Monthly technical roundup - November 2021

Better Advice reforms

On 28 October 2021, the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (Cth) received Royal Assent.

The Act implements Recommendation 2.10 of the Financial Services Royal Commission by:

• expanding the role of the Financial Services and Credit Panel (within ASIC) to operate as the single disciplinary body for financial advisers;
• creating additional penalties and sanctions for financial advisers who have breached their obligations under the Corporations Act;
• introducing a new registration system for financial advisers; and
• transferring FASEA’s functions to the Minister responsible for administering the Corporations Act and ASIC (including administration of the adviser exam). Standard making functions will also be transferred to the Treasurer (supported by Treasury).

In addition:

• the Minister will have the power to extend the cut-off date for certain existing financial advisers to pass the adviser exam. There will be a one-time limited extension offered in 2022 for advisers who have made two genuine attempts to pass the FASEA exam prior to 1 January 2022. If advisers have not sat the exam twice prior to 1 January 2022, no extension will be granted. Costs and timings for the 2022 period are yet to be confirmed, but the extension will not extend beyond 30 September 2022.
• tax (financial) advisers will no longer be regulated by the Tax Practitioner Board but instead will be regulated under the Corporations Act.

The effective date of the Act is 1 January 2022.

Bill to implement several 2021 Federal Budget proposals

On 27 October 2021, the Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021 (Cth) was introduced to Parliament.

The Bill contains a number of superannuation and tax proposals from the 2021 Federal Budget, which includes:

• 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 or from the beginning of the next quarter after the Bill receives Royal Assent if the contribution is received after 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;
• reducing the eligibility age to make downsizer contributions from age 65 to age 60, starting in the 2022-23 financial year;
• increasing the eligibility age to utilise the bring forward rule from under age 67 to age 74 (inclusive), starting in the 2022-23 financial year;
• amendments to allow individuals aged 67 to 75 to make non-concessional and salary sacrifice contributions to superannuation, without the need to meet the work test or work test exemption. The work test will still be required for personal deductible concessional contributions. This measure is expected to commence in the 2022-23 financial year;
• allowing trustees to choose their preferred method for calculating exempt current pension income where the fund has interests in both accumulation and retirement phase for part of the financial year. This measure is expected to 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.

Temporary waiver of the ordinary waiting period for COVID-19 Disaster Payments

On 19 October 2021, the Government registered the Social Security (Ordinary Waiting Period Exemption) Instrument 2021 which allows individuals who are either receiving the COVID-19 Disaster Payment (CDP) or making a claim within 13 weeks of last receiving the CDP to have the ordinary waiting period waived.

This will allow individuals to transition from the CDP to certain social security benefits without having to serve the ordinary waiting period.

This measure commenced on 20 October 2021.  

Contracts for difference (CFD) intervention order

On 18 October 2021, ASIC released Consultation Paper 348 Extension of the CFD product intervention order (CP348) for feedback.

The current product intervention order, which was put in place on 22 October 2020 expires on 23 May 2022 and the paper sets out ASIC’s proposal to extend the product intervention order to impose conditions on the issue and distribution of CFDs to retail clients until it is either revoked or sunsets on 1 April 2031.

The public consultation will close on 29 November 2021. 

Child care subsidy changes brought forward

On 10 October 2021, the Government announced that it had brought forward the commencement date for the two measures implemented in the Family Assistance Legislation Amendment (Child Care Subsidy) Act 2021 (Cth). 

*The removal of the child care subsidy annual cap will be applied retrospectively for the whole 2021-22 financial year. Individuals who have reached the cap before this date will have any additional out-of-pocket expenses reimbursed for the financial year.

Further extension of temporary financial advice relief

On 14 October 2021, ASIC announced that it had extended for following measures designed to assist the financial advice industry in providing affordable and timely advice during the COVID-19 pandemic:

• allow for a record of advice (ROA) to be provided to existing clients who require financial advice due to the impacts of the pandemic, instead of a statement of advice (SOA); and
• allows advisers to provide a SOA within 20 business days (instead of 5 business days) after time-critical advice was provided.

The original relief measure which expired on 15 April 2021 has now been extended to 15 April 2022.  ASIC will continue to review the appropriateness of this relief measure and may consider ending the relief measure before 15 April 2022.

Updated information about the distribution of superannuation products

On 15 October 2021, ASIC released the following information sheets which provides additional information for employers and trustees about the changes affecting the distribution of superannuation products as a result of the recent law reforms.

• Information Sheet 89 (INFO89) – provides guidance to employers about how they can communicate to their employees about their superannuation choices without breaking the law; and
• Information sheet 241 (INFO241) - provides guidance to superannuation trustees about the prohibitions on using inducements to influence employers in their choice of a default fund or to encourage employees to choose or retain membership of a fund.

