MOving Ahead June 2017

Transcription

1 MOving Ahead June 2017 Prepared by Luke Hooper, Special Counsel In this edition... ASIC s Supervisory Cost Recovery package of Bills have been passed and await Royal Assent; Regulations introducing a new set of design rules for lifetime superannuation income stream products have been registered; Further law giving effect to the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 (Cth) have received Royal Assent; ASIC has provided or extended relief in respect of urgent superannuation advice, choice product dashboards and portfolio holdings disclosure, and employer sub-plan disclosure; and The ATO has updated the key superannuation rates and thresholds for the 2018 Financial Year. 1. APRA AND ASIC UPDATES There were no APRA or ASIC updates, of relevance, this month. 2. LEGISLATION 2.1 ASIC Supervisory Cost Recovery Levy Bill 2017; ASIC Supervisory Cost Recovery Levy (Collection) Bill 2017 & ASIC Supervisory Cost Recovery Levy (Consequential Amendments) Bill 2017 (15 May 2017) The Package of Bills has been passed without amendment and await Royal Assent. Once enacted, the Bills impose a levy on ASIC-regulated entities to recover ASIC s regulatory costs as follows: (f) each financial year, ASIC will calculate the levy value applicable to each entity, retrospectively; regulations will provide methods and formulas for how ASIC s regulatory costs are to be apportioned across the various sectors and sub-sectors that it regulates so that the model s objectives are that the total levy paid by all leviable entities should not exceed ASIC s total regulatory costs for a particular financial year; entities may be required to give a return to ASIC that includes information that will be used to calculate the levy. Following this, ASIC will issue a legislative instrument that will set out what its regulatory costs were in relation to the financial year, as well as information on how those costs are apportioned across entities; ASIC will issue notices to entities setting out the amount of levy and when it will be due and payable. Failure to pay the levy by this date will attract a late payment penalty at the rate of 20% per annum, unless ASIC has granted the entity an extension; if a person fails to give a return to ASIC, or ASIC is not satisfied with the information provided to calculate the levy, then the entity may be given a default notice for the amount that, in ASIC s opinion, is the levy payable by the person. A person that fails to give a return will also be liable under a strict liability criminal offence; where a person has made a false or misleading statement to ASIC in a return and that 1

2 statement results in them paying a lesser amount than if the statement was not false or misleading, they will be liable for a shortfall penalty of twice the amount of the shortfall; (g) (h) ASIC may give a person a notice requiring any information provided. Failure to comply with this notice is a strict liability criminal offence; where a levy, shortfall penalty, or late payment penalty remains unpaid for a period of 12 months, a range of administrative actions may be taken against the person, including deregistration, licence suspension or cancellation, as is appropriate in the case; and ASIC will be required to publish its regulatory costs in relation to each entity type that is required to pay the levy. The Bills take effect from 1 July Treasury Laws Amendment (2017 Measures No. 1) Regulations 2017 (21 June 2017) The Treasury Laws Amendment (2017 Measures No. 1) Regulations 2017 (Regulations) have been registered, thereby giving effect to certain changes introduced by the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 (Cth). The Regulations enable new innovative retirement income stream products to be offered from 1 July 2017 by: introducing a new set of design rules for lifetime superannuation income stream products, including deferred products, investment-linked pensions and annuities and group selfannuitised products (Design Rules); and expanding the definition of capped defined benefit income stream to cover additional defined benefit pensions that permit commutation or are subject to other restrictions that fall outside the scope of SIS Regulation 1.06(2), and prescribing valuation rules for the additional income streams (Further Rules). Design Rules The Regulations insert a new set of income stream standards, by introducing new SIS Regulation 1.06A, that provide the definition of a deferred superannuation income stream. Income streams that meet these standards are pensions or annuities for the purposes of SIS. The new standards are intended to cover a range of lifetime products that do not meet the existing annuity and pension standards in SIS Regulations 1.06(9A) and 1.05(11A). Under the new standards: the income streams are required to be payable for a beneficiary s remaining lifetime; income stream payments could be guaranteed in whole or part by the income stream provider, or determined in whole or part through returns on a collective pool of assets or the mortality experience of the beneficiaries of the asset pool; and income streams may also have a deferral period for annual payments and are permitted to be commuted subject to a declining capital access schedule and preservation rules. A new condition of release is also included in the SIS Regulations to enable an interest in a deferred income stream to be purchased from preserved and restricted non-preserved superannuation benefits prior to retirement. Benefit payments are made up of a number of elements, as follows: the first element ensures that income streams provided under the new standards can only start making payments once a relevant condition of release is satisfied. This element also ensures that providers of these income streams do not receive an earnings tax exemption 2

