Monthly technical roundup - March 2022

Super and tax proposals - 2021 Budget

On 22 February 2022, the Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Act 2021 (Cth) received Royal Assent.

The measures contained in the Act include:

• the introduction of a work test for individuals aged 67-75 to claim a tax deduction for personal contributions, starting in the 2022-23 income year. This work test is similar to the current work test relating to the acceptance of contributions, that is, the individual must be gainfully employed for at least 40 hours in any 30 consecutive day period during the income year in which the contribution is made.
• increasing the eligibility age for the bring forward rule from under age 67 to age 74 (inclusive), starting in the 2022-23 financial year;
• reducing the eligibility age to make downsizer contributions from age 65 to age 60, starting in the 2022-23 financial year;
• the removal of the monthly minimum threshold (currently $450 a month) for salary or wages to count towards the superannuation guarantee, starting from 1 July 2022;
• increasing the maximum releasable amount under the First Home Super Saver Scheme from $30,000 to $50,000, starting in the 2022-23 financial year;
• allowing trustees to choose their preferred method for calculating exempt current pension income where the fund has member interests in both accumulation and retirement phase for part of the financial year. This measure will apply from the 2021-22 financial year; and
• extending the temporary full expensing of depreciating assets regime by 12 months to 30 June 2023. This extension will provide eligible business an additional 12 months to access the tax incentives.

The explanatory material to the Bill noted the intention to remove the work test relating to the acceptance of contributions (e.g., non-concessional and salary sacrifice) from superannuation law, starting in the 2022-23 financial year. Legislation to make this change is yet to be registered.

CCIV and Retirement Income Covenant

On 22 February 2022, the Corporate Collective Investment Vehicle Framework and Other Measures Act 2021(Cth) received Royal Assent.

The Act introduces a new corporate collective investment vehicle (CCIV), which is a new type of company limited by shares that will be primarily used for funds management.

The Act also contains the following measures which are relevant to the financial services industry.

Retirement income covenant

A new covenant which requires trustees of superannuation funds (excluding SMSFs) to develop a retirement income strategy for members who are retired or approaching retirement, from 1 July 2022.

The retirement income strategy will outline the trustee’s plan to assist members who are retired or approaching retirement to achieve and balance the following objectives:

• maximise their members’ retirement income;
• manage risks to the sustainability and stability of their retirement income; and
• have flexible access to funds during retirement.

Deferred taxing point for employee share schemes (ESS)

The Act removes the cessation of employment taxing point for ESS interests and instead defers the taxing point to the earliest of:

• when the risk of forfeiture is removed, and the employee can sell the shares/rights, or
• 15 years after the acquisition of the shares/rights.

This measure will apply from 1 July 2022.

Temporary loss carry back rule extension

The Act extends the temporary carry back rule by another 12 months to include the 2022-23 financial year.

This will allow eligible companies to utilise tax losses from the 2019-20, 2020-21, 2021-22 and 2022-23 financial years to offset previously taxed profits from the 2018-19 financial year.

COVID-19 test tax deductible

On 7 February 2022, the Government announced that COVID-19 tests (PCR and RAT) will be tax deductible and exempt from fringe benefit tax for businesses, where the test is purchased for work-related purposes.  This measure is expected to take effect from the beginning of the 2021-22 tax year and will be in place permanently.

This measure is not yet law, and further guidance will be provided once the measure is enacted. 

Compensation for financial advice update

On 14 February 2022, ASIC provided an update (as at 31 December 2021) on the compensation for financial advice related to misconduct. 

The compensation is in relation to the two ASIC reviews, which looked into:

• financial advice: fees for no service (Report 499); and
• ‘non-compliant’ advice – i.e. personal advice provided by advisers which did not comply with the relevant conduct obligations in the Corporations Act 2001 (Report 515).

AMP, ANZ, CBA, MQG, NAB and WBC undertook the review and below are some of the highlights (as at 31 December 2021):

• A total of $3.15 billion in compensation was either paid or offered by the six companies; and
• Almost $1.3 billion was either paid or offered between 1 July and 31 December 2021.

Proposal to remake PDS, super dashboard and FSG relief

On 18 February 2022, ASIC announced the released Consultation Paper 358: Remaking ASIC relief on PDSs, superannuation dashboards and FSGs (CP 358).

ASIC proposed the consolidation of seven legislative instruments into three new instruments without substantive changes. The paper also includes:

• remaking the relief in instruments that relate to PDS in-use notices for employer-sponsored superannuation and product dashboard disclosure;
• remaking the relief that relates to shorter PDSs and PDS obligations for superannuation trustees, IDPS operators and responsible entities of IDPS-like schemes;
• remaking an instrument that relates to FSGs in time critical situations; and
• give effect to the new instruments for a period until 1 October 2027.

The consultation period closes on 12 April 2022.

‘Sunsetting’ class order on general insurance quotes remade

On 21 February 2022, ASIC announced that it had remade Class Order [CO 11/842] PDS requirements where a quote for a general insurance product is given for a further five years. The Class Order was due to expire on 1 April 2022 – it will now expire on 1 March 2027.

The new instrument will continue to provide relief to address the practical difficulties in providing a PDS during a phone call, and facilitates the provision of insurance quotes which enables consumers to compare various products available in the market.

