Superannuation governance

On 19 August 2015, the Assistant Treasurer announced that the Federal Government will make amendments to previously issued draft legislation regarding superannuation governance arrangements following consultation earlier this year. The changes include:

  • more detail on the definition of ‘independent’ in the law, rather than in the Australian Prudential Regulation Authority’s (APRA’s) prudential standards, to provide greater certainty around the legal obligations of trustee boards
  • ensuring the new requirements and transition period both commence from Royal Assent so existing funds have a full three-year transition period
  • providing greater flexibility during the transition period by clarifying that neither the current equal representation rules nor the new independence requirements will apply where an APRA compliant transition plan is in place
  • clarifying that the independent chair can be included in the one-third independent directors
  • extending the period for filling a trustee vacancy from 90 days to 120 days, and
  • clarifying that the Bill overrides both governing rules and the constitution of a corporate trustee.

The Government will also include in the explanatory materials:

  • guidance on how to fulfil the requirement to report on an ‘if not, why not’ basis, consistent with ASX best practice principles, where a majority of directors are not independent; and
  • clarification that Boards can appoint an independent chair at any time between the date of Royal Assent and the end of the transition period.

Tax risk management and governance review guide

On 20 July 2015 the Australian Taxation Office (ATO) released the “Tax risk management and governance review guide”.

The aim of this guide is to help understand what the ATO believe better tax corporate governance practices looks like, so you can:

  • develop your own tax governance and internal control framework
  • test the robustness of the design of your framework against the ATO benchmarks
  • understand how to demonstrate the operating effectiveness of your key internal controls to your stakeholders.

Although the ATO publication is targeted towards large corporates, the guide provides some insight that should be considered by superannuation funds in determining their tax management and governance framework.

Division 293 tax assessments for 2013-14 for defined benefit schemes

The ATO has indicated on their website that they will soon be issuing 2013–14 income years’ Division 293 tax assessments for clients with defined benefit contributions.

Exposure Draft -Foreign resident capital gains withholding tax

Tax and Superannuation Laws Amendment (2015 Measures No 5) Bill 2015: Foreign resident capital gains withholding payments

On 8 July 2015, Treasury released exposure draft legislation to implement the Government’s announcement on 6 November 2013 that it would proceed with a 10 per cent non-final withholding tax on the disposal, by foreign residents, of certain taxable Australian property. The purpose of the regime is to assist in the collection of capital gains tax liabilities from foreign residents.

With effect from 1 July 2016, where the seller of certain Australian property (both direct or indirect) is a foreign resident, the buyer will be required to pay 10 per cent of the purchase price to the ATO as withholding tax. This withholding obligation will not apply to residential property valued under $2.5 million and the foreign resident can apply to have the rate of withholding tax reduced in certain circumstances.

As superannuation funds may acquire Australian assets from foreign investors, funds should be aware of these proposed rules. Penalties equal to the withholding tax can apply where the appropriate withholding tax is not deducted and paid to the ATO.

Increase in Commonwealth penalty units

From 31 July 2015, Commonwealth penalty units increased from $170 to $180. The tax laws, in a number of circumstances, sanction penalty units for certain breaches. For example, the failure to keep tax records, as required, can result in a 20 unit penalty liability. The value of a penalty unit is determined under the Crimes Act 1914 (C’th).

As a result of recent amendments, to the Crimes Act 1914 (C’th), the Government will index penalty units every three years based on the consumer price index. This will start from 1 July 2018. Prior to the amendments, the provisions required the Attorney-General to cause a review of the value of the penalty unit every three years after the date it was last reviewed. This review mechanism is no longer required with the introduction of automatic indexation of the penalty unit value based on inflation.

ATO advice and guidance

Following a review of public advice and guidance, the ATO have indicated that they will change how they produce and communicate public advice and guidance about the operation and administration of tax laws. Some of the changes foreshadowed by the ATO include:

  • Increasing certainty by publishing more guidance in a form the ATO is legally bound by. For example, converting specific ATO Interpretive Decisions into forms of legally binding advice.
  • Consulting the public earlier to ensure that the ATO advice is more tailored and effective.
  • Working more closely with stakeholders to identify areas where advice and guidance is needed and ensure it is tailored appropriately.

Whilst it is too early to evaluate the impact the proposed changes by the ATO will have on taxpayers, on the face of it, the developments seem positive.