3 until the primary beneficiary has satisfied a relevant condition of release, which does not have any cashing restrictions specified in the SIS Regulations; the second element requires payment of the income stream benefit to be made at least annually unless the income stream is a deferred superannuation income stream and payment of the benefits have not yet started; the third element introduces a rule that ensures that a genuine retirement income stream is provided to a beneficiary, with benefit payments being set in a manner that does not circumvent the commutation rules or provide estate planning benefits. In other words, there is no unreasonable deferral of income stream payments; and the fourth element restricts the amount of capital from the income stream that can be accessed through a lump sum commutation or a commutation of an amount that is then rolled over within the superannuation system. These restrictions apply from the day that the primary beneficiary of the income stream enters the retirement phase. Further Rules Other income stream standards: new SIS Regulation 1.06A also requires the governing conditions to ensure that a death benefit can only be transferred or paid to another person who is eligible to be paid or transferred a death benefit in a given form under the SIS Regulations cashing rules; and these amendments ensure that the death benefit cashing rules that apply to superannuation funds in SIS Regulation 6.21 also apply to all superannuation income stream contracts. Ensuring innovative income stream do not overlap with existing standards: (iii) new SIS Regulation 1.06A only apply to annuities or pensions that are not superannuation income streams that meet the existing standards in SIS Regulations 1.06(9A) or 1.05(11A); an income stream intended to be offered under SIS Regulation 1.06A, may also inadvertently meet the standards for a non-account based income stream in SIS Regulations 1.06(9A) or 1.05(11A), and therefore not be governed under the 1.06A standards; and therefore, to remove this uncertainty, new SIS Regulation 1.06A(5) permits the governing conditions for an income stream provided under the new standards to state that they do not meet the standards in SIS Regulations 1.05(11A) or, or 1.06(9A) or, for the purposes of the SIS Regulations annuity and pension standards. Such statements continue to have effect whether or not the statement is later changed or removed. Valuation of new income streams for ITAA 1997 purposes: new regulation C(1) of the Income Tax Assessment Regulations 1997 (ITAR 1997) is introduced to set out a method for determining the value of an individual s superannuation interest that supports a deferred superannuation income stream, at a particular point in time; this is the value credited to the individual s transfer balance account in subdivision 294-B of the ITAA 1997, when the interest holder enters the retirement phase, and 3

4 also the value for the purposes of applying the proportioning rule in section of the ITAA 1997; (iii) (iv) to ensure that there is no overlap with the other valuation rules introduced by the Regulations, the deferred superannuation income stream must be neither a pooled investment pension nor a pooled investment annuity; and new regulation C(1) provides that the value of such an interest at a particular time is the greater of: (A) the sum of each amount of consideration paid for the income stream, and a notional earnings amount on each amount of consideration, as worked out under new regulation C(2); or (B) the amount of superannuation benefits payable from the interest if the holder voluntarily caused the interest to cease at that time. Value of certain pooled investment income streams: (iii) (iv) new regulation D of the ITAR 1997 is introduced to set out a method for determining the value of an individual s superannuation interest that supports a pooled investment pension (PIP) for the purposes of section (1) of the ITAA This value will be the value at a particular point in time of so much of a collective pool of assets attributed to the individual, under the rules of the superannuation fund, as certified by an actuary; a PIP is a pension provided under the rules of a superannuation fund where those rules ensure once income stream payments start, they continue for the remainder of an individual s life. For a product to be a PIP, payments must be determined having regard to the age, life expectancy or other factors relevant to the mortality of each individual who has that kind of interest in the fund, and the pool of assets in the fund held for the collective benefit of those individuals; new regulation E of the ITAR 1997 sets out a method for determining the value of an individual s superannuation interest that supports a pooled investment annuity (PIA) for the purposes of section (1) of the ITAA This value will be the value at a particular point in time of so much of a collective pool of assets held by a life insurance company attributed to the individual, under the contract for the provision of the annuity, as certified by an actuary; and a PIA is a comparable product to a PIP but is instead provided by a life insurance company. Expanding the definition of capped defined benefit income stream to include certain pensions paid on the grounds of invalidity: new regulation (4) of the ITAR 1997 expands the definition of capped defined benefit income stream to cover public sector superannuation scheme funded invalidity pensions that can be varied, suspended or ceased in certain circumstances; and therefore these pensions can be treated as capped defined benefit income streams despite the restriction in SIS Regulation 1.06(2). (f) Valuation rules to apply to additional capped defined benefit income streams prescribed under regulations: 4

