Superannuation Governance

On 26 June 2015, the Assistant Treasurer released exposure draft legislation and regulations  regarding reforms to the governance of certain superannuation funds.

Under the proposal, the amendments in the exposure draft law and regulations will apply to superannuation funds regulated by the Australian Prudential Regulatory Authority (APRA) and will require:

  • the fund to have a minimum of one-third independent directors on their trustee board, and an independent chair. A person will be ‘independent’ if they do not have a substantial holding in the trustee or do not have (or have not had within the last three years) a material relationship with the trustee, including through their employer,
  • trustees of funds that do not have a majority of independent directors to report on an ‘if not, why not basis’.

The new governance rules will not apply to self-managed superannuation funds. The proposed start date is 1 July 2016. Where an APRA regulated superannuation fund is established on and after 1 July 2016, the registrable superannuation entity (RSE) licensee of that fund will have to adhere to the new governance arrangements from the time it is established. Similarly, RSE licensees  authorised on or after 1 July 2016 will have to comply with the new regime. APRA regulated funds  and RSE licensees established or authorised before 1 July 2016 will have three years to transition to the new arrangements from the time the legislation is passed.

Foreign Income Tax Offset (FITO) and TR 2014/7 update

On 24 June 2015, the ATO issued a Partial Withdrawal of TR 2014/7. In essence, the partial  withdrawal removes the comments in TR 2014/7 relating to ‘source’. Notwithstanding this, the ATO  has indicated that the place where the contract is formed is likely to be the most important factor in determining source.

The ATO plans on introducing a revised proxy into the ruling following further consultation with industry experts in the fields of foreign currency trading, contract law and taxation. The updated  ruling will apply for years commencing after 30 June 2015. 

The ‘source’ of hedging gains is important in determining the FITO cap. Super funds have the choice of either using the proxy within the current  ruling or the general principles for the 30 June 2015 year.

Is an Individual Retirement Account (IRA) a foreign superannuation fund?

In Baker and Commissioner of Taxation [2015] AATA 469 (30 June 2015) (Baker) the Administrative Appeals Tribunal (AAT) considered whether an IRA maintained in the US qualified as  a “foreign superannuation fund”. Whilst the AAT noted that the IRA had some similarities to an Australian superannuation fund, there were some fundamental differences and the AAT reached the conclusion  that the IRA did not qualify as a “foreign superannuation fund” because money can be withdrawn at any time prior to any retirement event at the discretion of the investor.

This case highlights some of the complexities involved in determining whether a fund is a foreign superannuation fund.

Legislation update

Tax and Superannuation Laws Amendment (2015 Measures No. 1) Bill 2015

The above Bill which contains the amendments  to close the FHSA Scheme, and which the Government  announced as part of the 2014-15 Budget, was passed by both Houses of Parliament and received Royal Assent on 25 June 2015.

Tax and Superannuation Laws Amendment (Terminal Medical Conditions) Regulation 2015 (Regulation)

The purpose of the Regulation is to extend the certification period for a terminal medical condition for the purposes of releasing benefits. Currently, a person with a terminal medical condition is required to obtain certification from medical specialists that they have less than 12 months to live. The Regulation will amend the Income Tax Assessment Regulations 1997, the Retirement Savings Accounts Regulations 1997 and the Superannuation Industry (Supervision) Regulations 1994 to extend the certification period to 24 months. This will allow terminally ill patients to access their superannuation benefits tax-free earlier. The Regulation commences on 1 July 2015.

Fund administrators will need to take into account the extended timeframe in assessing claims for terminal illness benefits. 

Income tax relief for MySuper transfers within a fund

On 29 June 2015 the Assistant Treasurer announced rollover relief (which applies from 29 June 2015) where super funds transfer their default members’ balances to a MySuper product within their fund structure. These rollover relief measures are in addition to the current rollover measures that apply when members transfer from one super fund to another. 

Broadly, the rollover relief applies to defer the income tax consequences for assets transferred. To access this relief, the relevant MySuper product will need to be offered through the same type of structure as the default product. 

The asset roll-over will apply at the membership interest level and to the interposed entities that dispose of assets pursuant to the transfer.

The roll-over will only apply to the initial transfer of members’ account balances from default products to MySuper products, and will not extend to any rebalancing which may occur after the initial transfer. 

The relief will not extend to the transfer of losses.

ATO Interpretative Decision 2015/19 - Disability superannuation benefit: medical certificates

On 3 July 2015, the ATO issued ATO ID 2015/9, where the ATO indicated that medical certificates supplied by an individual in relation to a particular superannuation lump sum can be used for later superannuation lump sums paid to the member by the same superannuation fund. This new ATO ID replaces ATO ID 2009/108 (on the basis that ATO ID 2015/9 provides further detailed information).