Recent developments

Welcome to the March technical roundup, an update on reforms and announcements for the month of March. In this timeframe, the Financial Sector Reform (Hayne Royal Commission Response No.2) Bill 2020, including the new ongoing adviser fee arrangements, received royal assent. Other items of note include the indexation of the concessional and non-concessional contribution caps and the introduction to Parliament of the Treasury Laws Amendment (Your Future, Your Super) Bill 2021, which will limit the creation of multiple super accounts, amongst other measures. 

Legislative developments

Acts

Financial Sector Reform

The Financial Sector Reform (Hayne Royal Commission Response No. 2) Act 2020 received Royal Assent on 2 March 2021. The Act implements a further four recommendations of the Financial Services Royal Commission, to improve consumer protections. In particular:

  • annual renewal and payment (recommendation 2.1). Schedule 1 of the Act amends the Corporations Act 2001 to require financial service providers to provide clients with a single document each year, which outlines the fees charged and services provided in the previous 12 months, the fees that will be charged and the services to which the client will be entitled in the following 12 months, and seeks annual renewal from clients for all ongoing fee arrangements. Financial service providers must also obtain written consent before fees under an ongoing fee arrangement can be deducted from a client’s account.
  • disclosure of lack of independence (recommendation 2.2). Schedule 2 of the Act also amends the Corporations Act 2001 to require a providing entity (financial services licensee or authorised representative) to give a written disclosure of lack of independence where they are authorised to provide personal advice to a retail client.
  • advice fees in superannuation (recommendations 3.2 and 3.3). Schedule 3 of the Act amends the Superannuation Industry (Supervision) Act 1993 to provide greater protection for superannuation members against paying fees for no service. As a result, fees under an ongoing fee arrangement will not be able to be deducted from MySuper products, but one-off fees may be. In addition, trustees will be prohibited from charging a member fees for advice provided to that member (other than intra-fund advice) unless:
    • the fee is charged in accordance with an arrangement that the member has entered into;
    • the member has consented to the fee; and
    • the trustee has the consent, or a copy of the consent from the member.

Date of effect is 1 July 2021, with a 12 month transitional period commencing 1 July 2021 for arrangements entered into before 1 July 2021.

Bills

Your Future, Your Super

On 17 February 2021, the Treasury Laws Amendment (Your Future, Your Super) Bill 2021 was introduced to Parliament.

The Bill proposed to make amendments to the Superannuation Guarantee (Administration) Act 1992 and Superannuation Industry (Supervision) Act 1993 in order to enhance the superannuation system by:

  • limiting the creation of multiple super accounts for employers who do not choose a superannuation fund when they start a new job. To apply when employment starts on or after 1 July 2021;
  • APRA to conduct an annual performance test for MySuper products (and other products to be specified in regulations). Trustees will be required to give notice to its beneficiaries where their product has failed a performance test. To apply from 1 July 2021 for MySuper products, and 1 July 2022 for ‘other products’ to be specified in the regulations;
  • where a product has failed the performance test in two consecutive years, the trustee is prohibited from accepting new beneficiaries into that product. To apply from 1 July 2021; and
  • increasing trustee accountability by ensuring trustees only act in the best financial interest of their members. Superannuation funds will also be required to provide better information regarding how their funds are managed and disclose all portfolio holdings. To apply from 1 July 2021.

 

Social Security Changes

On 25 February 2021, the Social Services Legislation Amendment (Strengthening Income Support) Bill 2021 was introduced to Parliament.

Under this Bill, the government proposed the following changes to a number of social security payments:

  • increase of $50 per fortnight to working-age social security payments from 1 April 2021;
  • permanently increasing the income-free earnings threshold to $150 per fortnight for JobSeeker and Youth Allowance recipients from 1 April 2021;
  • temporarily extending the waiver of the Ordinary Waiting Period for certain payments by another 3 months to 30 June 2021;
  • temporary extending the expanded eligibility criteria for JobSeeker Payments and Youth Allowance for those required to self-isolate or care for others as a result of COVID-19 to 30 June 2021; and
  • temporary pension portability extensions for pensioners unable to return to their usual place of residence within 26 weeks due to circumstances beyond their control will be extended to 30 June 2021. 

Government announcements

Proposed changes to Mutual Obligation Scheme

The Government announced plans to alter the Mutual Obligation Scheme, where:

  • job seekers will be required to return to compulsory face-to-face services with Jobactive providers;
  • job seekers will be required to search for a minimum of 15 jobs per month from early April, increasing to 20 jobs per month from 1 July 2021;
  • an employer reporting line will be established where employers can refer job seekers who are not genuine about their job search or declines an offer for a role;
  • some JobSeeker payment recipients will be required to participate in work after six months; and
  • increased auditing of job applications to ensure job seekers are making genuine applications.

The above plans are detailed on the Department of Education, Skills and Employment website but were not included in the Social Services Legislation Amendment (Strengthening Income Support) Bill 2021. 

Regulator views

ATO

COVID-19 and permanent establishment

The ATO has provided updated guidance as to whether the presence of employees in Australia, due to COVID-19 and international travel restrictions, may create a permanent establishment.