5 new regulations and of the ITAR 1997 ensure the modified valuation rules and debit value rules which apply in relation to capped defined benefit income streams in section (1) of the ITAA 1997 also apply in relation to the additional capped defined benefit income streams newly prescribed under subsection (2) of the ITAA 1997;and the new regulations specify that the special (modified) value of a capped defined benefit income stream is calculated by multiplying the annual entitlement by a factor of 16. Similarly, the debit value generally mirrors the treatment given to lifetime pensions. That is, the amount of the transfer balance credit arising in the member s account less the amount of any transfer balance debits. 2.3 Treasury Laws Amendment (2017 Measures No. 2) Act 2017 (22 June 2017) The Act received Royal Assent, and will amend the law, based upon the measures enacted through the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 (Cth) (Amending Act). The Act gives effect to the following amendments: Transfer balance cap amendments: additional transfer balance credits and transfer balance debits will be able to be prescribed in regulations; matters covered by the assumption about compliance with pension or annuity rules and standards, and for which the consequences of not complying with a commutation authority are disregarded, are clarified. The assumption ensures that a breach of the pension or annuity standards set out in the SIS Regulations does not re-characterise an interest that was treated as a superannuation income stream as never having been a superannuation income stream in the year in which the breach occurred. The requirement that an interest be a superannuation income stream is a necessary condition for the transfer balance credit and retirement phase recipient rules; (iii) (iv) (v) (vi) (vii) the correct value for a debit that arises for failures to comply with rules and standards will be able to be calculated for a failure that occurs part-way through an income year; an alternative debit where the proceeds of structured settlements were contributed into superannuation prior to 1 July 2017 is allowed; a transfer balance credit where the repayment of a limited recourse borrowing arrangement shifts value between accumulation phase interests and retirement phase interests is provided; the rules for the part-year defined benefit income cap have been amended so that they only apply where an individual is first entitled to concessional tax treatment in respect of defined benefit income; and bring forward the application of the rules about the transfer of assets by life insurance companies to facilitate those companies accounting for and rebalancing their assets in anticipation of the transfer balance cap will apply from 1 July Concessional contributions amendments: minor amendments are made to the Income Tax (Transitional Provisions) Act 1997 (Cth) (IT(TP) Act) and the Superannuation Guarantee (Administration) Act

6 (Cth) to ensure that references to the concessional contributions cap within those Acts continue to apply to the basic concessional contributions cap rather than the cap as modified by the unused concessional cap carry forward rules; and amendments also clarify the effect of provisions that cap an individual s concessional contributions where defined benefit contributions exceed a member s notional taxed contributions. Non-concessional contributions amendments: the application rules in Schedule 3 to the Amending Act are amended in order to enable the Commissioner of Taxation (Commissioner) to determine a longer period for the proceeds from a structured settlement to be contributed into a superannuation plan, and that limit Government co-contributions where an individual has breached their non-concessional contributions cap (or has a total superannuation balance that equals or exceeds the general transfer balance cap). These rules will now apply correctly to Financial Years starting on 1 July 2017 and later years, as originally intended; and amendments to the application rules in Schedule 3 to the Amending Act ensure that the changes in respect of review rights for determinations can apply from the 2014 Financial Year, consistent with the review rights for the equivalent discretions for concessional contributions. Objective of superannuation amendments: the Bill amends section 15J(2)(fa) of the Legislation Act 2003 (Cth) to repeal and replace the requirement to prepare a statement of compatibility with the Superannuation (Objective) Act 2016 (Cth) with the requirement to prepare a statement of compatibility that is contingent on the Superannuation (Objective) Bill 2016 being enacted; and if the Superannuation (Objective) Bill 2016 is not ultimately enacted, the new requirement in section 15J(2)(fa) will not commence. Transition to retirement income stream (TRIS) amendments: The amendments in relation to the TRIS rules relax the existing prohibition on TRISs ever being in the retirement phase. As a result, a TRIS will now be in the retirement phase if the member has satisfied a condition of release with a nil cashing restriction. (f) Capital gains tax relief amendments: section of the IT(TP) Act is modified to ensure that a fund can apply CGT relief in respect of assets that cease to be segregated current pension assets when the broader TRIS changes come into effect; and the amendments also extend CGT relief to pooled superannuation trusts so that the tax exempt status of unrealised gains on assets that are held by such trusts is preserved where the underlying unit holders have rebalanced their asset holdings as a result of the transfer balance cap and TRIS changes. (g) Administrative streamlining amendments: a technical correction is made to ensure that the amount of an administrative penalty can be correctly calculated under section of Schedule 1 to the Tax Administration Act 1953 (Cth) (TAA 1953) for failures to provide an entity with a 6

