This article was co-authored with Remy Michelson.
In May 2021, the Federal Budget for the 2021-2022 financial year was handed down which included a number of proposed legislative reforms which will affect the Australian funds management and superannuation industries. Most notably, the Budget Papers included a commitment to the implementation of the Corporate Collective Investment Vehicle regime and also flagged changes to the licensing and relief regime for foreign financial service providers. The downsizer scheme, First Home Super Saver Scheme and threshold guarantee, are among the areas of superannuation which are expected to be subject to modifications in the coming year. ASIC has also released a consultation paper requesting feedback on proposed updates to the ePayments Code.
Federal Budget 2021-2022: CCIV framework to commence by July 2022
The Federal Budget for the 2021-2022 financial year included measures to bolster the export capacity of Australia’s funds management industry, forming part of a broader package to attract overseas capital and talent to Australia.
These measures include a commitment to finalise the CCIV regime by 1 July 2022 and to introduce accompanying tax changes. This commitment is a significant development for fund managers seeking to export their asset management capability and to put Australia on an even footing with other jurisdictions which already facilitate a corporate fund structure under law. Such jurisdictions include Singapore which brought in legislation to facilitate the Variable Capital Company early last year.
A link to the relevant Budget Paper can be found here.
Federal Budget 2021-22: Changes for foreign financial services providers relief and licensing
The Federal Budget also included an announcement citing proposed changes to the licensing and relief regime for foreign financial service providers (FFSPs).
In particular, the Budget papers noted:
“The Government will consult on options to restore previously well-established regulatory relief for Foreign Financial Services Providers (FFSPs) who are licensed and regulated in jurisdictions with comparable financial service rules and obligations, or have limited connection to Australia, from holding an Australian Financial Service License, in order to reduce duplicate regulatory requirements. The relief is limited to FFSPs that deal with wholesale clients and professional investors.
The Government will also consult on options to create a fast-track licensing process for FFSPs who wish to establish more permanent operations in Australia. Fast-tracking is intended to shorten application timeframes and reduce barriers to entering the Australian market.”
While the prospect of a restoration of previous relief will be welcomed by many FFSPs, it also has the potential to significantly impact the new regulatory framework for FFSPs, in particular the new foreign Australian Financial Services (AFS) licence.
It remains to be seen what any new regime would mean for those FFSPs who have already been granted a foreign AFS licence, not to mention the many firms who are in the process of making their applications. The current timeline for expiry of the existing transitional sufficient equivalence relief and the limited connection relief is (at least for the time being) still the end of March 2022. That said, any consultation process on a new regime would potentially put pressure on that timetable given the need to develop and settle a new framework. Accordingly, firms either in the process of making foreign AFS licence applications or contemplating doing so would be well advised to keep a watching brief over future developments in this space.
A link to the Budget Papers can be found here.
Federal Budget 2021-22: Changes to superannuation
From 1 July 2022, the eligibility criteria to make single downsizer superannuation contributions of up to $300,000 per person ($600,000 per couple) from selling a family home, will be lowered from 65 to 60. Downsizer contributions can be made after the sale of a person’s principle place of residence, which must have been held for at least 10 years. Further, downsizer contributions will not be considered a non-concessional contribution and are not included in the contributions cap. This measure will allow more older Australians to consider downsizing to a home that better suits their needs, with the aim of thereby freeing up the amount of larger homes for younger families.
Abolishment of the work test for voluntary superannuation
By abolishing the work test, individuals aged 67 to 74 will no longer be required to work at least 40 hours over a 30 day period in a financial year in order to make non-concessional or salary sacrifice contributions. Individuals aged 67 to 74 years will now be able to make and receive non-concessional superannuation contributions or salary sacrificed contributions, subject to existing contribution caps, however they will still have to meet the work test to make personal deductible contributions. These changes are expected to come into effect from 1 July 2022 and further increases the ability of older Australians to make contributions to their superannuation.
Changes for first-home buyers
Changes to the First Home Super Saver Scheme (FHSSS) will mean that first-home buyers can now access $50,000 (increased from $30,000) of voluntary concessional and non-concessional contributions from their super funds, if they live in the property they purchase with the released funds. Voluntary concessional and non-concessional contributions previously made as part of the FHSSS, will be included in the $50,000 limit. These changes are expected to come into effect from 1 July 2022.
