The dying days of November, saw the Government introduce their landmark National Broadband Network (NBN) bills into the Federal Parliament. With some last minute wrangling about whether the NBN business case would be released or not (it was), the Bill to split up Telstra was passed through Parliament. Federal Parliament is now resting for the year and will not sit again until February 8

th 2011.

In other news, ASIC announced its intention to start civil penalty proceedings against Storm financial directors Emmanuel and Julie Cassimatis. ASIC has advised it will also take legal action against Commonwealth Bank, Macquarie Bank and Bank of Queensland in relation to the Storm collapse. By Christmas, we expect to hear from Minister Bill Shorten in relation to the Government’s response to the Cooper review. From all of us at TechWrap, we wish all our readers a Merry Christmas and a peaceful, relaxing and safe festive season.

The month that was... Contents:

Tax issues for UK Pension

transfers by temporary

residents

Review into ATO’s

administration of SG

Default funds in Awards

Legislative update

In-specie contribution into

SMSF to satisfy the small

business retirement

exemption

Tax Agent Services Act –

regulations released

Advisory panel announced

for Future of Financial

Advice

Claiming deductions for

education expenses against

youth allowance

Paid parental leave – impact

on employees

TechWrap

December 2010

Page 2

Tax issues for UK pension scheme

transfers by a temporary resident

Advisers need to be aware of an issue which may have significant tax implications for clients who are, or who have been, a temporary resident of Australia. The issue arises where a client transfers their UK pension benefit to an Australian superannuation fund, being a Qualifying Recognised Overseas Pension Scheme (QROPS) and they subsequently fail to become a permanent resident or an Australian citizen (or New Zealand citizen). They then depart Australia, typically returning to the UK and resuming UK residency. These clients, like all other superannuation fund members, are not permitted to transfer their Australian superannuation benefit back into a UK pension scheme, or into any other foreign superannuation fund, as these foreign funds are not regulated superannuation funds under the SIS Act. Further, due to changes effective 1 April 2009, these former temporary residents cannot retain their superannuation benefit within the Australian superannuation fund. Instead their superannuation benefit must be cashed as a Departing Australia Superannuation Payment (DASP) and tax levied on the taxable component at 35%. (Limited exceptions apply where the benefit is claimed due to the member’s death, terminal medical condition, permanent incapacity or temporary incapacity). Where a former temporary resident fails to claim their benefits from the Australian superannuation fund within a certain period of time (generally 6 months after they depart Australia and no longer hold a valid visa), the balance must be transferred to the ATO. The individual can subsequently claim their superannuation balance from the ATO and tax will be levied as outlined above. Unfortunately, under both of these scenarios there may be further tax disadvantages for the client. Under the QROPS requirements, the Australian superannuation fund will report to Her Majesty’s Revenue and Customs (HMRC) details of the DASP payment or the amount transferred to the ATO. Part or all of the payment may then be viewed by HMRC as an unauthorised payment under UK legislation. An unauthorised payment will give rise to a 40% unauthorised payments charge and a possibly 15% unauthorised payments surcharge. If you believe your client is currently affected, they should seek qualified tax advice in relation to the UK tax effects of this transaction. To avoid this situation, advisers should only recommend that their clients transfer their UK pension scheme balance to an Australian superannuation fund (with QROPS status) once the client has become a permanent Australian resident, an Australian citizen or a New Zealand citizen.

Advisers should

only recommend

that their clients

transfer their UK

pension scheme

balance into an

Australian

superannuation

fund (with QROPS

status) once the

client has become

a permanent

Australian

resident, an

Australian citizen

or a New Zealand

citizen.

Page 3

Tax issues for UK pension scheme

transfers by a temporary resident

cont....

Example: Rory begins work in Australia while holding a temporary resident visa with the intention of applying for permanent residency. His financial adviser encourages him to transfer his UK pension scheme to an Australian super fund with QROPS status as soon as possible (to avoid taxes which may apply on the scheme earnings if the transfer occurs more than 6 months after Rory first becomes an Australian tax resident). Rory’s balance of $50,000 (all tax-free component) is transferred into the Australian superannuation fund and his new employer makes SG contributions into the same fund. Rory applies for permanent residency in Australia, but is ultimately unsuccessful. Rory returns to the UK and his temporary resident visa expires. Under Australian law, Rory cannot transfer his superannuation benefit back to the UK, nor can he retain his balance in the Australian superannuation fund. Rory claims his superannuation under the DASP rules. His gross benefit on cashing is $60,000 comprising of $50,000 tax-free component and $10,000 taxable component. The trustee withholds 35% tax on the taxable component prior to payment of the net benefit of $56,500 to Rory. Under its obligations to HMRC, the trustee must report this payment to HMRC. Under UK law, part or all of the $60,000 benefit may be viewed as an unauthorised payment. Rory will face an unauthorised payment charge of 40% and possibly a surcharge of 15% on any unauthorised payment. This outcome will not change even if Rory had failed to cash in his benefit as a DASP and instead his entire superannuation balance was remitted to the ATO.

