Monthly technical roundup - October 2021

COVID-19 Disaster Payment update

On 3 September 2021, the Paid Parental Leave Amendment (COVID-19 Work Test) Act 2021 received Royal Assent.

The Act amends the Paid Parental Leave Act 2010 to allow the days an applicant is on Paid Parental Leave (PPL) or Dad and Partner Pay (DaPP) to count towards the applicant’s eligible work days when assessing their eligibility to the COVID-19 Disaster Payments.

This will increase accessibility.

Actuarial certificate update - SMSF

On 13 September 2021, the Treasury Laws Amendment (2021 Measures No. 6) Act 2021 received Royal Assent.

The Act amends the Income Tax Assessment Act 1997 to remove the requirement for superannuation trustees to provide an actuarial certificate when calculating exempt current pension income using the proportionate method where the total superannuation benefits for all members are in retirement phase for the entire financial year.

The amendments will apply for the 2021/22 and later financial years.

Retirement income covenant

Following the retirement income covenant position paper on 19 July 2021, Treasury released an exposure draft Bill and explanatory material on the retirement income covenant on 27 September 2021.

In line with the 2018-19 Budget, the Government intends to introduce a retirement income covenant in the Superannuation Industry (Supervision) Act 1993 which outlines a fundamental obligation of trustees to formulate, review regularly and give effect to a retirement income strategy.

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

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

The covenant also includes obligations to:

• take reasonable steps to gather information necessary to inform the formulation and review of the strategy;
• record the strategy in writing;
• record a range of matters as part of the strategy; and
• make a summary of the strategy publicly available on the fund’s website.

It is proposed that the covenant will not apply to self managed superannuation funds (SMSFs) or small APRA funds (SAFs). This is a change from the position paper of 19 July 2021 which indicated that the covenant would apply to all superannuation funds, including SMSFs and SAFs.

Subject to the passage of legislation, the retirement income covenant will take effect from 1 July 2022. Stakeholders are encouraged to provide feedback. The consultation period closes on 15 October 2021.

Better Advice Bill draft regulations

On 29 September 2021, Treasury released for consultation exposure draft regulations and a draft legislative instrument supporting the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 (the Better Advice Bill), which at the time of writing was still before the Senate.

The exposure draft regulations and legislative instrument implements key elements to support the operation of the Better Advice Bill. These include:

• setting the criteria for when ASIC must refer matters to the single disciplinary body;
• specifying the administrative sanctions made against an adviser that would be included on the Financial Adviser Register;
• extending the deadline to 30 September 2022 for advisers who have attempted the financial adviser exam twice before 31 December 2021;
• proposing a new fee structure for the adviser exam and registration of financial advisers from 1 January 2022; and
• outlining the registration, education and training requirements for financial advisers who provide tax (financial) advice.

The Government aims to have the Better Advice Bill, supporting regulations and legislative instrument in force on 1 January 2022.

Stakeholders are invited to provide feedback and the consultation period closes on 15 October 2021.

Charities and non-for-profit update

On 20 September 2021, Treasury released an exposure draft regulations and explanatory statement on the Australian Charities and Not-for-profits Commission Amendment (2021 Measures No. 3) Regulations 2021.

The regulations will give effect to three recommendations from the Australian Charities and Not-for-profits Commission Legislation Review. The reforms include:

• increasing the revenue threshold defining small, medium and large registered charities (recommendation 12). This new reporting requirement will take effect for the 2021-22 financial year onwards;
• requiring all registered charities to disclose related party transactions, with small registered charities to make a simplified disclosure involving a brief description of related party transactions (recommendation 14). Charities will have to start disclosing related party transactions from the 2022-23 financial year; and
• requiring large registered charities to disclose, on an aggregate basis, remuneration paid to responsible persons and senior executives, unless the charity has only one such person (recommendation 15). This reporting requirement will commence from the 2021-22 reporting period.  

Stakeholders are encouraged to provide feedback. The consultation period closes on 18 October 2021.  

Occupational exclusions in default MySuper insurance products

On 2 September 2021, Treasury released a consultation paper to canvas views from interested parties on the extent of the problems arising from occupational exclusions in default MySuper insurance products.

Occupation exclusions mean that insurance cover is not available (or partially available) for certain occupations which are classified as higher risk by insurers.

