Monthly technical roundup - December 2023

ASIC FAR amendments, off-market share buy-back tax treatment, and TPB enhancements

On 27 November 2023, the Treasury Laws Amendment (2023 Measures No. 1) Act 2023 (Cth) received Royal Assent.

The measures contained in the Act include:

Amendments relating to the Financial Adviser Register (FAR)

The Act amends the Corporations Act 2001 (Cth) to allow ASIC to approve applications from more than one licensee to register a relevant provider 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.

The measures came into effect on 28 November 2023.

Tax treatment for off-market share buy-back

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

Prior to the passage of this legislation, 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.

Going forward, 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.

The measures will come into effect on 1 July 2024.

Enhance independence of the Tax Practitioner Board (TPB)

The Act 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 Business Activity Statement (BAS) services.

These amendments were in line with the Government’s response to the final report of the TPB review, and the measures will come into effect on 1 January 2024.

Work Bonus and Employment income nil rate update

On 28 November 2023, the Social Security and Other Legislation Amendment (Supporting the Transition to Work) Act 2023 (Cth) received Royal Assent.

The Act implements changes to the Social Security Act 1991 (Cth) and Veterans’ Entitlements Act 1986 (Cth)  that affect pension and income support recipients. The changes include:

• permanently increasing the maximum Work Bonus income bank balance for new and existing recipients from $7,800 to $11,800 from 1 January 2024. Additionally for new recipients, they will have a starting Work Bonus income bank balance of $4,000 (rather than $0)
• doubling the employment income nil rate period from 12 weeks to 24 weeks for income support recipients who enter full-time employment from 1 July 2024, allowing them to retain concession cards or other supplementary benefits (e.g. childcare subsidies) during this period.

Objective of super

On 16 November 2023, the Superannuation (Objective) Bill 2023 (Cth) was introduced to Parliament.

The Bill enshrines the objective of superannuation in legislation which, if passed, will require policy makers to assess future changes to superannuation legislation for compatibility with this objective.

The proposed objective is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way (the Objective).

The Explanatory Memorandum expands on the key aspects of the proposed legislation, some of which include:

• the Objective includes the key principles policy-makers should consider in delivering on its purpose, and that the system should operate in an equitable and sustainable way, whilst recognising the interaction of superannuation with the various forms of government support, such as the Age Pension
• the Objective should not be considered in isolation and policy-makers will need to consider and make informed decisions on the potential trade-offs between the different concepts to ensure superannuation policy delivers on the broader objective in a cohesive manner
• the intent of the Objective is to require policy-makers to demonstrate how future changes to superannuation law are consistent with the legislated objective, and it is not intended to change the operation or interpretation of existing superannuation laws.

If passed, the legislation will commence 28 days after the Bill receives Royal Assent.

Increase to tax on super earnings for balances above $3 million

On 30 November 2023, the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (Cth) and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023 (Cth) were introduced to Parliament.

If passed, an additional 15 per cent tax (new Division 296 tax) on earnings corresponding to the proportion of an individual’s superannuation balance that is above $3 million from 1 July 2025, will be imposed.

The amendments contained in the Bills largely reflect the Government’s initial proposal on how the new tax is to be calculated and levied. Key proposals include:

• the threshold will apply per individual, meaning a person could have a superannuation balance up to $3 million without it affecting their spouse
• the tax is imposed directly on the individual and is separate from the existing taxation arrangements that apply to a fund’s earnings
• regulations to determine how defined benefit interests will be valued for the purpose of total superannuation balance (TSB) and earnings have not yet been released, however these funds will be subject to the new tax. Special rules will also apply to certain persons with constitutionally protected funds and members of non-complying funds
• individuals who will be exempt from Division 296 tax (e.g. child recipients of superannuation income streams, those who have made structured settlement contributions and for those who have died during the income year)

Housing affordability - establishing a shared equity program

On 30 November 2023, the Help to Buy Bill 2023 (Cth) and the Help to Buy (Consequential Provisions) Bill 2023 (Cth) were introduced to Parliament.

The Bill establishes a shared equity program called Help to Buy to assist low to middle income earners to purchase new or existing homes by accessing an equity contribution from the Government.

Under the program, the Government would provide eligible participants up to 30 per cent of the purchase price of an existing home and up to 40 per cent for a new home, where eligible participants will only need to meet a minimum 2 per cent deposit. Additionally, under this arrangement, the Government will be recognised as a second mortgage or other right secured against the property.

If passed, the amendments proposed in the Bill will come into effect the day after it receives Royal Assent.

First Tranche of Quality of Advice reforms

On 14 November 2023, the Government announced the release of exposure draft legislation which contained the first tranche of legislation for its Delivering Better Financial Outcomes package of reforms, which are aimed at removing unnecessary regulatory red tape relating to the provision of financial advice.

The reforms contained in the exposure draft include:

• providing clarification around the legal basis in the Superannuation Industry (Supervision) Act 1993 (Cth) for superannuation trustees to pay financial advice fees from a member’s superannuation account at the request of the member
• streamlining the ongoing fee renewal and consent requirements, including the removal of the requirement to provide a fee disclosure statement, in the Corporations Act 2001 (Cth)
• providing more flexibility around meeting the Financial Services Guide (FSG) requirements under the Corporations Act
• simplifying and clarifying the provisions governing conflicted remuneration in the Corporations Act, such as the removal of the exception to conflicted remuneration rules for the issue of financial products where advice has not been provided in the previous 12 months.

