Monthly technical roundup - October 2023

Reforms to address unpaid super

On 9 October 2023, the Government announced the release of the Securing Australians’ Superannuation consultation paper, seeking stakeholder feedback on reforms aimed at addressing the issue of unpaid superannuation by employers.

Included in the consultation paper is a proposal which will require employers from 1 July 2026 to pay their employee’s superannuation guarantee (SG) entitlement at the same time their salary or wages are paid (currently, SG must be paid quarterly).

The Government stated that the ATO will continue to consult industry on the administration design, and further consultation will be made in 2024 by Treasury on the legislative design of the framework.

The consultation period closes on 3 November 2023.

Increase to tax on super earnings for balances above $3 million

On 3 October 2023, the Government released for consultation exposure draft legislation on the proposed reform to introduce an additional 15 per cent tax (new Division 296 tax) on earnings corresponding to the proportion of an individual’s superannuation balance that is above $3 million from 1 July 2025.

The exposure draft legislation, which largely reflects the Government’s initial proposal on how the new tax is calculated and levied, includes additional details around:

• how the new Division 296 tax is applied and levied to the individual
• what is considered a contribution and withdrawal for the purpose of adjusting an individual’s total super balance when calculating earnings
• the intention to modify the way of valuing non-account based income streams for total superannuation balance purposes
• individuals who will be exempt from Division 296 tax (e.g. child recipients of superannuation income streams, those who have made structured settlement contributions and for those who have died during the income year)
• clarification around when the tax is due and payable (84 days after the notice of assessment is issued) and the ability to defer the tax when it relates to a defined benefit interest in the accumulation phase.

The consultation period closed on 18 October 2023.

Social security changes announced in Employment White Paper release

As part of the Government’s release of the Employment White Paper on 25 September 2023, the Government announced that it intends to make two changes to social security that would affect pension and income support recipients. Those changes include:

• permanently increasing the maximum Work Bonus income bank balance for new and existing recipients from $7,800 to $11,800 from 1 July 2024. Additionally for new recipients, they will have a starting Work Bonus income bank balance of $4,000 (rather than $0)
• doubling the employment income nil rate period from six fortnights to twelve fortnights for income support recipients who enter full-time employment from 1 July 2024, allowing them to retain concession cards or other supplementary benefits (e.g. childcare subsidies) during this period.

The above proposals are subject to passage of legislation and not yet law at time of writing.

Date extended for financial adviser registration

On 20 September 2023, ASIC announced it will extend the date to 1 February 2024 for financial advisers who provide personal advice to retail clients on relevant financial products (including time share advisers) to be registered.

ASIC stated the further delay to the registration requirement will allow additional time for:

• Parliament to consider the improvements proposed by the Treasury Laws Amendment (2023 Measures No.1) Bill 2023 introduced by the Government on 16 February 2023
• ASIC to assist the financial advice industry to understand and comply with the registration requirement by issuing regulatory guidance and conducting webinars
• Australian financial service (AFS) licensees to understand the registration requirement and to make necessary applications to register their relevant providers with ASIC.

Call on licensees to strengthen remediation procedures

Following a review of the remediation policies and procedures of some large financial institutions to assess their implementation of Regulatory Guide 277 Consumer Remediation (RG 277), on 25 September 2023 ASIC called on Australian financial services and credit licensees to review their remediation policies and procedures to ensure affected customers are remediated quickly and fairly.

From the review, ASIC identified gaps where some licensees’ policies and procedures were inconsistent with RG 277 and could lead to poor outcomes for customers. Some of the key findings from the review include:

• Remediation review periods – the remediation review period should begin when the licensee reasonably suspects the misconduct first occurred and caused loss to a consumer. ASIC saw some policies that could inappropriately narrow the scope of remediation review periods such as the inclusion of unnecessary approval processes in order for review periods to exceed a certain number of years
• Use of ‘beneficial assumptions’ – RG 277 allows licensees to use assumptions to address knowledge gaps and increase the timeliness of remediations. The review indicated licensees didn’t always consider beneficial assumptions as a mechanism to enable efficient remediations
• Foregone returns or interest – rates for calculating foregone returns or interest must return the customer as closely as possible to the position they would have otherwise been in, had the misconduct not occurred. Some licensees had pre-determined rates for specific products or scenarios which may not be appropriate
• Reasonable endeavours – under RG 277, licensees are expected to make reasonable endeavours to contact and pay affected consumers (determined on a case-by-case basis). The review found examples of prescriptive approaches, such as a predefined number of contact attempts, which may be insufficient in certain circumstances
• Low value payment threshold – RG 277 allows for payments to be made to a not-for-profit if the licensee does not have current payment information for any former customers owed less than $5. The review found evidence of policies that could result in some customers for whom the licensee has payment information, not receiving payments under $5
• Oversight and controls – RG 277 highlights that to ensure fair and timely remediation, licensees should have governance frameworks with appropriate oversight and accountability. ASIC’s review found a general lack of focus on fairness in governance frameworks.

Proposed enhancements to strategic planning and member outcomes

On 21 September 2023, APRA released a discussion paper outlining its proposed enhancements to Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) aimed at driving better outcomes for superannuation members in areas such as trustee expenditure of member funds, management of financial resources and member transfers in and out of funds. 

The proposed reforms to SPS 515 aim to:

• ensure expenditure requirements are better aligned with the best financial interest duty and to support the retirement income covenant (for those in retirement phase). Under the reforms, trustees must be able to justify the purpose of expenditure relating to business operations
• ensure trustees maintain a prudent approach in areas such as fee setting and managing member-funded reserves
• improve management of risks to members being transferred across funds.

The closing date for submissions is 21 December 2023 and APRA aims to finalise the SPS 515 framework in the first half of 2024, ahead of its expected commencement date of 1 January 2025.

APRA also stated that it intends to retire its guidance circular on the sole purpose test following its review of SPS 515 and has no plans to issue new guidance.

APRA and ASIC commence joint administration of the new FAR

On 3 October 2023, after commencing joint administration of the Financial Accountability Regime (FAR), APRA and ASIC published an information package to support the financial services industry in implementing the regime.

The FAR, which replaced the Banking Executive Accountability Regime (BEAR) is designed to improve the risk and governance cultures of financial institutions by imposing a strengthened responsibility and accountability framework for APRA-regulated entities as well as their directors and senior executives.

The information package includes: 

• A Joint Administration Agreement between APRA and ASIC, which sets out the framework within which the regulators will work together to administer the FAR 
• a joint information paper providing guidance for ADIs on transitioning from the BEAR to the FAR, supported by the ADI accountability statement guidance and template. 

The FAR will come into force in two stages:

• for authorised-deposit taking institutions (ADIs) and their authorised non-operating holding companies (NOHCs), it will come into effect on 15 March 2024
• for the superannuation and insurance industries, as well as licensed NOHCs, it will take effect on 15 March 2025.

Details on industry engagement will follow shortly.

Proposed draft changes to ruling on superannuation income streams

On 27 September 2023, the ATO released Draft Tax Ruling TR 2013/5DC1 Income Tax: when a superannuation income stream commences and ceases seeking industry feedback.

The proposed changes to the Ruling include:

• updates to reflect recent legislative amendments
• clarification around how the general principles in the Ruling apply to successor fund transfers
• the removal of practical compliance approaches that were related to historical periods and are no longer current.

Feedback submissions will be accepted until 10 November 2023.