non-arm’s length income (NALI) rules where a superannuation fund incurs non‑arm’s length expenses (NALE), as announced in the 2023 Federal Budget. Key details of the amendments include:

• NALEs are either specific or general expenses. A general expense is one that is not related to gaining or producing income from an asset of the fund, whereas a specific expense is any other expense
• for general expenses, the amount of income that is taxed as NALI is twice the difference between the amount that would have been incurred had the parties been dealing at arm’s length and the amount that was actually charged to the fund
• the act does not make any changes to the treatment of specific expenses
• the total amount taxed as NALI is capped at the fund’s taxable income for the year, not including assessable contributions or related deductions
• the changes apply to income derived after 1 July 2018, but not expenses incurred before 1 July 2018
• large APRA-regulated funds, including exempt public sector superannuation funds, pooled superannuation trusts, and approved deposit funds, are exempt from the NALI rules to the extent they relate to NALE.

$20,000 instant asset write-off for small businesses

The act increases the instant asset write-off threshold from $1,000 to $20,000, allowing small businesses (with an aggregated annual turnover of less than $10 million) to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that were first used or installed ready for use between 1 July 2023 and 30 June 2024. This is a temporary measure to support small businesses improve their cash flow and reduce compliance costs.

The amendments relating to NALI and NALE and the small business write-off came into effect on 1 July 2024.

Delivering Better Financial Outcomes

On 4 July 2024, the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Cth) passed both houses and now awaits Royal Assent.

The act implements the first tranche of the Government’s response to the Quality of Advice Review (QAR) aimed at reducing unnecessary regulatory red tape and increasing the accessibility and affordability of financial advice. The following notable changes in the bill commence the day after Royal Assent:

1. 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

The amendments apply to costs charged on or after six months after commencement.

2. streamlining the requirements for ongoing fee renewal and consent, and removing the need to provide a fee disclosure statement

The amendments apply to any new arrangements entered into on and after six months after commencement, and any existing arrangements on and after the anniversary day of those arrangements

3. providing more flexibility in terms of how the Financial Services Guide requirements can be met.

The amendments to simplify and clarify the provisions governing conflicted remuneration in the Corporations Act 2001 (Cth) will commence immediately after the commencement of changes (2) and (3) above. An example of this change is 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.

Buy Now, Pay Later

On 5 June 2024, the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 was introduced to Parliament and subsequently, the bill was referred to the Senate Economics Legislation Committee for inquiry where the report was due by 24 June 2024. The reporting date has since been extended to 2 August 2024.

The bill amends the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) and the National Credit Code to bring Low Cost Credit Contracts (LCCC), which include Buy Now, Pay Later (BNPL) arrangements, into the existing regulatory framework, thus subjecting 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 only apply if the LCCC provider charges interest on the provision of credit
• existing anti-avoidance prohibitions to prevent LCCC providers from structuring their business models to avoid regulation.

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

If the bill is passed, extension of the NCCP Act’s application will commence the day after the act receives Royal Assent and the modified RLO will commence on a single day to be fixed by Proclamation. If the provisions do not commence within six months from the day of receiving Royal Assent, they will commence on the day after that six month period.

Delivering Better Financial Outcomes Tranche 1 – Draft Regulations

On 11 June 2024, the Government released exposure draft regulations on the Treasury Laws Amendment (Delivering Better Financial Outcomes) Regulations 2024, seeking feedback on the consequential amendments to support the implementation of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 which contained the first tranche of the Government’s response to the QAR.

If enacted, the regulations will:

• remove the requirements related to Fee Disclosure Statements, update record keeping obligations for new consent requirements and remove references to civil penalties
• align requirements for Financial Services Guides and Website Disclosure Information as well as making other consequential amendments
• support the requirements for written information or documentation as prescribed in section 99FA of the Superannuation Industry (Supervision) Act 1993 (Cth) to continue to be met electronically
• ensure that the requirements for informed consent apply for benefits given in relation to a general insurance product where personal advice is provided
• simplify regulations relating to conflicted remuneration to bring them in line with the changes contained in the bill.

Submissions closed on 8 July 2024.

Helping Australians get a better deal on banking products

On 15 June 2024, the Government announced it is implementing measures to help bank customers get better rates on their mortgages and savings accounts and this was in response to two inquiries conducted by the Australian Competition and Consumer Commission (ACCC).