Extension to work-from-home office expenses shortcut method

Due to the impacts of the COVID-19 pandemic and the increase in the number of individuals working from home, the ATO has extended the all-inclusive temporary shortcut method to calculate an individual’s working from home deduction amount by another 12 months to 30 June 2022.

The shortcut method allows taxpayers to claim a flat rate of 80 cents per hour for all of the expenses associated with working from home. This includes:

• phone and internet expenses;
• decline in value of equipment and furniture; and
• electricity and gas for heating, cooling and lighting.

White paper on financial advice

On 12 October 2021, the FSC announced that it had released the White Paper on Financial Advice, which provides a number of recommendations aimed at simplifying the financial advice regulatory framework and reducing the overall cost.

The recommendations include:

• abolishing complex Statement of Advice (SOA) for a simpler, consumer-focused ‘Letter of Advice’;
• abolishing the Safe Harbour Steps for complying with the Best Interest Duty;
• removing labels for different categories of advice and breaking the nexus between financial product and advice; and
• increasing the threshold under which consumers are classified as ‘retail clients’ to those with assets of less than $5 million (up from $2.5 million) and index the threshold to CPI (currently not indexed);
• moving towards self-regulation by 2030 in which prior learning and pathways, and individual registration are support by the Australian Financial Services Licensing Regime.

FSC commissioned KPMG to undertake analysis of the following three recommendations – abolishing the Safe Harbour Steps, introducing Letters of Advice, and simplifying the categories of advice. The analysis shows that:

• the cost of providing financial advice per client may reduce from $5,334 to $3,466;
• the time taken to provide advice to clients may reduce by up to 32%;
• advisers may be able to service an additional 44 new clients each year;
• advisers could provide 2.2 Letters of Advice as opposed to 1.5 SOAs per adviser per week; and
• the time required to complete the advice process may reduce from 23.9 hours to under 16.8 hours per client. 

Occupational exclusions banned for default group life insurance

On 12 October 2021, the FSC announced that it will introduce an enforceable FSC Standard to prohibit the use of exclusions and restrictive disability definition in all default group life insurance for members employed in higher-risk occupations. This standard will apply to all default group life insurance in superannuation amongst FSC members.  

The FSC also recognises that under the new stapling regime which was introduced as part of the Government’s Your Future, Your Super reforms, some members may be unable to claim on a life cover due to the occupation exclusion in default group insurance. As such, the enforceable FSC standard will prohibit the use of exclusions and restrictive disability definitions for all default Life, TPD and Income Protection cover in MySuper and Choice products. 

The standard is scheduled to commence on 1 January 2023, subject to further regulatory consultation.

New guidance on supervisory arrangements

On 11 October 2021, the TPB updated Information Sheet 36/2021 which provides guidance on the supervisory arrangement requirements under the Tax Agent Services Act 2009 (TASA).

Under TASA, all partnerships and company entities are required to meet the ‘sufficient number’ requirement and the new guidance will assist these entities in understanding and meeting their obligations.

A range of recommendations and requirements were also included in the update. These include:

• the requirement to obtain the prior written consent of nominated registered individuals, to ensure they are aware of their responsibilities as the supervising tax practitioner;
• the establishment of a supervisory plan which sets out the processes and procedures to establish a clear understanding of the supervisory arrangement for both the supervisor and staff under the plan;
• relevant considerations to ensure adequate supervisory arrangements exist for remote working arrangements; and
• factors to consider when a nominated individual supervises one or more related or unrelated entities, or both.

September exam results

On 25 October 2021, FASEA released the results from the September 2021 Exam. Of the 1,312 candidates who sat the exam, 61% passed. In releasing the results, FASEA has also highlighted some areas for improvement, particularly amongst unsuccessful candidates. These are:

1.     Financial Advice Regulatory and Legal Requirements:

• evaluating key documentation in terms of Chapter 7 of the Corporations Act.
• applying Chapter 7 of the Corporations Act 2001 when evaluating case studies and identifying responsible providers obligations and breaches of those obligations
• demonstrating knowledge of legal requirements for both individual and licensee.
• applying the Tax Agents Services Act 2009 requirements to scenarios and identifying compliance and non-compliance.

2.     Applied ethical and professional reasoning and communication:

• demonstrating an understanding of the importance of a code of ethics.
• identify when and under what conditions a practitioner should refer a client.
• identifying sources of judgement and biases and their influence on financial advice

3.     Financial advice construction

• demonstrating an understanding of the context in which financial advice is given and requested and how this impacts decision making.