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Superannuation monthly update – August 2020

01 September 2020

#Superannuation, Funds Management & Financial Services, #COVID-19

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Superannuation monthly update – August 2020

Regulator updates

ATO Design and implementation information (3 August 2020)

The ATO has provided information to trustees on the design and implementation of the COVID-19 early release of super package, including an updated questions and answers page, as at 17 July 2020.

The information covers:

  • individual application process, and specifically:
    • application process
    • available accounts
    • bank account details
    • ATO held super
    • correspondence
    • varying an application
    • revoking an application
  • fund notification and release of super, and specifically:
    • fund notification
    • proportioning rules
    • tax and payment summaries
    • payment by fund
    • payment timeframes
    • release of funds
  • other information, and specifically:
    • eligibility
    • compliance checks
    • fraud
    • proof of identity
    • successor fund transfer
    • non-regulated funds
    • USM reporting
    • existing CRS applications
    • registration of interest
    • fund support.

ATO Decision Impact Statement – Commissioner of Taxation v Scone Race Club Limited (7 August 2020)

This Decision Impact Statement outlines the ATO's response to the Full Federal Court’s decision which concerns whether, for the purposes of section 12(8) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SG Act), Scone Race Club Limited (Club) was liable to pay riding fees to jockeys engaged to ride in races and barrier trials during the relevant period.

Background

The Club had paid riding fees (via Racing NSW) to jockeys, in accordance with NSW racing rules, over a number of years. However, the Club claimed that it was not liable to make such payments (because it was not an employer) and only did so on behalf of the horse owners and trainers due to historical administrative practices, therefore the Club had no liability to make superannuation guarantee contributions on behalf of the jockeys.

The Full Federal Court decision

This case involved an appeal by the Commissioner of Taxation (Commissioner) to the Full Federal Court from a decision by the Federal Court which was in the Club’s favour.

In a majority decision, the Full Federal Court allowed the Commissioner's appeal, having found that the Club was the entity liable to make payment of riding fees to jockeys. The majority did not consider that the Club had discharged its onus of proof with regard to the assessments of superannuation guarantee charge (SGC) being excessive, and the majority felt there was extensive evidence against the Club's claim that it was not the entity liable to pay riding fees, including the following:

  • the actual payments of riding fees were made by Racing NSW as agent for the Club through a Stakes Payment System (being a centralised system operated and managed by Racing NSW). No riding fees were paid by any horse owners or trainers
  • neither the Club nor Racing NSW sought to recover such fees from the horse owners or trainers. The complete assumption of the economic burden of paying riding fees by the Club is at odds with the proposition that owners were legally liable to pay such fees
  • the riding fees were accounted for by the Club as a race day expense, with a witness called by the Club accepting that payment of the fees “reduced the profit of the club”
  • a witness called by the Club stated that the jockeys were considered subcontractors of the Club, and as such, the Club was “reporting the GST as we would with any other subcontractor through the BAS system”. This approach meant the Club claimed input tax credits for the payment of riding fees and that it treated the jockeys as making taxable supplies. The claiming of such input tax credits by the Club is consistent with the presence of legal liability to make such a payment
  • the concept of the Club treating the amount of riding fees as “returns to owners” is not consistent with a conclusion that any liability was imposed on owners. Instead, it seemed more like a subsidy
  • considering that one way for the Club to claim it was not liable to pay riding fees was to demonstrate with whom that liability instead rested with, it was telling that no evidence was called from any owner, trainer or jockey – particularly when most arrangements between owners (or trainers) and jockeys were verbal rather than in writing. Nor were any written contracts tendered
  • examples of statements of accounts sent by Racing NSW to the Club, to an owner, to a trainer and to a jockey showed the only entity that was debited with a “rider payment” was the Club. This is consistent with Racing NSW on-charging to the Club the riding fees it paid via the Stakes Payment System.

The ATO’s view of the decision

The ATO states that the Full Federal Court decision is consistent with the Commissioner's interpretation of section 12(8) of the SG Act.

Other race clubs which have had arrangements in place substantively similar to those involving the Club as discussed in this decision impact statement, should review their arrangements and lodge SGC statements for any quarters in which they have an SG shortfall.