The Government aims to make it easier for customers to find the best deals and the actions they intend to take include:

• requiring banks inform their customers when the interest rate changes on their transaction or savings account, as well as improving disclosure requirements for basic deposit products
• requiring financial product comparison websites to improve their disclosure of how products are ranked and disclose the financial relationships they have with recommended product providers
• helping banks to improve the way in which customers are informed about bonus interest rate offers and when an introductory lower interest rate period ends.

The Government also announced a review that will be led by the Council of Financial Regulators in consultation with the ACCC, to examine the challenges faced by small and medium sized banks, focussing on the role they play in providing competition in the sector.

There will also be a focus on the market and regulatory trends that impact these banks, and the review will provide suggestions to improve regulation and ensure that oversight of these banks appropriately balances competition, innovation, and stability.

Fake ASIC branding on social media scams

On 6 June 2024, ASIC issued a warning to consumers about scams using fake ASIC branding on social media to promote fake investments, stock market trading courses and other scam related activities.

ASIC has received reports about ads seen on social media platforms for a ‘Stock Trading Master Class’, which displays the ASIC logo and claims to be sponsored by ASIC. Consumers are taken to a private Whatsapp group called Lonton Wealth Management Center when they click on the link. ASIC added the entity to its Investor Alert List on 21 May 2024.

These social media advertisements are misleading consumers by:

• displaying the ASIC logo, even though ASIC has no association with the provider
• falsely claiming that the stock trading master class is sponsored/endorsed by ASIC.

ASIC is also aware of repeated cold calls from people claiming to be from ASIC who are attempting to engage with consumers in obtaining a refund on an investment.

Key points highlighted by ASIC include:

• ASIC does not endorse or promote any investment training or platforms
• ASIC does not cold call consumers about investments or refunds on investment
• ASIC is not associated with any investment offerings and will never ask investors to pay for trading taxes or pay to release investment funds.

Contact details were also provided for consumers seeking support.

Experienced provider pathway notification obligations

On 26 June 2024, ASIC issued a reminder to Australian Financial Services (AFS) licensees about the new obligations for advisers wishing to rely on the experienced provider pathway.

From 21 September 2023, financial advisers who are eligible for the experienced provider pathway have been able to rely upon the pathway as a means to satisfy the qualifications standard by making a written declaration to their licensee.

ASIC stated that if a declaration was given to the authorising licensee prior to 1 July 2024, and the experienced provider is still authorised by that licensee on 1 July 2024, the licensee must notify ASIC within 30 business days after 1 July 2024.

Where a declaration is given to the licensee on or after 1 July 2024, the licensee must notify ASIC within 30 business days after the day the declaration is given to the licensee.

Additionally, ASIC stated the Financial Advisers Register (FAR) will not display whether an adviser is relying on the experienced provider pathway.

AFS licensees urged to correct records on the FAR

On 1 July 2024, ASIC announced that it is urging AFS licensees to check the accuracy of information recorded about their financial advisers on the FAR, following a spot check that identified inconsistencies and errors in some information provided.

ASIC is calling on licensees to focus on advisers’ approved qualifications, their ability to provide tax (financial) advice, and business contact details, noting that in many cases, qualifications and training courses were identified as being incorrectly marked as ‘approved’ on the FAR.

As part of its focus ahead of the 1 January 2026 deadline for all financial advisers to comply with the qualification standard (by completing an approved degree or by accessing the experienced provider pathway), ASIC also announced that a compliance program will start from 1 August 2024 to ensure that information regarding approved qualifications on the FAR is correct, and that enforcement action may be taken if required.

In response to the issues identified, and in recognition of the experienced adviser pathway, ASIC also made changes to the FAR viewed by the public. From 1 July 2024, the FAR will display information about an adviser’s relevant qualifications, but will not show whether it meets the requirements of an ‘approved’ qualification.

Media Release: Super trustees urged to strengthen oversight of retirement strategy implementation

On 2 July 2024, in response to ASIC REP 784 (a pulse check on retirement income covenant implementation), ASIC and APRA jointly called on superannuation trustees to boost efforts to track and measure the impact of their strategies to improve retirement outcomes for their members.

While trustees have made progress, the report showed that significant gaps still remained 12 months after the findings of a joint APRA and ASIC thematic review were released, which identified a lack of urgency for trustees to embrace the intent of the Retirement Income Covenant (the covenant).

