Monthly technical roundup - November 2022

Increase to the Commonwealth Seniors Health Card income thresholds

On 28 October 2022, the Social Services and Other Legislation Amendment (Lifting the Income Limit for the Commonwealth Seniors Health Card) Act 2022 (Cth) received Royal Assent.

The Act increases the Commonwealth Seniors Health Card (CSHC) income test limits to:

The new thresholds came into effect on 4 November 2022.

Draft tax ruling on residency

On 6 October 2022, the ATO released its Draft Tax Ruling TR2022/D2 Income Tax: residency tests for individuals for consultation.

The draft Ruling outlines the tests used by the ATO when assessing an individual’s residency, as well as updating its views based on recent court cases. The residency tests include the:

• ordinary concepts test;
• domicile test;
• 183-day test; and
• Commonwealth superannuation fund test.  

The draft Ruling, when finalised, will replace the following tax rulings as the content within both are consolidated and contained in the new draft ruling:

• Tax Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia; and
• Tax Ruling TR 98/17W Income tax: residency status of individuals entering Australia.

Interested parties are invited to comment on the draft ruling by 25 November 2022.

Quality of Advice Review – Conflicted Remuneration

In October 2022, the Government released the Conflicted Remuneration Paper which contains a high-level snapshot of its key findings from the data collected by the Quality of Advice Review on general and life insurance. The Paper also put forward several proposals for reforms, some of which include:

• requiring financial advisers, insurance brokers and other intermediaries to obtain written informed consent from their clients in order to be able to receive commissions or other benefits in connection with the issue of general insurance or consumer credit insurance products;
• requiring financial advisers (relevant providers) to obtain written informed consent from their clients in order to be able to receive commissions in connection with the issue of life risk insurance products;
• retain the existing exemption to the ban on conflicted remuneration for time-sharing schemes, and for the Government to conduct a separate review of the regulatory framework for time-sharing schemes under Chapter 7 of the Corporations Act 2001 (Cth); and
• remove or modify the existing exemptions to the ban on conflicted remuneration for certain circumstances (e.g. where advice has not been provided in the previous 12 months).

The consultation period will close on 14 November 2022.

Extension to Paid Parental Leave (PPL)

On 15 October 2022, the Government announced that it intends to increase the length of the PPL scheme and improve flexibility. The proposals include:

• an additional 6 weeks of PPL for families, increasing the total leave payable up to 26 weeks. This will be achieved by progressively expanding the PPL by 2 additional weeks a year from 1 July 2024, until the scheme reaches 26 weeks from 1 July 2026;
• families will be able to take the PPL in blocks between periods of paid work and on a ‘use it or lose it’ basis; and
• both parents will be able to share the PPL weeks and single parents will be entitled to the full PPL benefits.

Federal Budget October 2022

On 25 October 2022, the Government handed down the Federal Budget October 2022-23.  Below are some of the proposals:

For individuals

• no changes to the currently legislated personal income tax arrangements;
• maintain the current tax treatment of digital currencies, including the capital gains tax treatment where they are held as an investment.

For Businesses

• the Government will not proceed with the measure to allow taxpayers to self-assess the effective life of intangible depreciating assets, announced in the 2021–22 Federal Budget;
• exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars. The car must not have been held or used before 1 July 2022;
• improve the integrity of the tax system by aligning the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs;

Superannuation

• reduce the eligibility age for individuals to make downsizer contributions to superannuation from age 60 to 55;

Social security

• expanding the paid parental leave scheme and making the scheme more flexible;
• extending the Centrelink assets test exemption for the principal home sale proceeds from 12 months to 24 months for income support recipients and only applying the lower deeming rate (currently 0.25%) to the principal home sale proceeds for 24 months after the sale of the home; and
• introducing a one-off credit of $4,000 to the Work Bonus income bank for age and veteran pensioners.

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

Delay to Financial Adviser Registration

On 1 November 2022, the Government announced it will delay the requirement to register financial advisers with ASIC until 1 July 2023.

The Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021(Cth) introduced a central registration requirement for financial advisers to be registered with ASIC by 1 January 2023. This is separate from the pre-existing requirement for an Australian Financial Services licensee to appoint a financial adviser that they authorise to the Financial Advisers Register (FAR).

