Legislative Update – March 2017

Welcome

Welcome to the March 2017 edition of the Legislation Update, our first for the new year.

The past few months have been very busy for Bravura in the legislative space as we race to deliver solutions for the Australian federal budget legislation passed late last year. The compliance date for these changes is the 1st of July, 2017 though we will be delivering software updates to clients beforehand for testing before their delivery into production. We are on course to deliver to these tight schedules.

In SuperStream, a draft MiX (Member Information eXchange) matrix or file mapping has been released for industry feedback along with industry workshops, however the design has not yet been finalised. Significant steps toward this were made at a recent two- day workshop the ATO held with industry about the current and future direction for SuperStream. A number of significant decisions were agreed to here, including the design and timeframe for MiX (including a likely renaming to MAS – Member Attribute Service). Details are still to be finalised but the consensus reached at these workshops was promising.


Australian Federal Budget

Work at Bravura continues for delivery of the new government superannuation legislation changes from the 2016-17 budget that passed Parliament in November 2016. These significant changes need to be delivered across Bravura systems into production for 1st July, 2017.

The ATO has released several Law Companion Guides and our solutions have been verified against these. Though there are still some uncertainties, further details are expected in upcoming industry consultations and with the release of new regulations.

The most significant of these is the Removal of Tax Exempt Status from TTR Pensions. Bravura is on track to deliver its solution to this before 1st July, 2017. However, there are significant other steps a fund should take outside its registry so that it complies with this change. These include, but aren’t limited to:

  • Product decisions: Managing taxed and untaxed investments within a single pension product.
  • Custodian changes: Will TTRs use existing (accumulation) taxed investments or distinct/ new ones? How will investments be migrated to reflect the transfer of TTRs from untaxed to taxed arrangements, Defining/ maximising available CGT relief.
  • Migration/ transfers of TTR pensioners from untaxed to taxed investments (assets, strategies/ profiles etc)

It should also be noted that the ATO is discussing alternative tax reporting and definition for those funds that are unable to implement this change for 1st July 2017, these alternatives are only expected to be available for a limited timeframe while funds move TTRs into taxed investment arrangements.

More recently, the ATO has progressed the format of Transfer Balance Cap reporting (also referred to as the ‘retirement phase’ report). It seems unlikely that this will use the SuperStream standard initially (it has been de-scoped from the upcoming MiX service) though this remains the most likely long-term format for this report. Late this calendar year, when reporting starts, the data is likely to be provided to the ATO via the existing bulk data exchange (BDE) portal which the majority of funds/ administrators already use. The frequency of this report was heavily discussed, particularly the first ‘interim’ report being delivered at quarterly intervals with the ATO preferring fortnightly timeframes so these seem more likely for the final SuperStream solution. Further updates from the ATO can be expected on these items in the future.

Impact: The implementation of the Budget involves significant changes to Bravura administration systems that are targeted for release from March 2017.


SuperStream

Recently serious issues with the ATO’s IT systems have impacted the test environments used for SuperStream industry testing. At this stage no announcements of schedule delays have been made but impacts across SuperStream have been widely reported.

The most immediate concern is next month’s compliance deadline for SuperTICK V3 (31st March) though no change has been made to its compliance date.

ATO Industry Consulations

The ATO recently held industry consultations for the future path of SuperStream. Based on the discussions at these workshops the following approach for the following SuperStream deliverables seems likely.

Design of the upcoming MiX service is still not finalised. The ATO had been aiming to release draft documents next month but as this is a lower priority than Transfer Balance Cap reporting (which has a legislated deadline) this seems unlikely. The implementation date is also currently uncertain, though it looks as though another cutover period (rather than a single date) will be scheduled for 2018 rather than late 2017, although this is not confirmed.

MiX is likely to be known as the Member Attribute Service (MAS) in future and will cover three distinct services:

  • TFN validation
  • Provision of address
  • Maintain member accounts

There was also significant discussion about future Contribution reporting to meet obligations from Single Touch Payroll, improvement of the current Member Contribution statement (MCS) and providing data for any requirements from current investigations (Productivity Commission and Senate) into employers meeting their Super Guarantee contribution obligations. The consensus reached in these discussions was that funds/administrators will provide more frequent Contribution reporting from some point in the 2018/19 Financial year with the current format and schedule remaining for the October ’18 MCS (17/18 FY).

While consensus on the path forward was reached, parts of the delivery schedule are quite tight and the execution of the agreed plan will not be without challenges.

Rollover MIG 2.0

Aside from a few exceptions, Fund to fund Rollovers have transitioned onto Superstream and the same process is almost complete for Rollovers that funds receive from the ATO. The ATO intends to also receive Rollovers from funds via Superstream late in 2017. Clients timeframes for processing the USM transactions (remittances) they receive via Superstream are unchanged from the current RARN process.

Contribution MIG 2.0

Testing with gateways was scheduled to have already commenced though recent ATO system outages have undoubtedly impacted this. The window for peer to peer testing (ATO sends test messages to a super fund’s UAT style environment) was scheduled to have commenced in February (for a small number of funds) though this is understood to have been delayed. The first step in the testing process with gateways, indicates that the two new message types will be tested separately, with GCTRs first.

We await further updates and rescheduling of ATO testing of Contributions MIG 2.0 but expect most funds to use their gateway as the primary source of this information. Production cutover remains a period from 1 May to 31 August, 2017.

Business to Government Rollovers

Leveraging SuperStream Rollovers MIG 2.0, these transactions are scheduled for industry testing on ATO environments later this year. With the first Temporary residents’ notifications to be sent (as SuperStream IRR messages) to funds in January 2018 and the USM processing of super funds to initially use SuperStream in April 2018.


New legislation and other updates

Federal Government Bills

The following bills have passed through the houses of Parliament and are now law:

  • Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016
  • Corporations Amendment (Professional Standards of Financial Advisers) 2016
  • Tax and Superannuation Laws Amendment (2016 Measures No. 2) 2016

No changes are expected to Bravura systems due to these bills but our clients may need to consider these updates for their processes, distribution channels and structures.

The following are details of the changes involved in the ‘Life Insurance Remuneration Arrangements’ Bill:

  • Phase-down the upfront commissions paid to advisers to a maximum of 60 per cent from 1 January 2020, along with the introduction of a maximum rate of 20 per cent for ongoing commissions
  • Introduce a two-year commission ‘clawback’ period, which will claw back 100 per cent of an upfront commission in the first year and 60 per cent of an upfront commission in the second year in instances of a policy lapse.

ASIC Regulatory Guides

ASIC have updated the following Regulatory Guides:

  • Disclosing fees and costs in PDSs and periodic statements (97)
  • Fee disclosure statements (245).

Again, there is no impact to Bravura systems here but our clients will need to consider these updates for the definition of their correspondence data sets, particularly around items like indirect fees, which has been a difficulty for much of the industry attempting to comply with guide 97.