The Commissioner may also raise SGC assessments against those race clubs where SG shortfalls exist, and such shortfalls are brought to the Commissioner's attention.

Race clubs with SG shortfalls for the quarters between 1 July 1992 and 31 March 2018 may be eligible for the SG amnesty, which closes on 7 September 2020.

Where race clubs still have the above arrangements in place, they may also be required to report to the Commissioner the riding fees they pay to jockeys.

Based on previous advice provided to the Commissioner, race clubs most likely to be directly affected by the above approach are those based in NSW, South Australia and Victoria.

Our thoughts

The ATO is seeking submissions from interested parties if they feel this decision has consequences that the ATO has not identified. Submissions are due by 4 September 2020.

ATO Decision Impact Statement – Commissioner of Taxation v Racing Queensland Board (7 August 2020)

This decision impact statement outlines the ATO's response to concerns whether, for the purposes of section 12(8) of the SG Act, the Racing Queensland Board (Board) was liable to pay riding fees to jockeys engaged to ride in races and barrier trials during the relevant period.

Background

The Board (as the principal racing authority (PRA)) and its predecessors, had paid riding fees to jockeys in respect of races and barrier trials conducted in Queensland, over a number of years. In response to the introduction of GST, and to minimise related administrative requirements on other industry participants, the Board took on the role of paying prize money, riding fees and the GST, with the intention of reducing the documentation and record-keeping requirements which might otherwise have rested with individual race clubs, owners, trainers and jockeys.

Subsequent to SGC assessments being made, the Board put forward the view that although it happened to pay riding fees to jockeys, it was not liable to make such payments and only did so on behalf of the horse owners and trainers, due to historical administrative practices. In other words, the Club had no liability to make superannuation guarantee contributions on behalf of the jockeys.

The Full Federal Court decision

This case involved an appeal by the Commissioner of Taxation (Commissioner) to the Full Federal Court from a decision by the Federal Court which was in the Board’s favour.

In a unanimous decision, the Full Federal Court allowed the Commissioner's appeal, finding that the Board was the entity liable to pay riding fees to jockeys, with the Court noting that a critical aspect of the case was whether or not the Board satisfied the onus of demonstrating that the assessments of SGC were excessive. To be able to do so, the Board needed to establish that it was not liable to pay riding fees to jockeys.

Of the several grounds of appeal relied upon by the Commissioner, the Court discussed three grounds from which the remaining were also effectively addressed.

Ground one – liability to pay riding fees

The Court concluded that the primary judge erred in failing to ascertain if, during the relevant periods, the obligation to pay the riding fees rested with the Board.

The documentation from earlier in 2000, upon which the primary judge based his conclusion that the Board was not liable to pay riding fees, was inconsistent with the evidence presented on behalf of the Board in relation to establishing who was liable to make the payments during the relevant periods.

Ground two – whether the Board agreed to pay riding fees on behalf of the owners or trainers

The Board's contention that there was no contractual relationship between the Board and the jockeys was not accepted. In contrast to the conclusion of the primary judge, their Honours found:

“The agreement in relation to riding fees was that [the Board] agreed to pay the riding fee if the jockey participated in a regulated race, and the acceptance of that offer occurred when the jockey fulfilled that condition.
... It also means that the Commissioner's conclusion that [the Board] was liable to pay riding fees to jockeys was correct.”

Ground three – no entitlement of the Board to seek contribution from owners or trainers for unpaid riding fees

Their Honours found that there was not sufficient evidence to allow a conclusion that the Board was not obliged to pay the riding fees which it paid in practice, further stating:

“It cannot be accepted that the trainers or owners would have some right of indemnity or contribution against [the Board] were it to happen that the latter did not pay riding fees.”

Overall, the Court determined that the Board had not discharged its onus of proving that the assessments of SGC were excessive, having been unable to establish that it was not liable to pay riding fees to jockeys.

Further, one judge noted that section 12(8), much like the other expansive subsections within section 12 of the SG Act, identifies who an “employee” is, but does not identify an “employer” on a literal reading. Identification of the employer is crucial, as it is with them that any liability to pay an SGC rests. From this, the judge stated that “a necessary implication to be deduced from the terms of the [SG Act] is that the person who, for the purposes of s 12(8)(a) is liable to make the payment, should be deemed to be an ‘employer’.”

