Welcome to the October technical roundup. A number of Bills have received Royal Assent and more have been introduced to Parliament in the last month, including the provisions to implement the first home loan deposit scheme announced in the 2019 Federal Budget.
Another item of note is the Government’s announcement to commission an independent review of the retirement income system.
- Miscellaneous super measures
- Insurance within super: Bill passed with dangerous occupations exception
- Social Services Overseas Welfare Recipients Integrity Program
- First home loan deposit scheme
- Minor amendments for downsizer contributions
- Treasury Measures (No 2): genuine redundancy age; super
- Super Guarantee amnesty for employers
- Ending grandfathered commissions for financial advisers:
Regulator views - ATO
- SMSF investment strategy
- SGC: ATO Remission of additional 200% penalty
- Fund status to change if SMSF annual returns late
- ATO SMSF auditor checklist
- Review of the retirement income system
- AAT decision re excess transfer balance tax
- FASEA Financial Adviser Exam practice questions
Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2019 received Royal Assent on 2 October 2019. The new measures, effective 1 July 2018, include:
- Super Guarantee opt-out for high-income employees with multiple employers. Employees with income exceeding $263,157 may to apply to the ATO for an employer shortfall exemption certificate to avoid unintentionally breaching the $25,000 concessional contributions cap.
- The non-arm's length income (NALI) rules are amended to ensure that the non-arm’s length income rules for superannuation entities apply in situations where a superannuation entity incurs non arm’s length expenses in gaining or producing the income.
- Note that the ATO released Draft Law Companion Ruling LCR 2019/D3 on 2 October 2019 which discusses the amendments to the non-arm's length income (NALI) rules (s 295-550 of the ITAA 1997).
- Limited recourse borrowing arrangements: The total superannuation balance rules are amended to ensure that, in certain circumstances involving limited recourse borrowing arrangements, the total value of a superannuation fund’s assets is taken into account in working out individual members’ total superannuation balances.
On 19 September, the House of Representatives agreed to the 16 government amendments passed by the Senate in relation to the Treasury Laws Amendment (Putting Members' Interest First) Bill 2019. The Bill received Royal Assent on 2 October 2019.
The new law requires insurance within superannuation be provided on an opt-in basis for:
- Account balances less than $6,000; and
- Members under 25 years old (who begin to hold a new product after the commencement date).
It also introduces a ‘dangerous occupation’ exemption for emergency services workers (including members of the police force or service, fire service or ambulance service) or members who are employed in an occupation considered to be in the riskiest quintile of occupations in Australia (as certified by an actuary). This exception allows trustees to continue to provide opt-out insurance to new members aged under 25 years and members with balances below $6,000.
The amendments delay the commencement of the measure until 1 April 2020. Trustees are required to identify members who may be affected by the measure on 1 November 2019, and notify these members by 1 December 2019.
The Social Services Legislation Amendment (Overseas Welfare Recipients Integrity Program) Bill 2019 received Royal Assent on 20 September 2019.
The new law requires certain welfare recipients aged 80 years and over, who have been absent from Australia for at least two years, to provide a proof of life certificate at least once every two years.
The National Housing Finance and Investment Corporation Amendment Bill 2019 was introduced on 12 September 2019 and is currently before the Senate.
The Bill proposes to establish 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 amendments allow for the issuing of guarantees from 1 January 2020.
Treasury has released an exposure draft Bill and Regulations proposing minor and technical amendments across a range of laws relating to taxation, superannuation, corporations and credit. This includes three changes to ensure that super downsizer contributions operate as intended.
The first two amendments apply retrospectively (i.e. where the contract of sale exchanged on or after 1 July 2018):
- To ensure that assumptions around disposals of interests in a dwelling that is both a pre-CGT asset and held by an individual’s spouse are applied correctly, the amendments assume an individual acquired an interest in the spouse’s property, on or after 20 September 1985.
- To ensure that caps are calculated correctly where a spouse has previously made a downsizer contribution in relation to another property, the amendments ensure that an individual’s maximum downsizer contribution amount is only reduced by their spouses’ downsizer contributions where those contributions are made in relation to a disposal of interest in the same property.
The third amendment will apply to disposals where the contract of sale is exchanged on or after the day the amendments receive Royal Assent:
- To ensure that the cap on downsizer contributions is based on the actual proceeds received from the sale of an individual’s home, as originally inttended, the amendments specify that the market value substitution rule (S116-30 of the Income Tax Assessment Act 1997) cannot be used to increase the amount of capital proceeds received in relation to the disposal of ownership interest in a dwelling.