New guidelines against cybercrime

On 8 February 2022, the ATO and the TPB announced the release of new guidelines on client identity verification to stop criminals from committing tax fraud by stealing taxpayer identities.

The TPB also released proof of identity guidance which aims at helping tax practitioners verify their clients’ identities to reduce the risk of identity theft and tax fraud.

A free webinar will be offered shortly by the TPB and ATO which will explain the requirements and the details to access the webinar will be published on the TPB website.

First Home Super Saver Scheme (FHSSS) technical amendments

On 24 February 2022, the ATO introduced new changes which are aimed at improving the experience for first home buyers who are looking to access the FHSSS.

The changes will provide greater flexibility to correct errors by:

• increasing the discretion of the Commissioner of Taxation to amend and revoke FHSSS requests;
• allowing individuals to withdraw or amend their requests prior to them receiving a FHSSS amount, and allowing those who withdraw their request to re-apply for FHSSS releases in the future;
• allowing the Commissioner to return the released FHSSS money to super funds, provided that the money has not yet been released to the individual; and
• clarifying that the money returned to super funds is treated as part of the super funds’ non-assessable non-exempt income and does not count towards the individual’s contribution caps.

Draft tax ruling and taxpayer alert on trust distribution to children

On 23 February 2022, the ATO released guidance on trust distributions to children, including:

Taxpayer Alert 2022/1: Parents benefiting from the trust entitlements of their children over 18 years of age

A review of arrangements whereby parents receive economic benefit from trust income distributed to children above the age of 18 (accessing their tax-free thresholds or lower marginal tax rates), and that in some arrangements, there is an understanding that the income distributed to the children will be paid to the parents or otherwise dealt with at the parent’s discretion.

The ATO is concerned that these arrangements, if effective, may have unintended tax consequences or may attract the application of specific or general anti-avoidance provisions.

Draft Tax Ruling 2022/D1: Section 100A reimbursement agreements

In some cases where a beneficiary of a trust is entitled to trust income and that an arrangement is in place (details below), section 100A of the Income Tax Assessment Act 1936 generally applies to make the trustee, rather than the beneficiary, liable to tax at the top marginal tax rate.

Arrangements that:

• involves a benefit being provided to another person;
• is intended to have the result of reducing someone's tax liability, and
• is entered into outside the course of ordinary family or commercial dealing.

The consultation period for the draft tax ruling closes on 8 April 2022.

Major increase in super transparency - proposal

APRA has undertaken a multi-year project to upgrade the breadth, depth and quality of its superannuation data collection. Due to the size and complexity of the project, APRA has broken down the consultation into three phases.

• Phase 1 (breadth) to address the most urgent gaps in the data collection process;
• Phase 2 (depth) to increase the granularity of the entire collection; and
• Phase 3 (quality) to assess the quality and consistency of the additional data reported during Phase 1 and 2 and address any implementation issues.

As part of Phase 1, APRA released a discussion paper on 18 February 2022, outlining their proposals for publication and the confidentiality of data reported under the new superannuation reporting standards.

Submissions will be accepted until 15 April 2022.

Managing compliance risk and APRA’s approach

On 17 February 2022, APRA published a media release  titled “How to manage compliance risk and stay out of the headlines”.

The media release provides an overview of the concept of compliance risk, examples of failures by APRA regulated entities and APRA’s approach to compliance risks.

Additionally, through APRA’s recent supervision into the compliance management strategy of larger and more complex entities, their implementation of frameworks and systems, and their accountability and oversight mechanisms to support their strategy, APRA highlighted the need for entities to:

• have a clearly defined approach to managing compliance risk;
• have an established process to support compliance risk management practices; and
• specify clear accountability for managing compliance risks.

Draft guidance on source of wealth and funds

On 23 February 2022, AUSTRAC released new draft guidance on source of wealth and funds for consultation to assist reporting entities understand their obligations and undertake source of funds and wealth checks on relevant customers.

The draft guidance can assist with the assessment of the risks associated with providing services to a customer (e.g., verifying the accuracy and reliability of the documents), the monitoring of transactions and the reporting of suspicious matters to AUSTRAC.

Senate endorses FAR and CSLR Bills

On 15 February 2022, the Senate Economic Legislation Committee released a report which endorses the Financial Accountability Regime (FAR) Bill 2021 and the Bill(s) which introduce the Compensation Scheme of Last Resort (CSLR).

View on the FAR Bill

• majority of submissions supported the Bill and the intent to establish the FAR to improve operating culture of entities, increased transparency and accountability;
• many submitters noted that the proposed Bills implement recommendations of the Haynes Royal Commission relating to the extension of the Banking Executive Accountability Regime (BEAR) to other APRA-regulated industries, and to have APRA and ASIC jointly administer the extended regime; and
• the areas of concern raised by participants include the design of the regime, scope of the regime, uncertainty and unintended consequences, the administrations of rules and regulations, and the commencement date.

Views on the Compensation Scheme of Last Resort (CSLR) Bills

• submitters and witnesses overall support the establishment of a CSLR;
• many submitters noted that the Bill would improve consumer and small business access to redress by implementing an industry-funded, forward-looking target scheme that extends beyond personal financial advice failures; and
• the areas of concern raised by participants include the scope of the CSLR, design of the scheme, underlying causes of unpaid determinations, compensation caps and the CSLR Levy.