The ATO’s view of the decision

The ATO states that the Full Federal Court decision is consistent with the Commissioner's interpretation of section 12(8) of the SG Act.

Other principal racing authorities (PRA) which have had arrangements in place substantively similar to those involving the Board (or its relevant PRA predecessor) should review their arrangements and lodge SGC statements for any quarters in which they have an SG shortfall.

The Commissioner may also raise SGC assessments against those PRAs where SG shortfalls exist, and such shortfalls are brought to the Commissioner's attention.

PRAs with SG shortfalls for the quarters between 1 July 1992 and 31 March 2018 may be eligible for the SG amnesty. The SG amnesty closes on 7 September 2020.

Where PRAs still have the above arrangements in place, they may also be required to report to the Commissioner the riding fees they pay to jockeys.

Based on previous advice provided to the Commissioner, the PRAs most likely to be directly affected by the above approach are those based in the Australian Capital Territory, the Northern Territory, Queensland, Tasmania and Western Australia.

Our thoughts

The ATO is seeking submissions from interested parties if they feel this decision has consequences that the ATO has not identified. Submissions are due by 4 September 2020.

Superannuation trustees compensate members wrongly classified as “smokers” (7 August 2020)

ASIC confirmed that the trustees of seven superannuation funds (six retail and one industry fund) had either at the time or historically assigned “smoker” status to members in their products, resulting in higher premium payments made by some members.

As a result, all trustees have ceased charging new members these higher premiums and are moving, or have moved, their existing members onto non-smoker or blended rates. Four trustees have refunded, or have agreed to refund, the excess amounts paid to impacted members.

ASIC also states that it is looking more broadly into the superannuation industry’s progress on improving insurance outcomes for consumers, and released a short report examining industry progress on the implementation of the Insurance in Superannuation Voluntary Code of Practice, by the end of December 2020.

Our thoughts

Most group insurance policies we have reviewed tend not to have a “smoker” premium in addition to standard premiums. The only premium rating factors tend to be in relation to occupation classifications.

That aside, ordinarily, we would expect that “smoker” premiums would be disclosed in the relevant fund’s PDS. Assuming that the PDSs in question do disclose these rates, next October’s product design and distribution obligations would require trustees to consider how they structure premiums.

APRA to recommence prudential policy program and issuing of new licences (10 August 2020)

APRA announced that it will recommence public consultations on select policy reforms and begin a phased resumption of the issuing of new licences, including RSE licenses.

Policy reforms that will recommence in 2020 through a process of public consultation are:

  • the cross-industry prudential standard for remuneration
  • the prudential standard for insurance in superannuation, and updated guidance on the sole purpose test.

Aligned with its policy agenda, APRA will also restart consultation on a limited number of its data collections, including the recommencement of its Superannuation Data Transformation project.

APRA will also accept new licence applications from any entity from September 2020.

From March 2021, APRA envisages new licences may be issued to any entity that meets the relevant prudential requirements.

APRA MySuper Heatmap Frequently Asked Questions (24 August 2020)

APRA released the following frequently asked questions in respect of the 2020 MySuper Product Heatmap:

  1. When will the 2020 MySuper Product Heatmap be released?
    The 2020 MySuper Product Heatmap will be released in December 2020.
  2. What areas of performance will the 2020 MySuper Product Heatmap cover?
    Similar to the 2019 MySuper Product Heatmap, the 2020 MySuper Product Heatmap will show the outcomes being delivered to MySuper members in the areas of investment performance and fees and costs. The Heatmap will also provide indicators of trends in a trustee's operations relevant to the sustainable delivery of member outcomes.
  3. Will the data across all metrics be updated?
    Yes.[1]

ASIC Information Sheet 248 Enhanced regulatory sandbox (25 August 2020)

ASIC’s information sheet guides those who wish to rely on the FinTech enhanced regulatory sandbox (ERS) exemption, which is available from 1 September 2020. It explains:

  • the key features of the enhanced regulatory sandbox
  • how to determine if you are an eligible person who can rely on the ERS exemption
  • how to apply for the ERS exemption
  • the conditions that apply under the ERS exemption
  • the length of the exemption period and what to do when it ends
  • the alternatives to the ERS exemption.

