Superannuation Update December 2008 – General Update

General update

The business of being a trustee: Same-sex legislation – are you ready?

General update

Legislation update

• The Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008 (Cth) (Act)¹ received Royal Assent on 21 November 2008. As previously reported, the new Act, among other things, provides for de facto couples (including same-sex couples) to access the financial settlement regime under the Family Law Act 1975 (Cth) and extends superannuation splitting arrangements to parties in a de facto relationship.
• The Superannuation Industry (Supervision) modification declaration No. 1 of 2008² was registered on 25 November 2008. According to the Explanatory Statement³, the declaration modifies the requirements of SIS Regulation 9.09 to give relief to trustees of ‘hybrid’ superannuation funds from the requirement to give a copy of the actuarial funding and solvency certificate to employer-sponsors who contribute to the fund only for accumulation members.
• The report of the Senate Standing Committee on Economics⁴ on the Temporary Residents' Superannuation Legislation Amendment Bill 2008 and the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2008 was released on 18 November 2008. The report recommended that the Senate pass the Bills and made three further recommendations relating to the unclaimed superannuation of international students. Both Bills have now been passed and received Royal Assent on 11 December 2008.
• The Same-Sex Relationships (Equal Treatment in Commonwealth Laws—Superannuation) Act 2008—No 134 of 2008 received Royal Assent on 4 December 2008 (more detail in ‘The business of being a trustee’ article further in this update).

New provisions in United States Internal Revenue Code has implications for Australian businesses

New section 409A of the United States Internal Revenue Code applies to companies which are listed in the United States. It also applies to United States citizens or tax residents working abroad who are taxed on their worldwide income and to non-residents working in the United States and subject to United States tax.

Section 409A is directed at ’non-qualified deferred compensation’ arrangements (plans, commitments or agreements) under which compensation for services could be paid to an employee in a year subsequent to the year in which the services are performed. There are onerous tax penalties for non-compliance and the transition period for compliance ends on 31 December 2008.

For more information, see our article from 10 October 2008.⁵

Short selling

The report⁶ of the Senate Standing Committee on Economics on the Corporations Amendment (Short Selling) Bill 2008⁷ was tabled in the Senate on 27 November 2008. The report made two recommendations:

• that the minister, through Treasury, should continue to liaise with ASIC to monitor the laws around brokerage activities, and
• the Senate should pass the Bill without delay.

The Corporations Amendment (Short Selling) Bill 2008 has now been passed by both Houses of Parliament and received Royal Assent on 11 December 2008. As previously reported, the Act imposes a legislative ban on naked short selling, provides a disclosure regime for covered short selling and expands ASIC’s powers to regulate short selling.

National greenhouse and energy reporting

The National Greenhouse and Energy Reporting Act 2007 (Cth) was passed in September 2007 and sets up a mandatory corporate reporting system for greenhouse gas emissions. The reporting obligations commenced from 1 July 2008; however, reports are not required to be submitted until August 2009.

Penalties for non-compliance include fines of up to $220,000 and personal liability for CEOs.

Ordinary time earnings – Draft SGR 2008/D2

From 1 July 2008, under the Superannuation Guarantee (Administration) Act 1992 (SG Act) ordinary time earnings (OTE) is the only earnings base that can be used for the purposes of calculating SG Act contributions. Accordingly, it is important to be clear about what elements of compensation constitute OTE.

OTE is defined in section 6 of the SG Act and the ATO’s views on what comprises OTE are currently set out in Superannuation Guarantee Ruling 94/4 (SGR 94/4). While section 6 has not changed in any respect, the ATO has recently released Draft Superannuation Guarantee Ruling SGR 2008/D2 (draft ruling) which departs in several significant ways from SGR 94/4.

The draft ruling sets out the ATO’s new interpretation of OTE as well as its new interpretation of the meaning of the term ‘salary or wages’. The intention is that the draft ruling (when final) will replace SGR 94/4 (which deals with OTE) and SGR 94/5 (which deals with ‘salary or wages’).

We comment briefly on some of the more significant differences between SGR 94/4 and the draft ruling:

• SGR 94/4 excludes overtime from OTE. However, the draft ruling states that OTE will include overtime where:

  ‘it is manifestly evident from an objective evaluation of the regular work patterns of an employee that the span of hours actually worked are consistently different to the standard working hours provided in an award or an agreement.’

  The draft ruling states that the regular work pattern determines the employee’s ‘ordinary hours of work’ even if these hours are remunerated at overtime or penalty rates. It will be difficult in many instances for an employer to be able to determine what is each employee’s ‘regular work pattern’ (except retrospectively) so that there is a risk that the correct SG Act contribution will not be made within the relevant quarterly deadline.
• Under the draft ruling, a:

  'bonus received by an employee as a reward for the services provided to the employer is "earnings" for the purposes of the definition of OTE under the [SG Act]. If the employee's services provided during ordinary hours of work contributed to the achievement of certain results or outcomes which resulted in the bonus being paid, the payment is "earnings in respect of ordinary hours of work".'

  The examples given in the draft ruling seem to suggest ex gratia bonuses may constitute OTE if linked to performance in certain circumstances.
  