A number of technical amendments will also be made to the legislation supporting the FHSSS, aimed at enhancing the overall experience for FHSSS applicants. These include expanding the Commissioner of Taxation’s capacity to amend or revoke applications, giving applicants the opportunity to cancel or change their application before voluntary contributions are released (those who cancel their applications will be able to apply again), granting the Commissioner of Taxation the power to return released contributions to super funds prior to the money being released to the individual, and clarifying that released contributions which are returned to super funds are not included towards an individual’s contribution caps and instead are considered as non-assessable non-exempt income. These technical changes will be applied retrospectively from 1 July 2018.
Removing threshold guarantee
The $450 per month minimum income threshold will be removed, resulting in employees not being required to meet any threshold in order to receive superannuation guarantee payments. These changes are expected to come into effect from 1 July 2022.
Opportunity to move away from legacy products
A temporary two-year transition period has been introduced, allowing individuals in particular legacy retirement products including market-linked, life-expectancy and lifetime products the option to exit these products in order to access newer retirement products. Currently, individuals are locked into certain products that restrict access to capital and flexibility of drawdowns, preventing them from effectively using their retirement savings for health, aged care, and other large expenses in retirement. The proposed changes will enable individuals to fully exit these products by transferring underlying capital and reserves from legacy retirement products into a superannuation fund account which is not in its retirement phase. These changes will come into effect after the relevant legislation receives Royal Assent.
Residency requirements for Self-managed Super Funds relaxed
Residency requirements for Self-managed Super Funds (SMSFs) and small APRA-regulated funds (ASAFs) are to be relaxed, by increasing the safe harbour rules of the central control and management test from two to five years, as well as repealing the active member test for both SMSFs and ASAFs. The proposed measure will allow SMSFs and ASAFs members to make super contributions while temporarily located overseas, ensuring equivalence with members of large APRA- regulated funds. These changes are expected to come into effect from 1 July 2022.
A link to the relevant Budget Paper can be found here.
New FAQs and worked examples on the Superannuation Data Transformation Phase 1 reporting standards published by APRA
On 21 May, APRA published additional frequently asked questions (FAQs) and worked examples for registrable superannuation entity (RSE) licensees to provide further guidance on satisfying the Reporting Standards for Phase 1 of the Superannuation Data Transformation.
FAQs and worked examples will be regularly published to clarify reporting issues raised by RSE licensees and to assist them in complying with their reporting obligations. The first collection of data under the new Reporting Standards will take place 30 September 2021.
The FAQs can be found here.
Treasury consults on reinsurance pool for cyclones and related flood damage
The Australian Government is proposing to establish a reinsurance pool for cyclones and related flood damage. The pool is proposed to commence on 1 July 2022 and will be backed by a $10 billion government guarantee covering residential, strata and small business property insurance policies in Northern Australia.
The announcement comes following the ACCC Northern Australia Insurance Inquiry into the affordability of insurance in Northern Australia, which published its final report on 28 December 2020.
The current Treasury consultation covers a number of design considerations including:
- scope of the reinsurance pool including how ‘cyclone and related flooding’ should be defined;
- how insurer participation will be managed;
- appropriate governance and review arrangements;
- links to risk reduction; and
- interactions with the Australian Reinsurance Pool Corporation (ARPC) terrorism reinsurance pool functions.
The ARPC would administer the proposed pool.
Consultation is open until 18 June 2021. To view the Consultation Paper, click here.
ASIC consults on updates to ePayments Code
On 21 May, ASIC released a consultation paper (CP 341) seeking feedback on proposed updates to the ePayments Code. The ePayments Code provides consumer protections in relation to electronic payments, including ATM, EFTPOS, credit and debit card transactions, online payments, and internet and mobile banking. It was last reviewed by ASIC in December 2010.
The proposed updates to the Code aim to ensure its continued effectiveness and suitability for both consumers and subscribers. ASIC’s proposed updates mainly focus on compliance monitoring and data reporting; mistaken internet payments; small business protections; unauthorised transactions; and complaints handling.
ASIC’s review also considers options for modernising the Code, in order to incorporate the changes in the field of electronic payments since the Code’s last review.
Submissions are due by Friday 2 July 2021. Further information on the updates to the Code can be found here.