Welcome to the November technical roundup. A number of Acts were assented to and several Bills have been introduced to Parliament in the last month, including provisions to improve the taxation of testamentary trusts as announced in the 2018 Federal Budget.
Another item of note is the additional guidance released by FASEA on the Financial Adviser Code of Ethics, along with a consultation period for key stakeholders. Compliance with the Code is still required from 1 January 2020.
- First home loan deposit scheme
- Ending grandfathered commissions for financial advisers
- Genuine redundancy age, super, LCT refunds
- Tax Integrity and other measures
- Anti-Money Laundering and Counter-Terrorism Financing
- Capital Gains Tax changes for foreign residents
- Testamentary Trusts
- Super guarantee opt out for high income earners with multiple employers
- Non-arm’s length income rules
- Issues with ATO online displays
- Transfer balance cap correspondence
- Commercial debt forgiveness
- SMSF Quarterly statistics report June 2019
- Media release and factsheet - SMSFs: Are they for you?
- Financial adviser compliance scheme: ASIC Relief
- FASEA financial adviser exam
- FASEA guidance on Code of Ethics
- 2020-21 Pre-Budget submissions open
The National Housing Finance and Investment Corporation Amendment Act 2019 received royal assent on 18 October.
The Act establishes the Government's First Home Loan Deposit Scheme, which is designed to help first home buyers enter the property market by providing a guarantee that will allow eligible first home buyers on low and middle incomes to purchase a home with a deposit of as little as 5% of the purchase price.
The Act allows for the issuing of guarantees from 1 January 2020.
The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 received royal assent on 28 October.
The Act implements the Governments’ response to recommendation 2.4 of the Royal Commission Final Report - to end the grandfathering of conflicted remuneration paid to financial advisers by 1 January 2021.
Regulations will be provided for a scheme under which amounts that would otherwise have been paid as conflicted remuneration are rebated to affected customers after 1 January 2021.
ASIC will monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration.
The Treasury Laws Amendment (2019 Measures No 2) Act 2019 received royal assent on 28 October.
The Act includes:
- Genuine redundancy age: the age limit of 65 will be aligned with the pension age for genuine redundancy and early retirement scheme payments. That is, concessional tax will apply if the employee is dismissed or retires before they reach their pension age (which is currently age 66, rising to 67 by 1 July 2023). This change will apply to payments received by employees who are dismissed or retire on or after 1 July 2019.
- Interest on ATO super payments: provides for regulations to prescribe a rate of interest which is payable on amounts held by the ATO which are proactively reunified into a person's superannuation account, as originally intended. Effective the day after Royal Assent.
- LCT refunds for farmers and tourism - the luxury car tax (LCT) refund arrangements will be amended to provide a full refund (up to a cap of $10,000) for eligible primary producers and tourism operators who have purchased or imported an eligible vehicle. Applying to cars supplied or imported on or after 1 July 2019.
The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No 1) Act 2019 received royal assent on 28 October.
The Act contains a number of measures, including:
- improving the integrity of superannuation guarantee (SG) by removing the ability for salary sacrifice contributions to reduce an employer’s SG contributions. This measure will come into effect on 1 January 2020.
- removing the ability to claim tax deductions for outgoings in relation to vacant land. The change will not apply to land that is used or held available for use by a business by the taxpayer or certain parties that have a relationship or connection with the taxpayer. This measure will comes into effect from 1 July 2019.
- prevention of the small business CGT concessions from being available for assignments of partnership income. Effective for all CGT events occurring after 7.30pm AEDT 8 May 2018.
- Extension of the anti-avoidance rule for circular trust distributions to family trusts to apply from 1 July 2019.
The Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill 2019 was introduced to the House of Representatives on 17 October.
The Bill contains a range of measures to strengthen Australia’s capabilities to address money laundering and terrorism financing risks, and generate regulatory efficiencies
The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 was introduced in the House of Reps on 23 October. The Bill includes the following amendments to the ITAA 1997:
- remove the entitlement to the CGT main residence exemption for foreign residents other than where certain life events occur during the period that a person is a foreign resident where that period is 6 years or less; and
- modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity's underlying value is principally derived from TARP, the principal asset test is applied on an associate inclusive basis.
- These measures would apply from 7:30pm AEDT 9 May 2017 (application time). However, transitional provisions will continue the main residence exemption for CGT events that occur to certain dwellings on or before 30 June 2020, where the dwelling was held before the application time.
- provide an additional affordable housing capital gains discount of up to 10% if a CGT event occurs to an ownership interest in residential premises that has been used to provide affordable housing. For capital gains realised by investors from CGT events occurring on or after 1 January 2018 for affordable housing tenancies that start before, on or after 1 January 2018.
- Enables a reconciliation payment to be made by developers who sell dwellings to foreign persons under a near-new dwelling exemption certificate. Effective from 1 July 2017.
The Government released exposure draft Bill and explanatory materials for consultation to implement integrity measures announced in the 2018-19 Budget to improve the taxation of testamentary trusts.
Currently, income receive by minors from testamentary trusts is taxed at normal adult rates rather than the higher tax rates that generally apply to minors. However, some taxpayers have inappropriately obtained the benefit of this lower tax rate by injecting assets unrelated to the deceased estate into the testamentary trust.
The draft legislation clarifies that minors will only be taxed at adult marginal tax rates in respect of income a testamentary trust generates from assets of the deceased estate, or the proceeds from the disposal of these assets. This change will apply from 1 July 2019.