• SGR 94/4 does not expressly deal with workplace agreements as they were not known in 1994. The draft ruling states that for an employee who has entered into a workplace agreement (including an agreement that incorporates by reference the terms of an award and overrides any terms of an award to the extent of any inconsistency), the standard working hours prescribed in the workplace agreement—not the award—are the employee’s ‘ordinary hours of work’ for the purposes of calculating OTE.
• Under the draft ruling, in the circumstances in which only the minimum number of hours are specified in an agreement or industrial arrangement, the hours actually worked and any hours of paid leave will be considered as the employee’s ‘ordinary hours of work’. SGR 94/4 does not address this situation where only minimum hours are specified in an agreement.
• Under SGR 94/4 top-up payments when serving on jury duty or with reserve forces were not considered as OTE. Under the draft ruling jury duty leave payments are considered as a reward for services during ordinary hours of work and is considered as OTE. Maternity leave and paternity leave payments are also specifically included under the draft ruling as OTE, whereas they were specifically designated as being outside of OTE under SGR 94/4.

The ATO has sought public comments on the draft ruling and has indicated that it would like to receive those comments by 19 December 2008.

The ATO proposes that the draft ruling will be issued in final on 6 May 2009 and will be effective from 1 July 2009.

It will be important for employers to monitor the progress of the draft ruling as it could have significant cost consequences with respect to SG Act contributions, particularly in relation to ‘regular overtime’.⁸

The business of being a trustee: Same-sex legislation – are you ready?

On 4 December 2008, the much publicised Same-Sex Relationships (Equal Treatment in Commonwealth Laws—Superannuation) Bill 2008 received Royal Assent.

The Same-Sex Relationships (Equal Treatment in Commonwealth Laws—Superannuation) Act 2008—No. 134 of 2008 (Act) amends the Superannuation Industry (Supervision) Act 1993 (SIS) to broaden the definitions of ‘child’, ‘spouse’ and ‘dependant’ in order to provide equal treatment in superannuation entitlements for same sex couples and their children.

The changes most notably expand the following definitions under SIS:

• ‘spouse’, to include a person of the same or different sex with whom the person is in a ‘registered’ relationship and a person ‘who, although not legally married to the person, lives with the person on a genuine domestic basis in a relationship as a couple’, and
• ‘child’, to include a ‘child of the person’s spouse’ and ‘someone who is a child of the person within the meaning of the Family Law Act 1975 (Cth). This is a surprisingly complex definition. Trustees will need to be cautious where complex family relationships exist.

The meaning of ‘dependant’ under SIS will reflect these amended definitions.

The amendments to SIS apply retrospectively from 1 July 2008.

Trustees of superannuation funds should as a matter of priority consider how the legislative changes will affect them. This will include the following:

1. Review of each fund’s trust deed to determine the impact of the Act.
   
   The amended definitions may affect the payment and taxation of death benefits, who qualifies as an eligible spouse member, contributions splitting and family law splitting.
   
   If the trust deed adopts the SIS definition of ‘spouse’ and ‘child’, the revised definitions in the Act will apply from 1 July 2008. This may open up the possibility of challenges to death benefits which have been paid in the last six months where the expanded definitions include a person who was previously not eligible to receive a death benefit under SIS.
   
   If the trust deed has a more restrictive definition, the trustee will need to give careful consideration as to whether and, if so, how the trust deed should be amended to broaden the definition of spouse, child and dependant.
   
   Under SIS, there is no requirement for trust deeds to be amended. Indeed, in the defined benefit context there may be funding implications if the class of potential beneficiaries is widened. However, given the duty of a trustee to act in the best interests of the members and the application of anti-discrimination laws, each trustee must consider whether it is appropriate and possible to amend the relevant trust deed.
2. Consideration of the extent to which the trustee should communicate these changes to members and the timing of disclosure to members. These changes may be a significant event, particularly where a binding death benefit nomination is held by the trustee. Particular care should be taken in dealing with death benefits which arise on or after 1 July 2008 to ensure that all possible dependants are notified of the existence of the death benefit and are considered by the trustee in determining the distribution of the death benefit.
3. Amendment of disclosure materials, websites, standard forms and other information provided to members.
4. Training of call centre staff so that members receive correct information.
5. Development of polices and practices with regard to determination of the meaning of the phrase ‘in a relationship as a couple’. There is currently no regulatory direction on how the term ‘in a relationship as a couple’ should be interpreted. A starting point may be to consider similar factors to those judicially considered in determining whether an opposite-sex de facto relationships exists. We note that section 4AA of the Family Law Act 1975 (Cth) and section 22C of the Acts Interpretation Act provide a definition of a defacto relationship. These definitions do not directly apply to SIS however they are useful reference tools. We further note section 22C of the Acts Interpretation Act which defines a ‘registered relationship’ which, upon registration, will provide conclusive evidence of a relationship for certain laws.

Endnotes

1. Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008
2. Superannuation Industry (Supervision) modification declaration No. 1 of 2008
3. Explanatory Statement to Superannuation Industry (Supervision) modification declaration No. 1 of 2008
4. Report of the Senate Standing Committee on Economics
5. ‘New United States tax code impacts on Australian entities’, 10 October 2008
6. Report on the Corporations Amendment (Short Selling) Bill 2008
7. Corporations Amendment (Short Selling) Bill 2008
8. ‘Are you paying enough superannuation?’, 16 December 2008

More information

For information regarding possible implications for your business, contact the Superannuation Partners.