The Government’s review will focus on default cover in respect of life and total permanent disability insurance which trustees are required to provide to their MySuper members, in particular:

• occupational exclusions that affect automatic acceptance of default cover (which can impede new MySuper members from getting default cover); and
• occupation exclusions which may be applied to individuals who change occupations, which can lead to the loss of default cover.

Insurance in excess of default cover, such as optional units, and income protection will not form part of the review.

Submissions will close on 14 October 2021. 

Design and Distribution Obligations (DDO) regime - update

On 14 September 2021, the Government announced additional changes to the DDO regime. The changes include:

• the removal of the DDO nil complaints reporting requirement on distributors;
• providing employers with a DDO exemption when they provide new employees with a PDS for the establishment of a default superannuation fund; and
• clarifying that provision of a PDS during the personal advice process is within the scope of the personal advice exemption for certain DDO distributor obligations.

Updated guidance on breach reporting

On 7 September 2021, ASIC released RG 78 Breach reporting by AFS licensees and credit licensees to help credit and Australian Financial Services (AFS) licensees to meet the new breach reporting obligations, which commenced on 1 October 2021.

Under these obligations, AFS licensees will have to report breaches that they discover from 1 October 2021, even if the breach occurred before that date. However, credit licensees do not have to report breaches that occurred before 1 October 2021, even when the breach is identified from 1 October 2021.

ASIC has also released Information Sheet 259 which sets out the actions required by licensees to notify their affected customers of a breach of the law, investigate the breach, and remediate their impacted customers.

ASIC has reiterated that they will take a reasonable approach in the initial stages of the new obligations, provided the industry participants are using their best efforts to comply.

FAQ - Design and Distribution Obligations (DDO) for Advice Licensees and Advisers

On 16 September 2021, ASIC published Information Sheet 264 (INFO 264) which explains how the DDO obligations for issuers and distributors of financial products in Part 7.8A of the Corporations Act 2001 apply to advice licensees and advisers when providing personal advice.

The information sheet can be broken down into two sections:

• an overview of DDO (questions 1-4); and
• information on the specific obligations that apply to advice licensees and financial advisers when providing personal advice (questions 5-11).

Guidance on Hawking Reforms

On 23 September 2021, ASIC reissued RG 38 The hawking prohibition which reflects the reforms to the anti-hawking regime under the Financial Sector Reform (Haynes Royal Commission Response) Act 2020, which commences on 5 October 2021.

The reforms are designed to tackle consumer harms arising from consumers being approached with unwanted products through unsolicited contact. Under the prohibition, a person must not offer a financial product to a retail client during the course of, or because of unsolicited, real-time contact. As such, a consumer must provide consent to be contacted and that consent must be positive, voluntary, and clear.

Extended COVID-19 relief for SMSFs

On 23 September 2021, the ATO announced that a number of reliefs will be available to SMSF trustees in the 2019/20 and 2020/21 financial years due to the impacts of the COVID-19 pandemic.

SMSF residency relief

The ATO will not apply compliance resources to determine whether a fund met the residency test where the trustees were stranded overseas for more than two years due to the COVID-19 pandemic preventing them from satisfying the residency test.

Rental relief

For SMSFs that provided rental relief to tenants in a form of a reduction, waiver or deferral, which gave rise to a contravention of the super laws, the ATO will not take any compliance action against the fund provided:

• the relief was offered on commercial terms (having regard to State and Territory COVID-19 support measures) due to the financial impacts of COVID-19; and
• the arrangement was properly documented.

The ATO also plans to make a determination in the 2021-22 financial year to ensure that a rental deferral offered by an SMSF or a related party to a tenant does not cause a loan or investment to be an in-house asset in the current and future financial years.

Loan repayment relief

If loan repayment relief was provided to a related or unrelated party due to the financial impacts of COVID-19, the relief was offered on commercial terms and was properly documented, then the ATO will not take any compliance action against the SMSF.

In-house asset relief

If an SMSF exceeded the 5% in-house asset threshold as at 30 June 2021 due to the financial impacts of COVID-19, the trustees must still prepare a plan to reduce the market value of the fund’s in-house assets to below 5% by 30 June 2022.

However, the ATO will not take any compliance action against the SMSF if the trustees have not executed the plan by 30 June 2022 due to the financial impacts of COVID-19.