... part or all of the

payment may be

viewed by HMRC

as an

unauthorised

payment, giving

rise to a 40%

unauthorised

payments charge

and possibly a

15% unauthorised

payments

surcharge ...

Did you know …

The Government has released a discussion paper for public

comment on proposals to improve the operation of the general anti-

avoidance provisions in the income tax laws.

The discussion paper is available on the Treasury website:

(http://treasury.gov.au/contentitem.asp?NavId=037&ContentID=1901).

Page 4

Recently the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten released the “Review into the ATO administration of the Superannuation Guarantee Charge” undertaken by the Inspector-General of Taxation. This review examined the ATO's administration of the Superannuation Guarantee (SG) charge, including the level of non-payment of workers' superannuation entitlements, the ATO's non-compliance detection mechanisms and how the ATO manage non-compliance cases after they are detected. The review found that the SG system works well for the majority of Australians. However, those most at risk of not receiving their superannuation entitlements are employees who are least empowered, being predominately low paid, casual and young workers. The Inspector-General makes 12 recommendations in respect of the superannuation guarantee system of which 10 were, at least in part, directed to the ATO. The remaining recommendations were directed to Government. The recommendations include:

Information on employee payslips about the amount of employer contributions actually paid to their superannuation account

Quarterly notification to members from their superannuation fund if regular employer contributions cease

Providing employees with more timely information on their superannuation. This will assist in reducing the timeframes between when a SG shortfall arises and when an employee lodges a complaint with the ATO.

The ATO expanding its proactive SG audit work including increased data-matching and targeted field work to provide more real-time monitoring and rapid follow-up of high risk employers. Note that this is the only recommendation the ATO disagreed with, stating that resources currently allocated to these approaches is appropriate.

Extending the director penalty regime to cover unpaid SG charge so that if a company fails and owes superannuation to employees, then the directors of the company are strictly liable for the unpaid superannuation liabilities of the company

Review of the complex penalty system applying to the SG charge with a view to streamlining and improving voluntary compliance

Providing the ATO with greater prosecution powers where an employer does not pay SG and fails to co-operate with the ATO

The Government will shortly commence consultations with the superannuation industry, employer representatives and unions about the implementation of these recommendations and related measures as announced last July in the Government’s “Protecting Workers’ Entitlements” package. The review can be found at: http://www.igt.gov.au/content/reports/super_guarantee/superannuation_guarantee.pdf

Review into ATO’s administration of

superannuation guarantee charge

... the

recommendations

include a review of

the complex

penalty system

applying to the SG

requirements with

the view of

streamlining and

improving

compliance…

Page 5

In Parliament on 16 November, Liberal Senator Mathias Cormann made a motion to request the Productivity Commission to design a process for the selection and ongoing review of default superannuation funds under modern awards. His view is that "the current process is anti-competitive, it is not objective, not evidence based and not transparent". The Senate carried the motion, ordering the Productivity Commission to conduct a review of the selection of default funds in modern awards and for its report be tabled in the Senate by 31 May 2011. What is important to note is that the Senate does not have the authority to direct the Productivity Commission to undertake the review; only the relevant Minister has this power (i.e. Bill Shorten). The Productivity Commission is therefore not bound by the Senate’s order, nor would the Government be bound by any recommendations made should a study be undertaken. Bill Shorten, the Assistant Treasurer and Minister for Financial Services and Superannuation, recently recommitted to the Government’s pre-election promise to refer the Productivity Commission to review the selection of default funds in modern awards prior to 2012.

Default funds in Modern Awards

... the Senate

does not have the

authority to direct

the Productivity

Commission ...

Did you know …

Where an employer becomes insolvent, workers currently receive a

redundancy payout capped at 16 weeks’ pay. The Government recently

stated they will replace that cap, allowing employees to instead receive

a maximum of 4 weeks pay for every year of service. The Government

will consult with key stakeholders and legislate next year although the

changes will come into effect from 1 January 2011.

