Superannuation borrowing rules

• Limited recourse borrowing exemption tightened. Borrowing limited to single asset (eg collection units in managed fund) and further limitations on replacement assets. Applies to all super funds including SMSFs and SAFs.

Legislation passed just prior to the election.

Other superannuation issues

• State/Commonwealth Government super unclaimed moneys to be paid to the ATO.

• Personal contributions deductions:
  s.290-170 tax deduction notices can be accepted by a successor fund after 1/7/2011.

• Relief to super funds so that all TPD premiums deductible for pre-2010/11 years, including for ‘own occupation’ insurance. Arises from ATO decision that full deduction only applies where ‘any occupation’ TPD definition applies. Funds given until 1/7/2011 to fix up insurance arrangements.

• Excess contribution tax:
  ATO to be given the power to reallocate/disregard contributions for measuring against contributions cap before making an assessment.   

Legislation was tabled pre-election but did not pass through Parliament. 

Must be re-tabled but not controversial and should pass. 

• Increase the Super Guarantee (SG) from 9% to 12% pa. To commence 1/7/2013 and is fully phased in by 1/7/2019.
  
• Low income earner Government contributions of (up to) $500. Effectively, a refund of contributions tax paid on SG contributions for those under $37,000 income. Refund paid 2013/14 in respect of contributions made 2012/13. 
  
• From 1 July 2012, the $50,000 concessional contribution cap will continue for those over age 50 with accounts less than $500,000.  
• SG extended to age 75.  

Expected cost to revenue for 2013 of super initiatives is $1.87 billion, increasing as the SG rate rises to 12%. 

All super measures will need to go through Parliament and are likely to get the support of the Greens in the Senate.   

However, all super initiatives are aligned with delivery of minerals resource rent tax (MRRT), the watered down version of the mining tax agreed with the big resources companies. The MRRT will be subjected to a consultation process headed up by Don Argus.

The big question hanging over these super initiatives is delivery of the MRRT. MRRT legislation will be introduced to Parliament, but key independents may prefer to have it considered as a part of the tax summit to be held mid-2011 to discuss the Henry Tax Review.  

• Reduce company tax to 29% from 2013/14.  For small business, the drop in company tax rate will apply from 2012/13.
• Insurance bonds such as the IOOF Wealth Builder series will benefit from this reduction in tax.

This is also linked to the MRRT, and therefore may be included in the tax summit next year. 

• Large segments of the findings of the Henry Tax Review were either dismissed by the Rudd Government or ignored completely when finally released in May 2010. 
• As a part of the deal to secure independent support, the Gillard Government has agreed to a major tax summit to be held before June 2011 to discuss the recommendations of the Henry Tax Review.  

This may trigger a new round of tax reform. 

Financial Services Council* (FSC)

• New standards on separation of product and advice fees for all new personal super and new employer super plans from 1/7/2012. No trail commission for new contracts from 1/7/2012.  Technically not applicable to non-super products but will extend to non-super investment products in practice. Not applicable to risk products. 
  * formerly IFSA
  

Financial Planners Association (FPA)

• New remuneration principles. Separation of advice frees and product from 1/7/2012. Move towards a fee for service model for investment but retain commissions for risk products.  Applies to new contracts and new advice from 1/7/2012. 

Accounting Professional and Ethical Standards Board (APESB)

• Proposed Standard 230 (Exposure Draft).  From 1/7/2011 accountants providing financial advice services can only charge on a fee-for-service basis. Applies to new and existing clients and prohibits all trail commissions from 1/7/2011. Fiduciary duty applies. 

These are industry based codes of conduct and not subject to any Government legislation agenda. Will be implemented regardless of the makeup of Parliament. 

APESB proposal commences a year earlier and more closely matches the Government’s reform agenda – Future of Financial Advice.   

In response to the Ripoll Enquiry, the Government has announced that from 1/7/2012:

• A prospective ban will apply to commissions; and volume based payments to advisers and licensees will apply. This includes volume based rebates to dealers and platforms but does not apply to pre-1/7/2012 contracts.
• A fiduciary duty for advisers will be codified in the Corporations law.
• Percentage-based advice fees on geared products prohibited. 
• Simple financial advice to be made available to clients by product providers – including intra-fund advice provided by super funds.
• The accountant exemption from licensing for setting up a self managed super fund (SMSF) to be removed.  
• Commission on life insurance not prohibited but for later discussion.  

Implementation details subject to discussion with industry. Draft legislation expected mid-2011. 

Requires change to Corporations law and so will need the independents and the Greens’ support to get through Parliament. Greens’ support is likely. Independents’ views are unknown. 

With the Independents, it will depend on who they will listen to. Local accountants and financial planners may be influential. Also, it may be relevant that the original Ripoll Enquiry was bi-partisan.

• Introduction of a ‘choice based architecture’ for super. Where the employee does not make a choice, contributions must be made to a MySuper product. Features are:
  - single investment strategy;
  - no bundled advice fees; and
  - intra-fund (or simple) advice facility. 
• No commission on life insurance premiums in super. 
• Streamlined back office for super funds using Tax File Numbers (TFN) as the primary account identification. Applies from 1/7/2011.
• 0% in house assets rule to be introduced for SMSFs.
• SMSFs can invest in art and collectibles under very strict guidelines. Government rejected Cooper Review recommendation on an absolute ban on SMSFs investing in art and collectibles. 

Government will respond to remaining Cooper recommendations by end of 2010. TFN legislation will be needed early 2011 for 1/7/2011 start. No time frame on draft legislation for MySuper. 

MySuper recommendations are quite radical and may not get past the Independents. Further discussions and potential watering down of provisions. 

Possible review of naming of default super funds in modern awards. 

Greens supported Government in rejecting Cooper Review recommendations banning SMSFs from investing in art and collectibles. 

Phase 2 of the National Credit Reforms

• Includes proposals to regulate credit for investment purposes (other than for residential property and margin loans); and reverse mortgages. Implementation date either 1/7/2011 or 1/7/2012.
• Phase 1 - the National Consumer Credit Code and the regulation of margin loans (licensing and responsible lending requirements) were implemented before the election. 

Tax Agent Reforms

• Draft regulations have been released that provide an exemption for licensed financial advisers from the tax agent registration regime until April 2011, so that further discussions can continue with the Government.  

Consumer contracts

• Laws prohibiting unfair terms in consumer contracts, including financial products commenced 1 July 2010. 

A discussion paper on phase 2 of the credit reforms has been issued. Not likely to be controversial and has already been agreed with the States. 

Tax agent regulations likely to be implemented as regulations don’t need to go through Parliament (although Parliament can vote to reject them).