The consultation period ended on 30 October 2019.
Australian Taxation Office
The ATO has published QC 60265 which provides information for high income individuals with multiple employers who can now can apply to the ATO to opt-out of receiving super guarantee (SG) from some of their employers.
The ATO has updated Draft Law Companion Ruling LCR 2019/D3 and Draft Practical Compliance Guideline PCG 2019/D6 after the enactment of the Treasury Laws Amendment (2018 Superannuation Measures No 1) Act 2019 to explain the amendments to the non-arm's length income (NALI) rules in s 295-550 of the ITAA 1997.
In early October the ATO issued a CRT Alert to advise that they had identified issues affecting the concessional contributions screen and total superannuation balance display in online services.
For concessional contributions, they have identified that some member’s carry forward balance is not displaying due to a minor system issue. The updated data was expected to be available mid to late October.
For total superannuation balances, a system fix was scheduled for deployment on 12 October to address a known issue effecting the display of the 2018-19 total superannuation balances. Total superannuation balances for the 2018-19 financial year were expected to be displayed correctly from 16 October (after a verification process was completed).
Excess transfer balance determinations and commutation authorities issuing in October will have a due date that falls during the Christmas/New Year period. The ATO is therefore encouraging SMSF trustees and members to respond early to this correspondence to avoid adverse consequences. In particular:
- commutation authorities need to be actioned by the due date to avoid losing access to the income tax exemption on the assets supporting the pension; and
If SMSF members don't respond to excess transfer balance determinations by the due date, the ATO will send a commutation authority to the fund specified in the determination.
The ATO issued Draft Tax Determination TD 2019/D9, which considers the exclusion from the commercial debt forgiveness rules where a creditor forgives a debt for the reasons of natural love and affection.
Previously the ATO took the view that the love and affection exclusion did not require the creditor to be a natural person (ATO ID 2003/589 withdrawn on 6 February 2019). In this new draft, the Commissioner’s preliminary view is that the creditor must be a natural person for the exclusion to apply, with a direct causal nexus between the forgiveness and the natural love and affection.
The proposed date of effect is retrospective, however the ATO will not devote compliance resources to apply the views expressed in the Draft TD for debts forgiven prior to 6 February 2019, which would have been covered by ATO ID 2003/589.
Comments on the draft were due by 1 November 2019.
The ATO’s quarterly report indicates that as at 30 June 2019 there were 599,678 SMSFs with more than 1.125 million members.
There were less than 20,000 new SMSFs established in 2018-19, down from around 30,000 per year in the period from July 2013 to June 2017.
ASIC has warned Australian investors considering establishing their own self-managed superannuation fund (SMSF) to be particularly aware of the potential downside to such a strategy, and that many Australians set up SMSFs that are inappropriate for their circumstances.
To reinforce these important considerations and to help members make more informed decisions, ASIC has released a factsheet, Self-managed superannuation funds: Are they for you? The factsheet prompts investors to consider the time and expertise required to run an SMSF, the costs of running an SMSF and the effect this may have on returns, especially for low balances. It includes risks associated with investing in direct property, the responsibility trustees have and consequences if assets are misused.
This factsheet is suitable for consumers and SMSF trustees deciding or reassessing if an SMSF is appropriate for them. It will also be a useful resource for financial advisers when providing personal advice on SMSFs.
The factsheet will be sent to all newly registered SMSF trustees as a pilot in November, when they register with and elect to be regulated by the ATO. ASIC will then survey a number of the SMSFs to assess its usefulness.
On 15 October, ASIC announced that it will provide relief to AFS licensees from the financial adviser compliance scheme obligations. This follows the Government's announcement that it will establish a disciplinary body for financial advisers that will displace the role of Code Monitoring Bodies in enforcing the Code of Ethics.
ASIC will grant a 3-year exemption to all AFS licensees to ensure that their financial advisers are covered by a compliance scheme, and from the associated notification obligations. AFS licensees are still required to take reasonable steps to ensure that their financial advisers comply with the code from 1 January 2020, and advisers will still be obliged to comply with the code from that date.
The Financial Adviser Standards and Ethics Authority (FASEA) has reported that the December 2019 exam will be held in 19 centres across Australia from 5-9 December with over 2,430 advisers already registered. Online practice questions are available on the FASEA Website. Details have also been provided for 13-18 February 2020 and 2-7 April 2020 exams.
The September exam was held on 19-23 September 2019 with 1,697 advisers sitting the exam over 79 sessions. The results for the September exam will be released in mid-November 2019.
On 18 October FASEA released additional guidance on the Code of Ethics. (FG002 Code of Ethics Guidance).
The guide includes case study examples to aid understanding of the requirements of the Code, and is intended to be illustrative rather than conclusive in its guidance.
FASEA also confirmed will also host a series of consultation briefing sessions with a number of educational, professional, consumer and industry stakeholders. The first consultation period was announced on 24 October, to commence on 12 November. The purpose of these sessions is to provide opportunity for consultation on the practical elements of the Code, and to communicate and explain the integrated nature of the Code.
The exam questions require financial advisers to apply their knowledge of the financial advice regulatory and legal requirements, financial advice construction and applied ethical and professional reasoning.
The Government is seeking submissions from individuals, businesses and community groups on their views for priorities for the 2020-21 Federal Budget.
To ensure views can be incorporated into the Budget process at an early stage, submissions are due by Friday, 20 December 2019.
Further information on how to lodge submissions is available on the Treasury website.