As a result of travel restrictions, foreign companies may be concerned about the potential effects on their business and tax affairs due to the presence of employees in Australia.

The updated guidance states that the ATO will not apply compliance resources to determine if the employees have a permanent establishment in Australia if:

  • the employee did not otherwise have a permanent establishment in Australia before the effects of COVID-19;
  • the temporary presence in Australia continues to solely be a result of COVID-19 related travel restrictions;
  • those employees temporarily in Australia will relocate overseas as soon as practicable following the relaxation of international travel restrictions; and
  • those employees have not been recognised as creating a permanent establishment or generating Australian sourced income in Australia for the purpose of the tax laws of another jurisdiction.

This approach is applicable until 30 June 2021. From 1 July 2021, individuals will need to consider whether the ongoing arrangements give rise to a permanent establishment in Australia. 

 

Indexation of the contribution caps

Following the release of December 2020 Average Weekly Ordinary Time Earnings (AWOTE) figures, the concessional and non-concessional contribution (NCC) caps are set to increase on 1 July 2021 due to indexation.

  • Concessional contribution cap: Increase from $25,000 to $27,500; and
  • Non-concessional contribution cap: Increase from $100,000 to $110,000.

This increase, combined with the indexation of the general transfer balance cap will change the total super balance thresholds for individuals who are looking to trigger the bring-forward rule.

A comparison of the current and 2021-22 thresholds are shown in the table below:

Maximum NCC cap 2020-21
(NCC cap $100k)
2021-22
(NCC cap $110k)
Three times NCC cap TSB less than $1.4m TSB less than $1.48m
Two times NCC cap TSB at least $1.4m and less than $1.5m TSB at least $1.48m and less than $1.59m
Single NCC cap TSB at least $1.5m and less than $1.6m TSB at least $1.59m and less than $1.7m
Nil TSB at least $1.6m TSB at least $1.7m

TSB = Total super balance at 30 June prior to the start of the financial year

Individuals who have triggered the bring forward rule in either the 2019/2020 or 2020/2021 financial years do not benefit from the indexation of the non-concessional contribution cap. 

ASIC

ASIC update for compensation related to misconduct

ASIC has confirmed a total of $1.24 billion in compensation have been paid or offered to customers who suffered loss or detriment because of fees for no services misconduct or non-compliant advice.

This amount was paid or offered by six of Australia’s largest banking and financial services institution as at 31 December 2020 and is in addition to the $193.6 million of compensation payment or offers by the institutions from 1 July 2020 to 31 December 2020.

The focus on this review, which started in 2015 looked into:

  • the extent of failures by institutions in delivering ongoing advice services to fee paying customers for financial advice services; and
  • the effectiveness of supervision of financial advisers to identify and deal with non-compliant advice.

For more information, please refer to the 21-023MR ASIC update

APRA

Latest data – COVID-19 Early Release Scheme

APRA published their latest industry-level and fund-level data on the COVID-19 Superannuation Early Release Scheme on 8 February 2021.

Over the period between 20 April 2020 (commencement date) to 31 January 2021(noting the scheme closed on 31 December 2020):

  • Scheme funds have received 4.9 million applications with a total value of $37.3 billion;
  • 98% or 4.8 million of these applications had paid a total value of $36.4 billion, where the average payment over the course of the scheme was $7,638.  As at 31 January, there were less than 8,000 applications (or 0.16% of total applications received) still be processed; and
  • The top 10 funds with the highest number of applications received, accounted for 66% of total early release payments and made 96% of payments within 1-5 business days.  

TPB

Proposed changes to Continuing Professional Education (CPE) requirements

On 11 February 2021, the Tax Practitioners Board (TPB) released two exposure drafts for consultation on it’s CPE policy requirements.

One key change is the increase in the minimum CPE hours from 60 hours over a 3-year period to 120 hours (double the current CPE requirements) for all registered tax practitioners.

Other changes include the ability to elect either a calendar or financial year basis for which their 3-year CPE period to allow greater flexibility; and include an amount of educative health and wellbeing activities to be counted towards their CPE.

Consultation is open until 11 March 2021. 

Other

FASEA

Financial Adviser Exam

On 19 February 2021, FASEA confirmed 11,241 candidates have successfully passed the Financial Adviser Exam to date, with a success rate of 89%.  

The exam will be offered a further 5 times in 2021, either in set locations or online.

Registering for the next exam held between 25-30 of March will allow candidates to sit the exam a further 2 times if necessary, to pass the exam prior to the end of the transition period on 31 December 2021.

For candidates who are looking to sit the exams, FASEA has also provided support and materials to assist with your exam preparation. For more details, please refer to this link

Additional information

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This information is provided for the use of financial services professionals only.  In no circumstances is it to be used by a potential investor or client for the purposes of making a decision about a financial product or class of products.

The information provided is not personal advice. It does not take into account the investment objectives, financial situation or needs of any particular investor and should not be relied upon as advice.  Any examples are illustrations only and any similarities to any readers’ circumstances are purely coincidental. 

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