ASIC and APRA conducted a follow-up survey, asking trustees to respond to the review to assist members who have either retired or are approaching retirement, as required under the covenant which was introduced in 2022.

Key observations from the survey include:

• three quarters of trustees indicated that measuring retirement outcomes was a priority, but little progress had been made to measure and track retirement income strategies. A small number of trustees who responded said tracking the effectiveness of retirement-focused assistance to members was a priority
• a large portion of the trustees who responded were taking steps to better understand the retirement needs of their members, and had make an effort to promote access to retirement-focussed information.

Trustees who responded also noted that they faced some challenges in implementing the covenant, such as uncertainty around privacy, security, and the financial advice framework. They were also concerned over the costs associated with collecting member data, as well as a lack of member engagement and financial capability.

Further guidance published on the Your Future, Your Super Performance Test

On 7 June 2024, APRA announced its publication of new and updated frequently asked questions (FAQs) on the Your Future, Your Super (YFYS) Performance Test.

The new FAQs provide clarification on topics regarding administration of the 2024 Performance Test, including:

• the treatment of Separately Managed Accounts
• how “Not Specified” and “Not Applicable” domicile type and listing type reporting should be treated
• benchmark representative administration fees and expenses in the 12 months to March 2024.

Core prudential standard strengthened to support outcomes for members

On 4 July 2024, APRA announced the enhancement of one of its core prudential standards for the governance of strategic planning and outcomes for superannuation members. The updated Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) and related guidance, which come into effect from 1 July 2025, reinforces the duty of trustees to act in their members’ best financial interests by ensuring their members’ interests are front-and-centre in trustees’ financial resource management, strategic and business planning, implementation of the retirement income covenant and fund transfers.

Additionally, the updated standard sets clear guidance for trustee expenditure, including:

• the design principles for a robust expenditure management framework, such as board oversight, active monitoring and review, and alignment to strategic objectives
• APRA’s view that trustees should obtain a yearly attestation from accountable senior executive management that they are taking reasonable steps to meet the expenditure management requirements in SPS 515
• APRA’s view that the attestation should confirm that controls are in place and operating effectively in order to prevent unjustified expenditure in the context of the trustee’s duty to act in the members’ best financial interests.

Changes to ruling on superannuation income streams

On 26 June 2024, the ATO issued an Addendum to Taxation Ruling 2013/5 Income tax: when a superannuation income stream commences and ceases (TR 2013/5) to reflect legislative changes to various Acts and Regulations.

The amendments to TR 2013/5 include:

• clarification around how the general principles in the ruling apply to successor fund transfers
• the addition of the transfer balance cap provisions and the concept of retirement phase for superannuation interests
• the removal of practical compliance approaches that were related to historical periods and are no longer current.

New Rules and Operational Guidelines published

On 1 July 2024, AFCA announced it had published updated versions of its governing Rules and Operational Guidelines, which will apply to all complaints lodged on or after this date.

The updated guidelines were developed in response to key themes from an independent review by the Government and consultation on its previous guidelines which was held in 2023.

The proposed changes were designed to implement recommendations from the review, and to ensure AFCA continues to provide efficient, timely operations and deliver fair, independent and effective solutions for financial disputes. They include:

• increasing AFCA’s ability to manage inappropriate or unreasonable conduct from complainants and paid representatives
• manage complaints where an appropriate settlement has been made or where issues in dispute have been previously settled
• provide further guidance and clarification on the exclusion of complaints lodged by professionals or sophisticated investors
• update certain areas of the rules arising from legislative change so as to provide greater clarity and transparency over AFCA’s operation.

Inquiry into the capability of law enforcement to respond to money laundering and financial crime

On 19 June 2024, the Joint Committee on Law Enforcement initiated an inquiry into law enforcement’s capability to respond to money laundering and financial crime.

The Terms of Reference define the scope of the inquiry, including references to:

• Australia’s anti-money laundering and counter-terrorism financing legislation and how it compares to other jurisdictions and the Financial Action Task Force’s international standards
• the types and scale of money laundering and financial crime in Australia and what effect they have on the economy and community, methods employed by serious and organised crime, emerging trends and threats, and the types of criminal activities
• the operation of unexplained wealth and asset recovery legislation, the Criminal Assets Confiscation Taskforce and the Confiscated Assets Account
• the role and response of businesses and other private sector organisations, including their levels of awareness, assistance to law enforcement, and programs to impede such crime.

Submissions close on 31 July 2024.