Monthly technical roundup - June 2023

2023-24 Federal Budget social security measures

On 25 May 2023, the Government introduced the Social Services and Other Legislation Amendment (Strengthening the Safety Net) Bill 2023 (Cth) to Parliament, which included several social security measures announced in the 2023-24 Federal Budget.

The proposals include:

• expanding qualification for the parenting payment (single) to single principal carers where the youngest child is aged under 14 years of age (from under eight years)
• increasing the base rate of working age and student payments by $40 per fortnight. This increase will apply to the JobSeeker Payment, Youth Allowance, Parenting Payment (Partnered), Austudy, and Disability Support Pension (Youth)
• expanding eligibility for the higher JobSeeker Payment rate to recipients aged 55 years and over (from age 60) who have been receiving benefits for nine or more continuous months
• increasing the maximum rates of Commonwealth rent assistance by 15 per cent.

If passed, the proposed measures will apply from 20 September 2023.  

Legislation to address work test anomaly

On 22 May 2023, the Taxation Administration (Remedial Power – Work Test for Personal Superannuation Contributions) Determination 2023 was registered by the Government.

The modification contained in the instrument ensures the previous eligibility criteria (work test requirement for individuals aged 67 to 75*) for claiming a deduction for personal superannuation contributions (previously governed under the Superannuation Industry (Supervision) Regulations 1994 and the Retirement Savings Accounts Regulations 1997 where an expanded definition of employees applied) continues to apply under the Income Tax Assessment Act 1997 (Cth).

The instrument applies to personal superannuation contributions made on or after 1 July 2022.

AFCA's jurisdiction to hear superannuation matters

On 23 May 2023, Treasury released for consultation the exposure draft legislation and explanatory memorandum seeking industry feedback on the Government’s proposal to reinstate AFCA’s jurisdiction to hear complaints relating to superannuation, regardless of whether they meet the definition of superannuation complaint under the Corporations Act 2001 (Cth).

The measures contained in the exposure draft legislation were in response to the Federal Court’s decision in MetLife Insurance Limited v Australian Financial Complaints Authority (AFCA) Limited [2022] FCAFC 173, where AFCA were unable to consider certain complaints about insurance policies held within the superannuation environment.

If legislated, AFCA would effectively be provided with additional statutory powers to manage complaints that are related to superannuation. The amendments apply to complaints made to AFCA before commencement of the proposal, provided AFCA had not made (or purport to make) a determination of a complaint prior to commencement.

The consultation period closes on 16 June 2023. 

Financial institutions' supervisory levies for 2023-24

On 25 May 2023, Treasury released a discussion paper seeking industry feedback on its proposed financial institutions' supervisory levies for the 2023-24 financial year. The levies are set to recover APRA’s operational costs, as well as other specific costs incurred by certain Commonwealth agencies, such as Treasury and the ATO.

Some of the highlights contained in the paper include:

• total funding required under the levies for 2023-24 for all relevant Commonwealth agencies is $263.6 million. This is a $4 million (1.5 per cent) increase from the 2022-23 requirement; and
• $1 million levies funding to support the Government’s objective to promote improved member outcomes by funding a superannuation consumer advocate (one of the Government’s proposals announced in the 2023 Federal Budget).

The consultation period closes on 9 June 2023.

Changes to frequency of employer contributions

On 2 May 2023, the Government announced that they intend to introduce new legislation to require employers to pay their employees’ superannuation entitlement at the same time as their salary and wages, from 1 July 2026.

The Government stated that this change is aimed at making it easier for employees to track their superannuation entitlement and to minimise the likelihood of any unpaid superannuation.

Treasury and the ATO will consult closely with industry and stakeholders on these changes in the second half of 2023.

Federal Budget May 2023

On 9 May 2023, the Federal Treasurer, the Hon Dr Jim Chalmers MP, delivered the Federal Budget 2023-24. 

Overall, the Budget measures are unlikely to have a significant effect on the provision of financial advice as many of the measures of greatest impact to financial services professionals have been previously announced.

Some of the key issues include:

Superannuation

• the Government reiterated its intention to introduce a higher tax rate for superannuation accounts with balances above $3 million, from 1 July 2025
• requiring employers to pay Super Guarantee contributions to their employees’ superannuation fund on the same day that they pay salary and wages
• provide $5 million over five years from 2023-24 to continue funding superannuation consumer advocacy to improve member outcomes, offset by an increase in the superannuation supervisory levy (administered by APRA)
• amend the non-arm’s length income provisions (announced by previous Government) which apply to expenditure incurred by superannuation funds.

Business owners

• small business support measures (including a temporary threshold increase to $20,000 for instant asset write-offs) aimed at improving their tax positions and incentivising the electrification of assets
• implementation of a global minimum tax and domestic minimum tax, which will be based on the OECD Global Anti-Base Erosion Model Rules, which are designed to ensure large multinationals pay an effective minimum level of tax on the income arising in each jurisdiction where they operate.

Social security

• increased support for people receiving working age payments, such as the JobSeeker Payment
• extending the measure to provide age and veterans pensioners a once-off credit of $4,000 to their Work Bonus income bank and temporarily increase the maximum income bank until 31 December 2023
• extended eligibility for Parenting Payment (Single) to support single principal carers with a youngest child under 14 years of age. The existing eligibility provides support to single principal carers with a child aged under eight years of age.