APRA Consultation on Superannuation Data Transformation (28 August 2020)

APRA released the final consultation package for Phase 1 (Breadth) of its project to expand the breadth, depth and consistency of its superannuation data collection.

The consultation package contains topic papers, draft reporting standards and data collection templates covering four areas:

  • fees and costs: expanding APRA’s collection of fee and cost disclosure data to choice products and options, and providing key forward-looking drivers of member outcomes for all superannuation products
  • insurance arrangements: collecting more data on insurance policies including premiums, claims payments and processing stages, as well as outcomes for members across different member cohorts, including occupation categories
  • expense reporting: utilising a look-through approach to superannuation fund expenditure and establishing more granular and consistent reporting categories to enable more effective analysis and assessment of levels and types of expenditure
  • asset allocation: expanding the reporting of asset allocation data to choice products and options, and collecting more granular and consistent MySuper data to provide a more complete picture of superannuation investments at the investment option level.

APRA is seeking feedback from industry ahead of finalising the nine reporting standards linked to Phase 1 early next year. Phase 2 (Depth) will commence shortly thereafter, followed by the final Phase 3 (Quality).

Submissions to APRA are due by 25 September 2020.

Legislation

PGPA Act Determination (Superannuation Clearing House Special Account 2020) (10 August 2020)

The Determination re-establishes the Superannuation Clearing House Special Account (SBSCH) special account. The current SBSCH is established by the Financial Management and Accountability Determination 2010/05 – Superannuation Clearing House Special Account Establishment 2010, which is due to sunset on 1 October 2020.

Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 (25 August 2020)

The Bill reintroduces amendments to the Superannuation Guarantee (Administration) Act 1992 (Cth) to enable those employed under a workplace determination or enterprise agreement, made on or after 1 January 2021, to choose their own superannuation fund.

Further, employers will not have an increase in their superannuation guarantee shortfall if notional contributions for an employee are made into a superannuation fund other than the employer’s chosen defined benefit scheme.

Banking, Insurance, Life Insurance and Superannuation (prudential standard) determination No. 1 of 2020 (26 August 2020)

The Standard revokes APRA Prudential Standard CPS 226 Margining and Risk Mitigation for Non-Centrally Cleared Derivatives made under Banking, Insurance, Life Insurance and Superannuation (prudential standard) determination No 1 of 2019, and determines a new Prudential Standard CPS 226 Margining and Risk Mitigation for Non-Centrally Cleared Derivatives (CPS 226).

The changes to CPS 226 are limited solely to the deferral of the commencement of the next two phase-in periods of initial margin requirements for non-centrally cleared derivatives by 12 months, consistent with the revised international timetable. This is achieved by amending the dates in Table 2 at paragraph 20 of CPS 226 so that:

  • the Margining Period relating to the March to April 2019 Reference Period  has extended to 31 August 2021
  • the original Reference Period of March to May 2020 has changed to March to May 2021
  • the Margining Period relating to the new March to May 2021 Reference Period has changed to 1 September 2021 to 31 August 2022.

The amendments will have the flow-on effect of deferring the items in the sixth row of Table 2 by 12 months, and are intended to enable APRA-regulated entities to focus their time and resources on dealing with the impact of COVID-19.

CPS 226 also incorporates by reference the BCBS-IOSCO framework as it exists at 23 July 2019 and the IOSCO Risk Mitigation Standards as they exist at 28 January 2015.

Superannuation Amendment (PSSAP Membership) Bill 2020 (27 August 2020)

The Bill has passed both houses and awaits royal assent. The Bill enables certain current and former Commonwealth employees and statutory office holders to continue to be or to become contributory members of the Public Sector Superannuation Accumulation Plan (PSSAP) that are currently not eligible to do so.

The PSSAP was established on 1 July 2005 and is an open defined contribution scheme. PSSAP is generally available to persons who commenced as Commonwealth employees and persons who were appointed to a statutory office on or after that date, and certain other prescribed persons. PSSAP is the default fund for Australian Public Service employees.

Author: Luke Hooper

[1] https://www.apra.gov.au/mysuper-heatmap-frequently-asked-questions

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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