Source:

http://www.deewr.gov.au/ministers/collins/media/releases/pages/article_101116_101247.aspx

Page 6

Legislative update

1. Superannuation Legislation Amendment Bill receives Royal Assent

On 16 November 2010, the Superannuation Legislation Amendment Bill 2010 received Royal Assent. This Act includes provisions regarding unclaimed superannuation money, transitional relief for deductibility of total and permanent disability insurance premiums paid by funds, acquisition of assets due to relationship breakdown, and other minor superannuation amendments. A more detailed explanation of these changes including the commencement dates can be found in last month’s edition of Tech Wrap.

2. Tax Laws Amendment (2010 Measures No. 4) Bill passes the Senate

Currently a taxpayer may claim a tax offset for 20% of net medical expenses exceeding the claim threshold of $1,500 for a financial year. This Bill, which is currently awaiting Royal Assent:

increases the claim threshold from $1,500 to $2,000 per annum, with effect from 1 July 2010, and

introduces annual indexation of the claim threshold to CPI, with the first indexation occurring on 1 July 2011.

... the medical

expenses tax

offset threshold

will increase

effective 1 July

2010 ...

In-specie contribution of business

real property to satisfy the small

business retirement exemption

For an individual aged under 55, to satisfy one of the eligibility requirements for the small business retirement exemption on the disposal of an active asset, they must make a contribution of an amount equivalent to the CGT exempt amount into a superannuation fund. ATO ID 2010/217 confirms that making an in-specie contribution of “business real property” into an SMSF will satisfy this requirement. Note this interpretive decision is based on the following facts:

the disposer was an individual, and

the “business real property” involved was not the active asset sold. The ATO ID also states that where the disposer is a company or trust and the relevant CGT concession stakeholder is under age 55, a similar in-specie contribution would also satisfy the requirements. This ATO ID can be found at: http://law.ato.gov.au/atolaw/view.htm?rank=find&criteria=AND~2010%2F217~basic~exact&target=JA&style=java&sdocid=AID/AID2010217/00001&recStart=1&PiT=99991231235958&recnum=1&tot=1&pn=ALL:::ALL

... making an in-

specie contribution

into an SMSF can

satisfy the

contribution

requirement for

the retirement

exemption ...

Page 7

... start date for

financial planners

delayed until 1

July 2011…

During November the Government released two items regarding the Tax Agent Services Act (TASA) and its impact on planners. The first was the release of new regulations deferring the impact of the TASA on financial planners until 1 July 2011. The second was the release of an options paper which looks at two possible solutions for the financial planning community from 1 July 2011. New regulations The Government has released new Regulations for the Tax Agent Services Act 2009. The new regulations include a deferral of the start date of the regime until 1 July 2011 for financial product advice that is:

a) provided by an entity licensed under an AFSL; and

b) accompanied by a statement that: a. the provider of the advice is not a registered tax agent under

the Tax agent Service Act 2009; and b. if the client intends to rely on the advice, they should request

advice from a registered tax agent. What is financial product advice? Financial product advice is a recommendation or a statement of opinion, or a report that:

(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or

(b) could reasonably be regarded as being intended to have such an influence.

Financial product advice can be either general or personal advice. For more information on the regulations refer to: http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2010/009.htm&pageID=003&min=brs&Year=&DocType= Options paper The Government has released an options paper which sets out two possible options for how the TASA will apply to the financial advisers post 30 June 2011:

Option 1 - bring tax agent services provided by financial planners permanently within the tax agent services regime and be regulated by the Tax Practitioners Board, but do so in a way that minimises any additional compliance burden.

Option 2 - investigate and implement what changes, if any, might be made to the Australian Financial Services Licensing regime or its enforcement to ensure financial planners offering tax agent services are regulated to the same standards imposed on tax agents.

