Centrepoint’s Peter Kelly outlines some of the issues that will require the attention of the advice profession – and their possible impacts – in 2014.
The new Government has flagged its intentions to wind back certain elements of FOFA, including:
- Removing “opt-in”
- Streamlining annual fee disclosure – fee disclosure statements will only be required for new clients from 1 July 2013
- Removing the “catch-all” from the best interest duty – providing advisers with certainty that they are giving compliant advice
- Scaled advice – the best interest duty will be amended to allow for the provision of scaled advice
- Exempting general advice from conflicted remuneration
- Extending the grandfathering provisions to allow advisers to move between licensees and retaining access to grandfathered benefits
- Life insurance inside super – the ban on commission on life insurance arranged through superannuation will only apply to circumstances where no personal advice on insurance has been provided, such as where life insurance cover has been provided automatically inside a default superannuation fund
The proposed changes to FOFA are still subject to the successful passage of amending legislation. In the meantime the currently legislated FOFA regime still applies.
However, recent press articles suggest that ASIC has agreed to take a “non-enforcement” approach to those areas of FOFA legislation that the Government has indicated it will wind back.
2. 'Son of Wallis'
The “Son of Wallis” review of the financial services sector is due to commence during 2014. This is expected to have a far-reaching impact on the financial services and banking sectors as the panel considers ways of making more productive use of Australians’ savings throughout the broader economy.
The superannuation sector, with in excess of $1.7 trillion in assets, is expected to feature significantly in the enquiry.
3. Unlegislated taxation measures
In November 2013, the Government announced that it had reviewed the backlog of 92 unlegislated taxation and superannuation measures.
Of these, 18 initiatives will proceed, whilst seven measures will not proceed. The remaining measures will be undergoing various levels of scrutiny. The following are among the seven measures not proceeding:
- The cap on self-education expenses
- Changes to fringe benefits tax affecting company and salary-sacrificed cars
- Taxation of earnings supporting superannuation pensions.
4. Minerals Resource Rent Tax
Legislation to repeal the mining tax was introduced to Parliament in late 2013. As a consequence, two aspects of superannuation will be affected, subject to the eventual passing of this legislation. These are:
Abolition of the low income superannuation contribution (LISC), effective from 1 July 2013. The LISC was introduced from 1 July 2012 and provides a government superannuation contribution of up to $500 for people earning less than $37,000 per annum.
The contribution is, in essence, a refund of contributions tax paid in respect of concessional contributions made by or on behalf of such people.
The pausing of the legislated increase in superannuation guarantee (SG) contributions. The current rate of SG contributions of 9.25 per cent will apply, not only to the 2013/14 financial year, but also for 2014/15 and 2015/16.
5. Senate inquiry into the performance of ASIC
The Senate Economics References Committee is currently conducting an inquiry into the performance of ASIC. The Committee is expected to report its findings by the end of May 2014. The findings could result in some changes for ASIC in its role as industry regulator.
6. Intra-fund advice, lost super, SuperStream, MySuper, SuperMatch
With around $17 billion currently in lost superannuation, the Government has been keen to reunite Australians with their lost superannuation.
With the introduction of MySuper and SuperMatch, we can expect to see a lot of activity from retail and industry funds as they seek to provide services to their members in the superannuation consolidation space. This will have a potential direct and indirect effect on financial advisers.
SuperStream will impact on SMSFs from 1 July 2014 in respect of certain employer contributions, and from 1 July 2015 in respect of rollovers of superannuation benefits, to SMSFs.
7. Accountant’s licensing regime
The current accountant’s exemption is due to be abolished with effect from 1 July 2016. Accountants have been able to apply for a “limited licence” from 1 July 2013; however the initial take up, by all reports, appears to have been very slow.
Even though there is no urgency, accountants wishing to continue to provide advice in the SMSF space post-June 2016 will need to start considering the various options that best reflect their business model, and the needs of their clients.
8. Superannuation and SMSFs
There are a number of issues on the landscape that have potential to affect superannuation in general, and self-managed superannuation funds (SMSFs) in particular. Some specific aspects that need to be kept in mind include:
Limited recourse borrowing arrangements
Back in 2010 the Cooper Review recommended the Government review limited recourse borrowing arrangements (LRBAs) “in two years”.
We saw a lot of media coverage during 2013 that focused on potential concerns about SMSFs investing in direct property, property “spruikers” targeting SMSFs, misinformation around SMSFs investing in National Rental Affordability Scheme (NRAS) properties and the like. A number of industry bodies have been calling on the Government to review LRBAs with the view of clarifying their position.
Deeming of income for account-based pensions
Legislation was introduced to Parliament in late 2013 that would see new account-based pensions being subject to deeming for Government income support purposes (ie, pensions and allowances).
The proposal is that account-based pensions commencing from 1 January 2015 will be subject to deeming; however, earlier account-based pensions may also be affected where the member has not been receiving, or does not qualify for, income support benefits prior to 1 January 2015.
Concessional contribution caps
Last year we also saw the introduction of a transitional concessional contribution cap of $35,000 for people who were aged 59 or older on 30 June 2013. This will extend to people aged 49 and older, from 1 July 2014.
This provides an excellent opportunity for those eligible to have additional amounts contributed to superannuation under a salary sacrifice arrangement, or as personal deductible contributions for the self-employed.
Prior to the election, the present Government stated it would make no adverse changes to superannuation. It will be interesting to monitor superannuation announcements. Hopefully they will be true to their word.
9. Aged Care
Significant changes are planned for people accessing aged care (at home and residential aged care services) from 1 July 2014, including:
- The distinction between High Care and Low Care to be removed
- Accommodation bonds and charges to be replaced by a Refundable Accommodation Deposit, Daily Accommodation Payment, or a combination of both
- Income Tested Daily Fee to be superseded by a Means Tested Daily Fee that takes into account both a resident’s income and their assets, and
- The introduction of annual and lifetime caps on fees.
These changes will only further complicate what is an increasingly important area of advice for many financial planners and a comprehensive knowledge of the changes is vitally important.
Peter Kelly is the manager for technical advice with Centrepoint Alliance.