7 notice about releasing superannuation. The amendments ensure that the base penalty amount applies to failures to provide an entity with a notice to release amounts from superannuation that is required to be provided under section of Schedule 1 to the TAA 1953; and the amendments also remove a provision about the Commissioner combining notices that is redundant following the broader combined notices changes that were introduced through Schedule 10 to the Amending Act. Most of the amendments apply from 1 July Treasury Laws Amendment (2017 Measures No. 4) Bill 2017 (22 June 2017) The Bill was introduced into the House of Representatives and, amongst other things, proposes to provide asset roll-over relief for mandatory transfers of accrued default amounts within a superannuation fund. 2.5 ASIC Corporations (Urgent Superannuation Advice) Instrument 2017/530 (23 June 2017) This instrument facilitates temporary and conditional timing relief for the provision of Statements of Advice (SOA) for urgent superannuation advice which is defined to mean personal advice in relation to a superannuation product in connection with the changes in laws regulating superannuation as a result of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act Under the Instrument, a providing entity does not have to comply with Corporations Act, section 946C in relation to urgent superannuation advice to the extent it requires the providing entity to give a client a SOA any earlier than 30 days after providing the advice to the client, in circumstances where: the client expressly instructs the providing entity that they require the advice to be provided before 1 July 2017; the advice is provided before 1 July 2017; and if the advice is or includes a recommendation to acquire a financial product and section 1019B (cooling-off periods) may apply to the acquisition the providing entity, at the time of providing the advice, gives the client in writing a statement: explaining the nature of the rights that the client may have under section 1019B if they acquire the product; and indicating that the client may not receive a SOA in relation to the advice until after those rights have expired, but on the condition that the providing entity must take all reasonable steps to give the client a SOA in relation to the urgent superannuation advice as soon as practicable after the advice is provided. 2.6 ASIC Corporations (Amendment) Instrument 2017/569 (23 June 2017) The Instrument defers the product dashboard requirements for choice products and the portfolio holdings disclosure requirements for two years until 1 July 2019 and from 31 December 2019 respectively. In addition, relief provided under ASIC Class Order [CO 13/1534] (allowing trustees to provide a product dashboard with a periodic statement by including a website address for the latest product dashboard, rather than requiring a hard copy of the dashboard to be included) has been extended, so that the Class Order relief now applies to reporting periods ending before 1 July

8 2.7 ASIC Superannuation (RSE Websites) Instrument 2017/570 (23 June 2017) 3. CASES The Instrument uses ASIC s exemption powers to continue the relief formerly available under ASIC Class Order [CO 14/509] and extends transitional relief from the requirement to publicly disclose information relating to employer sub-plans (under SIS, section 29QB) to 30 June Pitts and Commissioner of Taxation (Taxation) [2017] AATA 685 (12 May 2017) Brief synopsis The case involved a superannuation fund member seeking to review the Commissioner of Taxation s (Commissioner) Objection Decision which disallowed the member s objection against an excess non-concessional contributions tax assessment, on the basis that there were no special circumstances that enable the Commissioner to disregard the excess contributions. The member had temporarily transferred a lump sum out of a superannuation fund into a noncomplying superannuation plan account in the member s name, before recontributing the amount (as non-concessional contributions) into a new complying superannuation fund, on the same day. The Administrative Appeals Tribunal found that there were no special circumstances, and affirmed the Commissioner s Objection Decision. Point of interest Much of the case analyses the application of special circumstances which would enable the Commissioner to disregard the excess contributions under section (1) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). However of greater interest, in this case, is the conclusion that the member s transfers did not constitute the roll-over of superannuation benefits, under section of the ITAA Whilst this view is not controversial, it is worth remembering that while it is possible to conceive of a case where an indirect contribution to a new superannuation fund (i.e. by way of a transfer from another super fund via an interposed fund/account) could be a roll-over (for example, where funds are withdrawn from a complying superannuation fund and paid into a solicitor s trust account with a direction that the amount be on-paid to another complying superannuation plan) that will not be so where funds are received by the member in the interposed account both legally and beneficially. 4. OTHER RECENT DEVELOPMENTS 4.1 Key superannuation rates and thresholds (May 2017) The ATO has updated its key superannuation rates and thresholds tables, in anticipation of the 2018 Financial Year. The 2018 Financial Year key superannuation rates and thresholds include: concessional contributions cap: $25,000, irrespective of age; non-concessional contributions: $100,000; bring forward non-concessional contributions: 8

