Superannuation Update November 2007 — General update
07 November 2007Sole purpose test
The Australian Taxation Office (ATO) has released a draft self-managed super funds (SMSF) ruling (SMSFR 2007/D1) which details the Commissioner’s views as to when an SMSF can provide incidental benefits for members which are not expressly allowed by the ‘sole purpose test’ for super funds under section 62 of the Superannuation Industry (Supervision) Act 1993 (SIS). An additional incidental benefit may arise as an ‘inherent or unavoidable’ part of the legitimate activities of the SMSF. Although specific to SMSFs, the principles are of general interest for all superannuation funds regulated under SIS, particularly, given that the ATO and APRA seem to be in agreement on the substantive issues arising from the sole purpose test.
The ATO provides a list of factors which would be used in assessing whether a fund is being maintained in accordance with the sole purpose test, including whether:
- the trustee sought out the incidental benefit
- the benefit influenced the decision making of the trustee
- the benefit is provided by the SMSF to a member at a cost or financial detriment to the SMSF, and
- whether there is a pattern in providing a material benefit other than provided for by the sole purpose test.
Superannuation guarantee compliance
On 2 October 2007 the Minister for Revenue and Assistant Treasurer, Peter Dutton, announced that changes will be made to the Superannuation Guarantee (Administration) Act 1992 to ensure that employers will not have to make the same payment twice.
Currently, when an employer is late in making a superannuation guarantee (SG) contribution, that payment cannot be paid to the employee’s super fund—rather it must be paid directly to the ATO. If the employer does make a late payment to a super fund and cannot recover it, a payment for the same amount must still be paid to the ATO. This has meant some employers have paid the required amount twice in addition to the applicable penalties and interest for SG shortfall amounts.
This situation is proposed to be rectified with effect from the date the new legislation is passed. As parliament has been prorogued, we do not know when it will be introduced.
Penalties and interest will continue to be imposed on employers who incur a ‘shortfall’ because they are late in making their superannuation guarantee contributions.
Super reprieve for people with a terminal illness
The Minister for Revenue and Assistant Treasurer, Peter Dutton, announced that, from 12 September 2007, the government would seek legislative amendments to exempt a person with a terminal illness who accesses their superannuation under the age of 60 from the tax which would otherwise be payable on their lump sum benefit.
On 25 September 2007, the ATO registered a variation to the rate of withholding for certain terminally ill super fund members which is retrospective to 12 September 2007. The ATO also issued some FAQs on 19 October 2007 discussing some of the practical implications of this change, including how to deal with any payments made during the period 12–25 September 2007. Treasury has issued a consultation paper seeking comments on the changes by 31 October 2007.
Super accounts without tax file numbers
More noteworthy news from the ATO—the first penalties for failing to provide a superannuation fund with a tax file number or exceeding the new contribution caps have been imposed.
There are still 1.1 million superannuation accounts without tax file numbers and these accounts will be taxed at the top marginal rate while there is no tax file number held by their superannuation fund.
The ATO has also received more than 200 ’transitional release requests‘ from members who mistakenly contributed over $1 million during the transitional period. Any member whose request is rejected will be liable for tax at the top marginal rate for any amount contributed over $1 million.
Review of prudential decisions
The Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007 was introduced into the House of Representatives on 13 September 2007. The Bill proposes to:
- introduce a court-based process for disqualification of an individual from an APRA regulated entity, and
- expand the availability of merits review for certain administrative decisions.
As parliament has been prorogued, we do not know when this Bill will be reintroduced.
Further guidance on anti-money laundering and counter terrorism financing laws
AUSTRAC has released:
(a) New guidance note on risk management and AML/CTF programs.
This guidance note discusses the principles-based nature of the AML/CTF regulation and provides some guidance for an entity in developing its risk-based systems and controls. The guidance note discusses the following components of the risk management framework:
- risk identification and assessment (the main types of ML/TF risks discussed include regulatory risk and business risks)
- treatment of risk, including mitigating, managing and monitoring risk, and
- the legal requirements for risk-based systems and controls.
Each reporting entity should be able to demonstrate that their system and controls are appropriate to their business in meeting the above requirements. This guidance note may be a useful tool for entities in developing and monitoring their own AML/CTF programs.
(b) New guidelines on the application of civil penalty orders, which details the AUSTRAC CEO’s approach to the policy principles.
(c) Draft rules in relation to ongoing customer due diligence which deal with ‘know your client’ information, transaction monitoring programs and enhanced customer due diligence programs.
(d) Draft rules which outline what must be included in a suspicious matter report.
For more information please contact
Title : Partner
Office : Sydney
Phone : +61 2 9225 5535
Fax : +61 2 9322 4000
Email : terry.brigden@freehills.com
Title : Partner
Office : Sydney
Phone : +61 2 9225 5392
Fax : +61 2 9322 4000
Email : david.cooper@freehills.com
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1497
Fax : +61 3 9288 1567
Email : natalie.gullifer@freehills.com
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1464
Fax : +61 3 9288 1567
Email : peggy.haines@freehills.com
Title : Partner
Office : Perth
Phone : +61 8 9211 7593
Fax : +61 8 9211 7878
Email : nick.heggart@freehills.com
Title : Partner
Office : Perth
Phone : +61 8 9211 7509
Fax : +61 8 9211 7878
Email : andrew.shearwood@freehills.com
Title : Partner
Office : Sydney
Phone : +61 2 9322 4411
Fax : +61 2 9322 4000
Email : michael.vrisakis@freehills.com