The consultation period closed on 6 December 2023.

If passed, the amendments proposed in the Bill will come into effect the day after it receives Royal Assent.

Retirement phase of super

On 4 December 2023, the Government announced the release of a discussion paper seeking industry and community feedback on how the superannuation system could be improved to provide better retirement outcomes for individuals.

The paper focuses on three key areas of the retirement phase of superannuation, and these include:

Supporting members to navigate retirement income

• providing better tools, information and guidance to assist retirees in making decisions around how they would fund their retirement
• shift the mindset of retirees to treat superannuation as an income stream, rather than a nest egg, and to assist them to understand how they could draw down from their savings in retirement
• providing tools to assist retirees to assess the longevity of their superannuation capital and what drawdown amount would be best for their circumstances.  

Supporting funds to deliver better retirement income products and services

• reviewing recent policy changes to the retirement income reforms, such as the retirement income covenant, and ensuring superannuation funds integrate a retirement income strategy to improve members’ retirement outcomes.

Making lifetime income products more accessible

• supporting superannuation funds in creating new lifetime income products by facilitating funds in risk pooling, or directly intervening in the pricing of longevity risk through reinsurance to assist product providers in managing their financial risks.

The consultation period will close on 9 February 2024.

Comprehensive financial advice reform package

On 7 December 2023, the Government announced the release of its final response to the Quality of Advice review as part of its Delivering Better Financial Outcomes package of reforms.

The proposed reforms address each of the recommendations of the Quality of Advice Review (the Review), and the proposals were broken down into the following streams:

A modernised and flexible best interests duty

Introducing a modernised and flexible best interests duty, aimed at ensuring the provision of high quality advice that meets consumers’ needs. This would include:

• retaining the existing primary obligation to act in the client’s best interests and to prioritise the interests of the client in the event of a conflict
• updating the standards to provide clearer legislative support for scaled or limited scope advice where this meets the client’s objectives and needs, and for advice where the adviser has limited, but relevant information
• removing the existing best interests duty “safe harbour” steps
• retaining the requirement to provide advice that is appropriate to clients and fit-for-purpose for their circumstances
• maintaining the current concessional treatment for personal advice provided by banks and general insurers on defined basic products.

A new class of financial adviser

Introducing a new class of financial advice provider to support an increase in the availability and affordability of simple personal advice. This would include:

• the inability to charge a fee for personal advice provided by this new class of adviser, nor will they be able to receive a commission
• requiring the new class of advisers to meet additional standards which were not recommended by the Review, including subjecting these advisers to the new modernised best interest duty
• introducing additional measures to ensure there are robust consumer protections in place for the new class of adviser, including additional obligations on Australian Financial Services Licensees and legislated minimum competency standards for the adviser
• licensees will be wholly responsible for the advice provided by this new type of advice provider.

Expanding superannuation advice

Establishing a comprehensive framework for superannuation advice will be introduced by:

• legislating consistent rules on what advice topics can be funded from an individual member’s superannuation account 
• allowing superannuation funds to consider a broader range of a member’s personal and household circumstances such as debt, spouse’s income, or age pension eligibility
• supporting increased member engagement at key points in their retirement income journey by allowing superannuation funds to prompt members to consider options on how they may wish to access their superannuation capital.

A principles-based advice record.

Replacing Statements of Advice with a more fit-for-purpose, principles-based, advice record. This would include:

• requiring the advice record to address the following four principles:
  1. subject matter/scope
  2. the advice
  3. reasons for the advice
  4. the cost of advice to the client and/or benefits the adviser will receive.
• maintaining the current requirement to give the record to the client
• updating the adviser record-keeping obligations to ensure the key information that informs the advice is appropriately recorded, and simplifying the advice record to make it easier for clients to understand and make an informed decision about the advice.

The Government also stated that it will consult industry and consumer stakeholders over coming months on the design of the draft legislation, which, pending other Government priorities, is expected to be progressed to the Parliament for consideration before the end of 2024.

ASIC and AFCA sign memorandum of understanding

On 4 December 2023, ASIC announced it had signed a memorandum of understanding (MoU), together with the Australian Financial Complaints Authority (AFCA), which sets out how they will continue to work together to support a fair and efficient financial services sector.

The MoU sets out the agreed basis for engagement, including coordination, cooperation, and information sharing, between the two bodies. It also reflects the parties’ intentions to maintain a proactive, open and collaborative relationship to perform their respective functions effectively within the terms of the applicable law and other governing documentation.

ASIC and AFCA also acknowledged that the MoU is to govern the administrative arrangements between the two bodies and the parties may establish supplementary protocols and guidelines to operate under the MoU.

$700 million boost to retirement savings

On 13 November 2023, the ATO announced it had recovered and distributed $683.8 million of super entitlements to superannuation funds and individuals, including superannuation guarantee (SG) amounts collected for liabilities resulting from employee complaints, ATO initiated compliance activities and employer voluntary disclosures.

The ATO had also released its super guarantee compliance snapshot 2022-23 and some of the key highlights include:

• more than $1.13 billion in superannuation guarantee charge (SGC) liabilities were raised through SG disclosures and ATO compliance action during the 2022–23 financial year
• during the 2022–23 financial year, the ATO completed around 14,000 SG audit cases and issued approximately 134,000 reminders and prompts. This raised over $685 million in liabilities, including penalties.
• around 56,000 employers came forward and voluntarily disclosed $445 million in liabilities.