Measures to address housing crisis

• increasing the maximum rate of the Commonwealth Rent Assistance
• introducing new measures aimed at increasing the supply of housing (e.g. accelerated tax deductions and reducing the managed investment trust withholding tax rate).

Other measures

• expanding the scope of the general anti-avoidance rule for income tax law
• provide $86.5 million in funding over four years from 2023-24 to combat scams and online fraud
• provide $2.9 million of funding over four years from 2023-24 to the ATO to enable increased disclosure of Australian Charities and Not-For-Profits Commission’s regulatory activities.

For more information, please refer to the Federal Budget page on our website.

ASIC calls on investment product issuers to ‘lift their game’ on design and distribution obligations

On 3 May 2023, ASIC called on investment product issuers to ‘lift their game’ regarding the design and distribution obligations (DDO) after ASIC undertook an initial, risk-based review of how investment product issuers are meeting their obligations. 

ASIC also released Report 762 Design and distribution obligation: Investment product (REP 762) which included the review findings and actions taken by ASIC. The review found that a significant number of product issuers made deficient Target Market Determinations (TMD), with poorly defined target markets and unclear/inadequate product governance arrangements. 

The key target market deficiencies that ASIC identified across the investment product issuers include:

• target markets that were defined too broadly – a factor in 15 stop orders
• unsuitable investor risk profiles – a factor in 21 stop orders
• inappropriate levels of portfolio allocation in a target market – a factor in 10 stop orders
• unsuitable investment timeframes and/or withdrawal features, that did not reflect the product’s risks and liquidity profile – a factor in 18 stop orders
• inappropriate or no distribution conditions – a factor in 13 stop orders
• inappropriate use of a TMD template – a factor in 13 stop orders.

At the time of publication, ASIC had placed interim stop orders on 26 investment products (with $6.6 billion in funds invested by retail clients) from 18 issuers since 1 July 2022. ASIC’s actions resulted in 12 issuers amending 18 TMDs to address the deficiencies, and 5 issuers withdrawing seven products.

Date extended for financial adviser registration

ASIC announced it will extend the registration deadline to 1 October 2023 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 time for:

• Parliament to consider the improvements proposed by the Treasury Laws Amendment (2023 Measures No.1) Bill 2023 (Cth). The Bill was referred to the Senate Economics Legislation Committee for inquiry and report, and the report is due by 2 June 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 requirements and to make necessary applications to register their relevant providers with ASIC.

ASIC also highlighted that the registration requirement is separate from the pre-existing requirements for an AFS licensee to appoint a relevant provider that they have authorised to the Financial Advisers Register (FAR), and that Provisional Relevant Providers cannot be registered.

APRA releases findings from SGAA amendments

On 10 May 2023, APRA released its findings after reviewing the amendments to the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) by the Treasury Laws Amendment (Your Superannuation, Your Choice) Act 2020 (Cth) (YSYC Act).

One of the amendments introduced by the YSYC Act was a requirement for APRA to conduct a one-off review into the operations of the amendments to identify any unintended consequences of the amendments for defined benefit schemes, including the ongoing viability and profitability of these schemes. APRA was also required to consider whether any further amendments are required to the SGAA to rectify the issues identified in the review.

APRA's review did not identify any unintended consequences of the operation or ongoing viability and profitability of defined benefit schemes that can be attributed to the amendments and as such, APRA’s view was that no further amendment to the SGAA or any other Act is required.

Guidance for recovery and resolution planning finalised

On 18 May 2023, APRA finalised new requirements and guidance aimed at strengthening the preparedness of banks, superannuation funds and insurers to respond to a crisis.

APRA commenced consultation on two new prudential standards in December 2021 that were designed to improve recovery and resolution planning amongst APRA-regulated entities, and confirmed that those standards have been finalised.

The two standards are:

• Prudential Standard CPS 900 Resolution Planning (CPS 900) – requiring large or complex APRA-regulated entities to support APRA in bespoke planning and pre-positioning to ensure that, in the event of failure, they can be resolved in an orderly manner
• Prudential Standard CPS 190 Recovery and Exit Planning (CPS 190) - ensuring that APRA-regulated entities have recovery and exit plans for responding to severe financial stress. 

Display of personal transfer balance caps from 11 July 2023

The general transfer balance cap will be indexed on 1 July 2023, and all individuals will have a personal transfer balance cap between $1.6 million and $1.9 million, based on the highest ever balance of their transfer balance account between 1 July 2017 and 30 June 2023.

On 15 May 2023, the ATO announced that while indexation will occur on 1 July 2023, the ATO won’t display members’ personal transfer balance caps until 11 July 2023.

The ATO also encouraged funds to report any events that occurred prior to 1 July 2023 by 30 June 2023, to ensure members’ personal transfer balance cap calculations are based on accurate and up-to-date information.

Changes to minimum pension payments

On 29 May 2023, the ATO confirmed the 50% reduction in the minimum pension drawdown rate will no longer apply for the 2023–24 financial year. This means that when the minimum annual payment is calculated (based on the individual’s pension balance) on 1 July 2023, the 50% reduction will not apply to the calculated minimum annual payment.