Welcome to the July technical roundup. A number of bills have been introduced to Parliament in the last month, including measures for high income earners to opt-out of SG, NALI and LRBA changes, insurance in super opt-in, FTB changes and ending the grandfathering of conflicted remuneration.
The Australian Tax Office (ATO) has published information on the LRBA safe harbor interest rate, how it will handle inactive low-balance super accounts and guidance fact sheets on the super and GST implications of a super fund receiving compensation payments from financial institutions and insurance providers.
Another item of note is the Centrelink deeming rates were reduced, effective from 1 July 2019.
- Bill to re-introduce SG opt-out for high income earners, NALI and LRBA measures
- Bill limiting deductions for vacant land and closing the salary sacrifice/SG loophole
- Bill to require insurance within superannuation on an opt-in basis for certain accounts and members
- Bill to extend FTB to families of ABSTUDY recipients aged 16 or over
- Bill to ban grandfathering of conflicted remuneration
- Genuine redundancy and early retirement
- UCT regime and insurance contracts
- Taxation Administration (Private Ancillary Fund) Guidelines 2019
- LRBA safe harbor interest rate
- ATO fact sheet - compensations payments to super funds
- Inactive low-balance super accounts
- FHSSS: updated ATO guidance
- TPB 72-hour complaint resolution process
Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2019 reintroduced the following measures:
- High-income employees with multiple employers will be able to opt-out of the Super Guarantee regime to avoid breaching the $25,000 concessional contributions cap. Employees with income exceeding $263,157 will be able to apply to the ATO for an employer shortfall exemption certificate.
- Expand the non-arm's length income (NALI) rules in s 295-550 of the ITAA 1997 to related-party schemes involving non-arm's length expenses
- Include in total superannuation balance (TSB) the member’s share of any outstanding balance of certain limited recourse borrowing arrangements (LRBAs).
The measures are proposed to apply in 2018-19 and following income years.
Treasury Laws Amendment (2019 Tax Integrity and Other Measures No 1) Bill 2019 was introduced to the House of Representatives on 24 July 2019. The bill contains the following amendments:
- Small business CGT concessions – partner assignments of income
- Circular trust distributions
- Limiting deductions for vacant land
- Disclosure by ATO of business tax debts to credit bureaus
- Salary sacrifice cannot reduce SG
- Electronic invoicing implementation
- TOFA amendments
The bill has been referred to the Senate Economics Legislation Committee for report by 5 September 2019.
Treasury Laws Amendment (Putting Members' Interests First) Bill 2019 was introduced on 4 July 2019 and referred to the Senate Economics Legislation Committee, which tabled its report on 23 July 2019.
The bill proposes to require insurance within superannuation be provided on an opt-in basis for:
- account balances less than $6,000
- members under 25 years old (who begin to hold a new product on or after 1 October 2019).
The majority of the committee recommended that the Bill be passed but the 1 October 2019 start date to be deferred to 1 December 2019.
In a minority report, Labor called for the start date to be deferred until 1 July 2020, and recommended amendment to exclude high-risk occupations that potentially benefit from the current opt-out rule for insurance.
Family Assistance Legislation Amendment (Extend Family Assistance to ABSTUDY Secondary School Boarding Students Aged 16 and over) Bill 2019 was introduced to the House of Representatives on 31 July 2019.
The bill implements the 2019-20 Budget measure to extend Family Tax Benefit (FTB) eligibility to the families of ABSTUDY secondary school students who are aged 16 or over, and are required to live away from home to attend school.
The measures are proposed to apply from 1 January 2020.
Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 was introduced to the House of Representatives on 1 August. The bill proposes to:
- End the grandfathering of conflicted remuneration paid to financial advisers
- Make regulations to establish a scheme so that those people paying conflicted remuneration rebate clients for any remuneration that would be paid after 1 January 2021
The measures are proposed to apply from 1 January 2021.
ASIC has been commissioned to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration.
In the 2018-19 MYEFO, the Government announced that it would extend the concessional tax treatment of genuine redundancy and early retirement scheme payments, from 1 July 2019, to those under Age Pension qualifying age.
The Government has released exposure draft legislation and explanatory material for amendments to give effect to this MYEFO announcement.