Stage 1 of registration is a one-off registration process administered by ASIC using the FAR, with a view to ensuring the obligation on licensees to register financial advisers operates as efficiently as possible. ASIC has also had close engagement with industry about how best to implement this stage and have identified ways to improve the operation of the stage 1 registration process with benefits for licensees.

Following the Government’s announcement, ASIC confirmed that it will delay the requirement for financial advisers to be registered until 1 July 2023 to allow these improvements to be implemented.

ASIC will publish guidance in advance of the ASIC Connect portal opening for registration. This guidance material will be accompanied by a set of webinars to assist industry comply with the new registration requirement. 

Cost Recovery Implementation Statement for 2022-23

On 21 October 2022, ASIC announced the release of its 2021-22 Cost Recovery Implementation Statement (CRIS) as required under the industry funding model.

The CRIS details ASIC’s estimated regulatory costs for the 2021-22 financial year and its estimated levies by industry sector and sub-sector.

The final industry levies, which will be based on ASIC’s actual regulatory costs and business metrics will be published in December 2022, with invoices to be issued between January and March 2023.

Super trustees to improve outsourcing arrangements

Superannuation trustees have long outsourced services (e.g. administration and investment management functions) to external providers which is why APRA announced on 5 October that they expect trustees to continue to focus on their outsourcing arrangements, and improve operational resilience and outcomes for members. 

APRA have found that trustees have strengthened board oversight and monitoring of outsourcing arrangements after the Royal Commission. However, APRA has identified some key areas for improvement.

Some highlights from the announcement:

• outsourcing gives trustees access to specialist expertise and capabilities, often at a lower cost and risk (compared to carrying out these operations themselves). However, it increases or introduces additional and different risks that can significantly impact their members;
• APRA conducted an in-depth review of 10 retail super funds between February 2019 and October 2021. Key observations from the review focus on 3 areas:
  • Assessment of value for money – trustees should understand and challenge existing cost and services standards;
  • Performance and monitoring – trustees should have timely, reliable reporting that balances value, compliance, quality and efficiency; and
  • Oversight – trustees should ensure they have adequate support by skilled and capable personnel in the oversight of the outsourcing arrangements.
• Specific obligations on trustees in the management of outsourcing arrangements are set out in APRA’s Prudential Standard SPS 231 Outsourcing (SPS 231); and

APRA released draft Prudential Standard CPS 230 Operational Risk Management (CPS 230) in July 2022 for consultation. The draft Prudential standard proposes to enhance and incorporate these obligations in a single cross industry prudential standard (expected to come into force from 1 January 2024).

Publication to increase super transparency

On 20 October 2022, APRA announced the release of its inaugural Quarterly Superannuation Industry Publication (quarter ending June 2022) which includes new and expanded data aimed at improving transparency of the superannuation industry.

The new data includes:

• Information on the number and types of products and investment options available in the superannuation industry;
• quarterly data of member demographics (e.g. age, gender, account balance); and
• improved classification of MySuper product asset allocations.

Some key insights from the publication include:

• for the quarter ending 30 June 2022, there are 69 MySuper products, 956 Choice Products and 142 Defined Benefit products from APRA regulated entities with more than 4 members;
• of the $1.95 trillion in member assets, 41.5% is held in MySuper products, 51% in Choice Products, and 7.5% in Defined Benefit products; and
• in the Choice segment, there are around 10,000 multi-sector investment options, 30,000 single sector investment options, and 116,000 direct asset investment options available to members to invest in directly.  

Considerations before investing in crypto

On 20 October 2022, the ATO recommended that trustees of SMSFs should seek professional advice from a licensed financial adviser before deciding to invest in crypto assets.

The ATO highlighted that from a regulatory and tax perspective, it is important that:

• the SMSF must hold the assets separately from the trustee’s personal or business assets (i.e. have its own digital wallet);
• the investment must be valued in line with the ATO’s valuation guidelines;
• any crypto assets that a member or related party held personally should not be sold or transferred to the SMSF as a contribution;
• the investment is consistent with the sole purpose test, is allowed under the fund’s trust deed and in line with the SMSF’s investment strategy;
• the purchase, selling or investing in crypto assets must be undertaken on arm’s length terms; and
• Crypto assets are capital gains tax (CGT) assets and CGT implications may apply at disposal. It is important that the trustees report the capital gain/loss accurately when completing the fund’s tax returns.