9 Year NCC cap $180,000 $180,000 $180,000 $100,000 $100,000 $100,000 Bring forward amount Up to $540,000 ($180k x 3 years) Up to $460,000 (($180k x 2 years) + $100k x 1 year)) Up to $380,000 (($180k x 1 year) + $100k x 2 year)) Up to $540,000 ($180k x 3 years) Division 293 Tax threshold: $250,000; Low rate cap amount: $200,000; (f) Untaxed plan cap amount: $1,445,000; (g) Preservation age: no younger than 57; (h) Maximum super contribution base: $52,760; Government co-contribution thresholds: (iii) Lower income threshold: $36,813; Higher Income threshold: $51,813; and (j) Low income superannuation tax offset: maximum adjusted taxable income of $37, Actuarial Certification Test for Comprehensive Income Products for Retirement (29 May 2017) The Australian Treasury (Treasury) has asked the Australian Government Actuary (AGA), in consultation with an Actuarial Technical Expert Group (ATEG), to develop a potential actuarial test for certifying a product that meets the minimum requirements of a Comprehensive Income Product for Retirement (CIPR) as outlined in the Government s discussion paper on CIPRs released on 15 December It should be noted that the ATEG was specifically consulted on technical aspects of the certification test and not on broader policy objectives or the suggested minimum requirements. The AGA has drafted a report outlining a proposed actuarial income efficiency test that could be used to certify that a retirement income product meets the standards required to be a CIPR. This certification test was designed to address the policy objectives outlined in the CIPR discussion paper and the suggested minimum requirements of: a minimum level of income that would (subject to consideration of guarantees) generally exceed an equivalent amount invested fully in an account-based pension that is drawn down at minimum rates; and provide, in expectation, a stream of broadly constant real income for life. 9

10 Proposed certification test CIPRs will require actuarial certification that they satisfy a minimum income efficiency threshold requirement. In broad terms, it is envisaged that the product provider (e.g. superannuation fund) would provide the certifying actuary with details of: the proposed product structure and specifications including how payments are determined, current pricing, fees, charges, surplus distribution rules and formulae, reserving policies and any other relevant information to enable the certifying actuary to independently determine the retirement income expected to be generated by the CIPR; the proposed investment strategy for any assets that will back investment-linked payments; the relevant underlying assumptions in respect of best estimates of the: (iii) (iv) mortality basis for the expected purchasers of the product expected investment return on the assets backing investment linked payments, net of investment management fees; proposed administration fee structure (for components where payments are not guaranteed); and assumed future inflation rate, in order to enable the certifying actuary to undertake the certification test. The Proposed Test The proposed test involves five stages, of which the first three stages are technical tests, the fourth reviews the reasonableness of the assumptions and the final stage documents the certification. The proposed staged are as follows: test that Constant Real Income in Expectation will be achieved; test that the Required Minimum Income Efficiency is met; test that the Minimum Required Average Annual Real income is achieved; review the Reasonableness of Assumptions and Other Elements; and certification. Further Considerations in Respect of the Test The report considers further matters including: (f) the question of whether the certifying actuary needs to be independent; indexation; interactions with the Age Pension; flexibility around the strict mathematical interpretation of an expectation of constant real income for life; discounting rates; maximum efficiency assumptions; 10

11 (g) (h) (j) minimum improvement level; risk adjustment for guaranteed products; recertification of CIPRs; and ongoing review of the certification test. Comments and feedback on the proposed efficiency test can be sent to Treasury. No deadline date has been provided. 4.3 Review of the financial system external dispute resolution framework (31 May 2017) Treasury released a supplementary issues paper as part of the Government s review of the financial system s external dispute resolution and complaints framework (EDR Review). The EDR Review s amended Terms of Reference require its Panel to: make recommendations on the establishment, merits and potential design of a compensation scheme of last resort; and consider the merits and issues involved in providing access to redress for past disputes. The Panel is seeking submissions on a variety of questions, including submissions in respect of what are the strengths and weaknesses of the National Guarantee Fund, the Financial Claims Scheme and Part 23 [Financial Assistance to Funds] of the Superannuation Industry (Supervision) Act 1993? Submissions are due by 28 June Luke Hooper Special Counsel T: E: lhooper@millsoakley.com.au 11