The closing date for submissions on this options paper is 25 December 2010. For more information on the consultation paper refer to http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1902

Tax Agent Services Act changes

... Submissions

close on 25

December 2010…

Page 8

Advisory panel announced As part of the Government’s Future of Financial Advice reforms, it recently announced the members of the new advisory panel on financial advice and professional standards. The panel will provide views on:

Professional and ethical standards in the financial advice industry, including the possible development of a best practice guide for financial advisers

The competency requirements that must be satisfied by financial services professionals regulated by the Corporations Act

The training requirements for people providing financial product advice

The extent to which material soft-dollar benefits are consistent with any ethical standards imposed on financial advisers

Proposals regarding how training should be tested or assessed. It is expected that the panel will hold its first meeting before the end of the year. More details regarding the panel and its members can be found at: http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2010/015.htm&pageID=003&min=brs&Year=&DocType=0

Future of financial advice

Claiming deductions for education

expenses against youth allowance

On 11 November 2010, the High Court dismissed the Commissioner's appeal against the decision of the Full Federal Court in Federal Commissioner of Taxation v. Anstis. The Full Federal Court had previously decided that Ms Anstis, who received a Youth Allowance as a university student, was entitled to a tax deduction for her education expenses. The High Court determined that the expenses were deductible as they were incurred "in gaining or producing" her assessable youth allowance and the expenses were not of a private nature. The ATO is considering the impact of the High Court’s decision as there are several Commonwealth education payments which are assessable income including:

Youth allowance paid to students (except certain 16–20 year olds)

Austudy

Abstudy

taxable Veterans' Children Education Scheme payments

taxable education payments under the Military Rehabilitation and Compensation Act

The ATO has asked taxpayers who believe they may be affected by the High Court decision to be patient, stating that they are giving the matter “urgent attention and will release further information as quickly as possible.”

... The High Court

determined that

the expenses

were deductible

and were not of a

private nature....

... It is expected

that the Panel will

hold its first

meeting before the

end of the year...

Page 9

In last month’s Tech Wrap, we discussed the new Paid Parental Leave (PPL) scheme and what it means to employers. This month’s edition covers the employee’s eligibility criteria and provides more information for employees wishing to claim this benefit. The PPL scheme commences from 1 January 2011. Eligibility criteria for PPL An individual will be eligible for the PPL if they:

are the primary carer of a newborn child or recently adopted child,

are an Australian resident,

have met the PPL scheme work test before the birth or adoption occurs,

have received an individual adjusted taxable income1 of less than or

equal to $150,000 in the previous financial year, and

are on leave or not working from the time they became the child’s primary carer.

A child’s primary carer is generally the person who is most meets the child’s physical needs and is usually the mother of a newborn child or the initial primary carer of an adopted child. The PPL scheme work test requires an employee to have worked for at least 10 of the 13 months prior to the child’s birth or adoption, and 330 hours in that 10 month period, with no more than an 8 week gap between two consecutive working days. If the employee returns to work, the PPL will stop. Employees will need to notify the Family Assistance Office (FAO) if they return to work before the maximum 18 week PPL period expires. Any unused part of the PPL may be transferred to the primary carer’s partner, a separated father or their new partner, if they meet the eligibility criteria and claim the unused portion. PPL payments Parental Leave Pay will be provided to the eligible employee by either their employer via their usual pay cycle or by the FAO in fortnightly payments. The employer’s role in providing paid parental leave will be voluntary until 30 June 2011. Employers are required to pay PPL to their eligible long term employees from 1 July 2011. Please refer to last month’s Tech Wrap for more information on eligible long term employees.

Eligible employees will receive Parental Leave Pay at $569.90

2 a week for a

maximum period of 18 weeks.

--------------------------------------------------- 1 Adjusted Taxable Income includes: taxable income + adjusted fringe benefits (reportable

fringe benefits multiplied by 0.535) + tax-free pensions or benefits + target foreign income + reportable super contributions + total net investment losses – deductible child maintenance expenditure. 2 This is the 2010 national minimum wage, calculated on the basis of a week of 38 ordinary

hours, or $15 per hour. The Paid Parental Leave scheme payment is calculated at the hourly rate of $15.

Paid Parental leave – what does this

mean for employees?

The PPL scheme

does not change

an employee’s

existing leave

entitlements

Page 10

Where the employer provides the employee’s Parental Leave Pay, the employee will be able to:

access other paid leave such as maternity leave (however this may mean that they will be taxed at a higher rate);

deduct child support or other deductions from the Parental Leave Pay, if required;

salary sacrifice some or all of their Parental Leave Pay (must have agreement in place with the employer).