Submissions closed on 1 August 2019.
In February 2019 the Government announced it would extend the unfair contract terms (UCT) regime to insurance contracts in response to Recommendation 4.7 of the Financial Services Royal Commission.
This Government is now seeking stakeholder views on the exposure draft Bill, draft Explanatory Memorandum and draft Regulation Impact Statement released on 30 July.
Submissions close on 28 August 2019.
Treasury has released an exposure draft of the Taxation Administration (Private Ancillary Fund) Guidelines 2019 to update the existing Private Ancillary Fund Guidelines 2009 which will sunset on 1 October 2019.
The guidelines cover when an eligible fund can obtain and maintain deductible gift recipient status.
Comments on the exposure draft are due by 21 August 2019.
Australian Taxation Office
LRBA safe harbour interest rate
The ATO has confirmed the interest rate for compliance with its related-party LRBA safe harbour rules (refer Practical Compliance Guideline PCG 2016/5) is 5.94% for 2019-20 (5.80% in 2018-19).
ATO fact sheet - compensation payments to super funds
The ATO has published fact sheets on the income tax, superannuation and GST consequences arising from compensation payments made to super funds. This follows earlier ATO guidance issued in October 2018. The fact sheets cover the following topics:
- compensation received by super funds;
- fees where no service provided;
- deficient financial advice;
- overcharged insurance premiums;
- interim use of reserves; and
- payments where no right to seek compensation.
The ATO notes that compensation received by a super fund in relation to fees-for-no-service may be an assessable recoupment where a deduction was claimed by the fund for the adviser fees. If the fees were not an allowable deduction, the ATO says the compensation will reduce the cost base of any investment. Compensation for earnings and interest will normally be assessable income to the super fund.
A super fund will also need to consider whether it is required to repay the GST credits claimed where the fund receives compensation that reflects a refund of fees paid to a financial service provider and the super fund had previously claimed GST credits or reduced GST credits on the fees.
Inactive low-balance super accounts
The Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 introduced new category of accounts that need to be reported and paid to the ATO.
To protect accounts from fee erosion, inactive low-balance super accounts will be transferred to the ATO and, where possible, the ATO will proactively consolidate super on the individual’s behalf.
The ATO has updated their website to include more information for individuals. Generally, a super account is an inactive low-balance account if the following criteria are met:
- no amount has been received by the fund for crediting within the last 16 months
- the account balance is less than $6,000
- the member has not met a prescribed condition of release
- the account is not a defined benefit account
- there is no insurance on the account
- the account is not held in a self-managed super fund (SMSF) or small Australian Prudential Regulation Authority (APRA) fund
However, the account will not be an inactive low-balance account if any of the following have occurred in the last 16 months:
- the member has changed investment options
- the member has made changes to their insurance coverage
- the member has made or amended a binding beneficiary nomination
- the member has made a written declaration that they are not a member of an inactive low- balance account
- there was an amount owed to the super provider in respect of the member
A written declaration form is also available on for individuals who do not want their low-balance super to be paid to the ATO.
FHSSS: updated ATO guidance
The ATO released an updated version of Super Guidance Note SPR GN 2018/1 on 25 July 2019.
The guidance on the First Home Super Saver (FHSS) scheme has been updated to reflect a recent amendment which allows an eligible individual to enter into a contract to purchase or construct residential premises as soon as an FHSS determination has been received.
Tax Practitioners Board
72-hour complaint resolution process
The TPB announced in Issue 32 of its eNews publication that the 72-hour complaint resolution process has been put on hold after hearing practitioners’ feedback.
The TPB will continue to encourage complainants to resolve complaints directly with their tax practitioner in the first instance.
Social security deeming rates
Senator Anne Ruston, Minister for Families and Social Services, announced cuts to the Centrelink deeming rates, which will be backdated to 1 July 2019.
The lower deeming rate has decreased from 1.75% to 1.0% for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples. The upper deeming rate has been cut from 3.25% to 3.0% for balances over these amounts.
Under the new rates age pensioners whose income is assessed using deeming will receive up to $40.50 a fortnight for couples, $1053 extra per year, and $31 a fortnight for singles, $804 per year.