Submissions regarding the amendments were due by 27 September 2019.
The Treasury Laws Amendment (2019 Measures No 2) Bill 2019 was introduced into the House of Representatives on 18 September. The Bill proposes previously-announced amendments regarding genuine redundancy age and interest on ATO Super payments, amongst other things.
- Genuine redundancy age: the ITAA 1997 will be amended to extend the concessional tax treatment for genuine redundancy and early retirement scheme payments. Concessional tax for these payments is currently restricted to employees who are dismissed before they turn 65. The Bill will extend this age 65 limit to align it with the pension age. That is, provided that the employee is dismissed or retires before they reach pension age (which is currently age 66, rising to 67 from 1 January 2024). Date of effect: 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. Date of effect: The day after Royal Assent. Interest will be paid on amounts reunified by the ATO after this date.
On 18 September the Government re-introduced legislation to establish and extend its proposed one-off amnesty to enable employers to self-correct historical underpayments of Super Guarantee (SG).
The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019, proposes to enable employers to self-correct historical underpayments of SG amounts without incurring additional penalties that would normally apply. It will apply to SG shortfalls as far back as 1 July 1992, and up until the quarter starting on 1 January 2018 (inclusive).
To qualify for the amnesty, a disclosure must be made to the ATO in the approved form (and must not have been previously disclosed. Employers who do not take advantage of the amnesty will face higher penalties when they are subsequently caught, including a minimum 100% penalty on top of the SG Charge.
The amnesty period will start from 24 May 2018 and run until 6 months after the day the Bill receives Royal Assent.
The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 was passed the House of Representatives on 10 September without amendment and now moves to the Senate. The Bill proposes to ban grandfathered conflicted remuneration paid to financial advisers from 1 January 2021.
The existing Private Ancillary Fund Guidelines 2009 are scheduled to sunset on 1 October 2019. Taxation Administration (Private Ancillary Fund) Guidelines 2019 were registered on Friday, 20 September, to ensure eligible funds may obtain or maintain deductible gift recipient status.
Australian Taxation Office
On 18 September the ATO clarified its previous communications sent to SMSF trustees about their investment strategy and diversification.
The ATO is concerned that SMSF trustees may not have given due consideration to diversifying their fund’s investments and the risks associated with a lack of diversification when formulating and reviewing their investment strategy.
While a trustee can choose to invest 90% or more of their retirement savings in a single asset or asset class, concentration risk combined with leveraged borrowings can expose the SMSF and its members to unnecessary risk if a significant investment fails.
The ATO has asked trustees to review their investment strategy and clearly document the reasons behind the investment decisions. They have also asked trustees to have their documentation ready for their SMSF’s approved auditor for their next audit to help the auditor form an opinion on the fund’s compliance with these requirements.
The ATO have released a Draft Practice Statement, setting out it’s policy in relation to the remission of the additional 200% super guarantee charge (SGC) imposed by Pt 7 of the Superannuation Guarantee Administration Act 1992 (SGAA). This additional penalty applies for failing to lodge a SGC statement for a quarter.
The Draft sets out a 3-step process for the ATO to follow when determining whether to remit the additional Pt 7 penalty down from 200%.
Comments are due by 4 October 2019.
The ATO has issued a reminder that from 1 October 2019, SMSFs more than two weeks overdue on any annual return lodgement, and who have not requested a lodgement deferral, will have their status changed to ‘regulation details removed’ on Super Fund Lookup.
The ATO has released an update of its Approved SMSF auditor checklist setting out what ATO staff look for when auditing or reviewing SMSF auditors.
The ATO checklist covers auditor obligations under the SIS Act, SIS Regs, auditing standards and audit documentation requirements.
On 27 September, the Government commissioned an independent review of the retirement income system.
The review will look at the three pillars of the existing retirement income system, being the Age Pension, compulsory superannuation and voluntary savings. It will cover the current state of the system and how it will perform in the future as Australians live longer and the population ages.
A consultation paper will be released in November 2019 and the final report provided to Government by June 2020.
In Vernik and FCT  AATA 3754, the AAT upheld an ATO decision not to remit a superannuation excess transfer balance tax liability in relation to the deemed earnings that continued to accrue after the initial excess transfer balance had been commuted.
The ATO ruled that the ETB assessment had been correctly calculated under Div 294 of the ITAA 1997.
The AAT noted that the law does not give the Commissioner a discretion to waive the tax payable and there is no "special circumstances" provision under Div 294.
FASEA has released additional practice questions intended to provide advisers with a guide to the types of questions in the Financial Adviser Exam.
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.