Carlos Fernicola & Co. Pty Ltd

On 30 March 2017, the ATO released Practical Compliance Guideline PCG 2017/3 to support the implementation of the tax changes for transition to retirement income streams (TRIS) as part of the super reforms.

The Guideline sets out the ATO’s compliance approach for certain APRA-regulated super funds facing practical difficulties in complying with the super reform legislation which affects various TRIS products during the transition period. Importantly, the Guideline does not apply to SMSFs.

Basically, complying super funds will not be entitled a tax exemption on the income attributable to their assets supporting the payment of a TRIS from 1 July 2017. The Guideline recognises that this may cause practical compliance difficulties for funds unable to transfer or otherwise distinguish assets supporting payment of TRIS from segregated asset pools, or deploy appropriate IT systems, in time for the commencement on 1 July 2017.

To facilitate the earliest feasible adoption of full system solutions, the ATO recognises that funds may apply interim arrangements in respect of some products or platforms and not others, or to deploy full system solutions for different products or platforms at different times. Importantly, to access the interim arrangements, a super fund must deploy a full system solution by the end of 30 June 2018.

In calculating assessable income for the 2017-18 income year, funds to which this Guideline applies may have the following 2 periods:

• The interim period – from the commencement of the fund’s 2017-18 income year to the time at which the fund deploys a full solution, which must not be later than 30 June 2018. This is the period when assets that support payment of TRIS continue to be allocated to an asset pool with assets that support payment of superannuation income streams in the retirement phase, and the fund is not able to calculate assessable income through its existing systems.
• The remainder period – from the deployment of a full solution system to 30 June 2018, where assessable income and tax on earnings from assets that support payment of TRIS is calculated normally. This is the period when the systems in place will recognise assets supporting payment of TRIS are segregated from assets supporting payment of superannuation income streams in the retirement phase. The ATO notes that in some cases a fund may not have a remainder period because the full solution is not deployed until 30 June 2018.

Date of effect

30 March 2017.

 

The ATO says it is committed to providing public advice and guidance to complement the Superannuation Reform Bills recently introduced into Parliament (see 2016 WTB 47 [1613]). It is consulting with industry members, practitioners and advisers to design relevant and helpful guidance for the community. The ATO says it will seek public comment in designing this guidance.

Subject to the passage of the Bills, this consultation process will continue with the aim of being able to finalise products shortly after the Bills receive Royal Assent.

Law Companion Guidelines currently being prepared will cover, among other things:

• the $1.6 million transfer balance cap – explains how to track debits and credits in a transfer balance account to determine whether a taxpayer has exceeded their transfer balance cap;
• transitional CGT relief – covers the temporary CGT relief available for qualifying complying superannuation funds. A fund may choose relief where a member has transferred amounts to accumulation phase prior to 1 July 2017 to comply with the transfer balance cap, or as a result of the changes made to tax treatment of Transition to Retirement Income Streams;
• defined benefit interests – explains how the defined benefit income cap applies and the consequent income tax changes to defined benefit income.

Other guidance is being looked at in relation to: Concessional and non-concessional contributions and Total Superannuation Balance; Deducting personal contributions; Valuation methodologies; Transition to Retirement Income Streams; and Reporting requirements.

 

Financial adviser standards Bill receives Royal Assent The Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 received Royal Assent on 22 February 2017. The Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 commenced on 15 March 2017, as fixed by Proclamation. A commonwealth standards body will be established under the Act to set the professional, educational and ethical standards of financial advisers. The Government anticipates that the standards body will be established by mid-2017. The reforms take effect from 1 January 2019. From this date, all new advisers will be required to hold a relevant degree before they are eligible to commence the supervision year and to sit the exam. Existing advisers will have 2 years, until 1 January 2021, to pass the exam and 5 years, until 1 January 2024, to reach a standard equivalent to a degree. A Code of Ethics will commence on 1 January 2020. All advisers will be required to adhere to the code from that day forward. Our February 2017 Financial Advisory Services Update provides further information on the reforms, and how we will support members once the new standards body is established. On 22 February this year we contributed to Treasury’s roundtable consultation on the draft constitution for the new standards body and the ongoing funding model for the body. On 6 March we also provided a submission to Treasury on these matters. In regard to the ongoing funding model for the body, we recommended that consideration be given to the principles of equity, efficiency and effectiveness. We advocated that costs should only be levied in a way that increases public trust, confidence and engagement in the financial advice industry, and reduces complexity and regulatory burden, particularly for small and medium sized practices and those in rural and regional Australia, including through streamlining the many existing levy collection points for financial advisers. Read the Bill and Explanatory Memoranda > Read the Act > Read our Financial Advisory Services Update > Financial advisers register Regulations amended The Corporations Legislation Amendment (Professional Standards of Financial Advisers) Regulations 2017 have updated the Corporations Regulations 2001 to move the provisions governing the Register of Relevant Providers (i.e. the Financial advisers register) to s 922Q of the Corporations Act 2001. Section 922Q(1) of the Corporations Act provides that ASIC must enter details on a Register of Relevant Providers in respect of each person who is or was a relevant provider, and s922(2) specifies the contents that must be entered on the Register. The amending regulations complement the changes made by the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 which sets out the new professional, educational and ethical standards for financial advisers. Read the Regulations > Read the Act >

 

The Financial Services Council (FSC) and UBS have released a joint report on asset management by self-managed superannuation funds (SMSFs). The report, SMSF Insights – FSC/UBS Asset Management SMSF Report, December 2016, found that the percentage of SMSF holders having formal agreements with financial advisers (down from 46% to 42%) has shifted slightly towards those using accountants (up from 25% to 30%). Accountants were also seen as the most trustworthy source of information to help with SMSF decision making (average trust score of 7.1 out of 10, compared with 6.1 for financial advisers).

The report suggests that the sense of control, as well as good returns, are the biggest drivers of people’s overall satisfaction with their SMSFs. The biggest barrier to setting up an SMSF was finding the confidence to manage their own retirement savings (30%), while the pressure of making investment decisions was seen as the most challenging aspect of running their SMSF (31%). The ATO’s compliance rules were also seen as a barrier to setting up an SMSF (19%) and a challenging aspect of running the fund (26%).

The report found that SMSF investments in deposits/cash increased to 74% in 2016 (up from 67% in 2015). Over half of fund holders (52%) used managed funds and there were increases in the level of investment in domestic (51%) and overseas equities (30%). While 20% felt their SMSF would definitely provide them with enough income for a comfortable retirement, another 43% said it probably would. Only 10% said their SMSF definitely wouldn’t provide them with enough income, and 17% said it probably wouldn’t, while 9% were unsure.