Where the FAO provides the individual’s Parental Leave Pay:

the FAO will withhold PAYG at 15% unless another rate is requested;

no salary sacrifice of PPL is allowed;

it can be used to reduce a Family Assistance and/or Centrelink debt. Impact of PPL on an employee’s existing leave entitlements

The PPL scheme does not change an employee’s existing leave entitlements. An employee who is eligible for the PPL scheme will be able to access up to 18 weeks of government-funded PPL, plus their existing employer-provided paid or unpaid leave. The PPL can be taken before, during or after any paid maternity or parental leave or other employer-funded leave entitlements (such as annual leave or long service leave). Any current provision of paid maternity or parental leave through an industrial agreement cannot be withdrawn for the life of that agreement.

Impact of PPL on other entitlements Employees will need to consider how receiving PPL will affect their existing family assistance, child support and taxation obligations. The benefits that may be affected by PPL include:

Child Care Benefits,

Child Support,

HECS liabilities,

Medicare Levy Surcharge,

Public Housing Rent,

Low Income or other Health Care Cards, or other associated concessions,

Pensioner, Beneficiary, Dependent Spouse, Housekeeper and Child-housekeeper tax offsets.

Employees who are eligible for the Family Tax Benefit Part A can receive the payments during the PPL period. Family Tax Benefit B, the dependent spouse, child-housekeeper and housekeeper tax offsets will not be available during the Paid Parental Leave period. Also, the PPL will count as income for Family Tax Benefit and other family assistance payments, but not for income support payments.

Paid Parental leave –cont....

Employees need to

consider how

receiving PPL will

affect their existing

social security

payments and

taxation obligations

Page 11

PPL v. Baby Bonus

Parental Leave Pay and the Baby Bonus cannot be paid for the same child, therefore if an employee is eligibility for both payments, they can choose which payment is the better for them.

The following is a simple comparison between the two Government payments.

PPL Baby Bonus

Individual adjusted taxable income < or =

to $150,000, received in the financial year

prior to the birth or adoption

Family adjusted taxable income < or = to

$75,000, received in the 6 month period

following the child's birth or entry into care

Maximum rate from 1/1/2011 = $10,258.20

(569.9*18 weeks)

Maximum rate from 1/7/2010 = $5,294

Rate is taxable and counts as taxable

income for Family Tax Benefit and child

support purposes in the financial year

received

Rate is not taxable and is not income for

Family Assistance or Social Security purposes

Paid by either the employer or FAO Paid by the FAO

Paid by either their employer to the eligible

employee via their usual pay cycle or by

the FAO in fortnightly payments

Paid per eligible child in 13 equal fortnightly

instalments

Claims can be made online and lodged up to

3 months before the child’s birth or adoption.

Benefit must be fully paid within 52 weeks

from the date of birth or adoption.

Claims can be made online and up to 3

months before the child’s birth or entry into

care. Claims must be lodged no later than 52

weeks from the day after the child's birth or

entry to care.

The Family Assistance Office has a Parental Leave Comparison Estimator (link below) to assist employees decide if they would better off receiving the Parental Leave Pay or the Baby Bonus. http://www.centrelink.gov.au/internet/internet.nsf/individuals/ppl_working_parents_estimator.htm Further information on the PPL scheme, including the employee publications and in-depth information on:

Eligibility

Payments

Claims

Questions and answers for employees is available via the following FAO link: http://www.familyassist.gov.au/payments/family-assistance-payments/paid-parental-leave-scheme/ Finally, on 15 November 2010, the Coalition introduced a Private Members Bill seeking to remove all employer obligations in administering and paying the PPL. If this Bill is passed, all PPL will be made by the FAO effective from 1 July 2011.

Paid Parental leave –cont....

PPL and the Baby

Bonus cannot be

paid for the same

child

Private Members

Bill introduced

seeking payments

to be made

directly from the

FAO instead of

employers

Page 12

Seasons Greetings

The BT Technical team would like to wish all our readers a

Happy Christmas and a prosperous New Year.

The next edition of TechWrap will be available in early

February 2011.

FOR GENERAL INFORMATION ONLY This information has been prepared by BT Funds Management Ltd ABN 63 002916 458. It is provided solely for the general information of external financial advisers and must not be relied on as a substitute for legal, tax or other professional advice. Further, it must not be copied, used, reproduced or otherwise distributed or circulated to any retail client or other party. The information is given in good faith and has been derived from sources believed to be accurate at its issue date. However, it should not be considered a comprehensive statement on any matter nor relied upon as such. BT Funds Management Ltd (including its related entities, employees and directors) does not give any warranty of reliability or accuracy or accept any responsibility arising in any way including by reason of negligence for errors or omissions in the information.