Monthly technical roundup - March 2023

Changes to off-market share buy-back tax treatment and more

On 16 February 2023, the Government introduced Treasury Laws Amendment (2023 Measures No. 1) Bill 2023 (Cth) to Parliament.

Some of the proposed measures in the Bill include:

Changes to the tax treatment for off-market share buy-back

The proposed measure aligns the tax treatment for off-market share buy-backs by listed companies with the tax treatment of on-market share buy-backs.

Under the current rules, a component of an off-market share buy-back can be considered a dividend in the hands of the shareholder, whereas no part of the purchase price can be considered a dividend for on-market share buy-backs.

If the proposal is legislated, no parts of the purchase price in response to an off-market share buy-back can be taken as a dividend and the proceeds would be assessed as a capital gain (or loss). The proposed changes would apply to buy-backs announced to the market after 7.30pm, by legal time in the ACT on 25 October 2022 (October 2022 Federal Budget Time).

Amendments to ASIC relating to the Financial Adviser Register (FAR)

The Bill makes technical amendments to the Corporations Act 2001 (Cth) to allow ASIC to approve applications from more than one licensee to register on the FAR, including when the relevant provider has a registration in force (e.g. where a relevant provider is authorised by more than one licensee), and enable ASIC to use a variety of processes and technology (e.g. computer-assisted decision making) to enable ASIC to deliver a high standard of service.

If passed, the amendments would commence on the day after Royal Assent.

Government’s response to the review of the Tax Practitioners Board (TPB)

The Bill amends the Tax Agent Services Act 2009 (Cth) to enhance the financial independence of the TPB and provides an appropriate ethical and professional standard for tax agent services and BAS services.

These amendments are in line with the Government’s response to the final report of the TPB Review that was made in November 2020 and if legislated, would have varying start dates.

Objective of superannuation

On 20 February 2023, the Government released a consultation paper seeking industry feedback on its proposal to enshrine the objective of superannuation in law as well as providing some options on potential framing. Below is the proposed objective that was contained in the Paper:

“The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.”

The Government stated that enshrining the objective of superannuation in legislation would provide stability and confidence to the various stakeholders (e.g. policy makers, regulators, industry) and that changes to superannuation policy will be aligned with the purpose of the superannuation system. The objective would also compliment the long-standing legal and regulatory obligations of trustees of superannuation funds to have in place investment strategies that deliver the best outcomes for their members.

The consultation period will close on 31 March 2023.

Quality of Advice Final Report

On 8 February 2023, the Government released the Quality of Advice Review – Final Report.

The final report contained 22 recommendations aimed at making high quality financial advice accessible and affordable.

Some of the key recommendations include:

• broadening the definition of personal advice in the Corporations Act 2001 (Cth) so that all financial product advice will be personal advice if the advice provider has information about the client’s situation or one or more objectives/needs;
• General Advice to continue to be a financial service but remove the need to provide the general advice warning;
• providers of personal advice to retail clients must provide good advice (Good Advice Duty);
• allowing superannuation trustee to provide personal advice to members about their superannuation interest and allow trustees to decide on how to charge members for personal advice;
• allowing superannuation trustees to pay a fee from a member’s super account to an adviser (on the direction of the member) for personal advice provided;
• replacing the current Fee Disclosure Statement (FDS) requirements, renewal of ongoing fee arrangement and the need to obtain client consent to deduct advice fees. The new arrangement will still require the advice provider to obtain the client’s consent on an annual basis, but this should be done in a single consent form;
• removing SOAs and replace them with the requirement to maintain complete records of the advice provided. Written advice must be provided on request by the client;
• Financial Services Guides can be given to the client or made publicly available on the website;
• requiring clients to provide written consent to be treated as a wholesale client where they meet the wholesale assets and income thresholds and have an accountant certificate. The existing requirement which applies to sophisticated investors should also be amended to require a written acknowledgement in the same terms;
• remove the Design and Distribution Obligations reporting requirement for relevant providers to report on significant dealings outside the Target Market Determination, comply with additional reporting obligations specified by the product issuer, and report to the product issuer where no complaints were received in the reporting period;
• All personal advice providers will need to report the number of complaints (if there have been any) as well as nature of complaints to product issuer during a reporting period; and
• retain the exemption to the ban of conflicted remuneration for benefits given in connection with the issue/sale of a life risk insurance product and maintain the existing commission/clawback rates (60% initial commission and 20% trailing commissions, with a 2 year clawback). Another component of the recommendation is requiring the advice provider (to retail clients) to obtain the client’s informed consent before accepting a commission.

Tax on super earnings to increase for balances above $3 million

On 28 February 2023, the Government announced that it intends to introduce a higher tax rate for superannuation accounts with balances above $3 million.

The proposed additional 15 per cent tax rate would apply to earnings on superannuation balances above $3 million and the Government stated that they do not intend to impose a limit on the size of superannuation account balances in accumulation phase. This change would apply from the 2025-26 financial year and is expected to affect around 80,000 individuals.

The Government stated it will consult with stakeholders and introduce legislation to Parliament after the Federal Budget on 9 May 2023.

New fixed method for WFH deductions finalised

On 16 February 2023, the ATO announced that it had released Practical Compliance Guideline 2023/1  Claiming a deduction for additional running expenses incurred while working from home - ATO compliance approach which contained a revised fixed-rate method in calculating working-from-home (WFH) deductions.

Before 1 July 2022, there were three methods in claiming a tax deduction for work-from-home expenses. The three methods were:

From 1 July 2022, taxpayers can continue to claim the actual expenses or use the revised fixed-rate method of 67 cents per hour, which apportions expenses relating to energy expenses, internet, mobile/telephone expenses, stationery and computer consumables.