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  • 3 Future of fund reporting

    As much as super is changing, so is the way funds report to us, and the way we engage with funds and the wider community.

    Much has been said about the shift towards events-based reporting and the need to gather information in a timely manner to deliver the information individuals expect from their funds and the ATO. Reporting an event as it happens, or as close to it as possible, is a game-changer for the way we interact as an industry and improve services to fund members.

    Our desire is to assist funds and advisers navigate the changes. We worked extensively with industry to design the business-to-government reporting framework. Consultation and collaboration remain more than buzzwords for us; they represent a philosophy that drives our thinking.

    More broadly, in order to meet the challenges presented by the 2016 Budget measures, we proposed the move from reporting methods based on annual member contribution statements to an events-based framework.

    3.1 SuperStream

    Before I move on, I’d like to highlight the success SuperStream has already had in transforming the super industry from one reliant on manual transactions and interactions to a digital approach.

    The implementation of a data and payment standard for business-to-business transactions has delivered, and continues to deliver, significant benefits. The system is now based on straight-through processing, with SuperStream fully implemented for business-to-business, employer-to-funds and fund-to-fund transactions.

    I’d particularly like to acknowledge the key role large funds, their administrators and industry associations have played in this success. Proactive industry support has been pivotal; substantial investment in the program and a commitment to partnering with the ATO and other regulators has enabled us to effect the necessary change.

    Whilst celebrating these achievements, it is by no means the end of our change journey.

    3.2 SuperStream phase 2

    The final stage of the SuperStream initiative is the implementation of business-to-government (B2G) reporting – how industry reports information to us.

    In late 2016, the convergence of the impact on industry of the Single Touch Payroll (STP) reporting requirements and new reporting requirements relating to the 2016 Budget measures, caused industry and the ATO to pause and re-consider whether the intended design of this last SuperStream initiative remained contemporary given this convergence.

    A subsequent ATO and industry review concluded that there was an opportunity to develop one reporting solution to address SuperStream, STP and the 2016 Budget measures rather than progressing them as standalone requirements. We also found this could be done by taking fund reporting to a more contemporary and sustainable platform able to absorb future policy change, while leveraging off the existing SuperStream investment.

    Following extensive industry consultation, the review recommended shifting APRA fund reporting to a transactional, events-based reporting framework from the current aggregated annualised arrangements. In future, this will provide a range of benefits for members, funds and the ATO.

    The redesign will meet the original intent of SuperStream that super fund members’ transactions should be easier, cheaper and faster but in a way that supports the 2017 environment rather than what the environment was in 2011.

    In summary, this new and improved framework, formerly known as the Member Information eXchange project, or MiX, will develop an integrated reporting process that delivers in the following ways:

    • changing how information is reported to the ATO and industry
    • moving away from traditional annual reporting methods
    • aligning SuperStream, Single Touch Payroll and member contribution information to meet the needs of the 2016 super changes
    • building a system that can manage future changes to super.

    3.3 Managing change

    The 2016 Budget changes accelerated the need to build new capabilities into our reporting systems. Once the new reporting framework is fully deployed, we’re confident it will result in more streamlined interactions between industry and the ATO, resulting in easier, cheaper and faster transactions, better client experience and greater confidence in the super system.

    The system will also make super easier and more efficient for individuals by:

    • providing them with greater visibility across multiple funds, including their contributions history
    • showing unused cap amounts, including transfer balance cap and concessional and non-concessional caps
    • allowing people to make informed decisions about their super
    • giving the ATO scope to engage in proactive messaging to prevent cap breaches before they become an issue.

    As you can see, we’ve been working hard to move from an aggregated and annual reporting system to one that is agile, contemporary, and relies on transactional reporting undertaken around the timing of an event.

    That’s the objective. But how do we make it happen?

    We’ve started by building the annual aggregated Member Contributions Statement and other traditional reporting methods into two new events-based services: the Member Account Attributes Service and the Member Account Transaction Service.

    Together these will provide a lot of data that can be used to inform us about the member, employer and large funds at both the individual and system level. That’s the beauty of the system.

    Under this framework, reporting requirements for large funds will be managed in a consistent and automated way, using the existing and familiar SuperStream messaging format.

    There will be no need to create solutions outside the SuperStream message and there’ll be more streamlined interactions with the ATO, replacing a number of current reporting obligations.

    System integrity will also be enhanced and better data may provide funds with opportunities to design new services and offer improved support to their members. It’s an exciting time.

    3.4 Explaining these new services

    The Member Account Attributes Service, or MAAS, basically replaces the previous MiX web service.

    MAAS allows funds to report key changes to a member’s account as they occur. These changes include:

    • an account being opened or closed
    • whether an account is in retirement or accumulation phase
    • indicators linked to an account, such as insurance cover
    • whether an account can receive co-contributions or low-income tax offset payments from the ATO.

    3.5 Member Account Transaction Service

    In July, after significant industry consultation, we proceeded with the development of the Member Account Transaction Service or MATS. The design is expected to be completed by September, with proposed deployment from April 2018. There will be an extended cut-over period to October 2018 and full solutions should be in place for reporting from 1 July 2019.

    The member information we need from funds to meet the requirements of the super changes, including transfer balance cap and total super balance, will be captured from September 2017 until we fully integrate the redesigned Member Contributions Statement.

    Until the proposed design is fully operational, large funds will continue to lodge member contribution statements in the current format for the 2016-17 and 2017-18 income years. You should note that the last MCS lodgment in its current form will be due by 31 October 2018.

    It’s also important to note that industry was already committed to designing and building a new APRA fund reporting service by the start of 2017, which would have had its own building and maintenance costs.

    We will continue to partner with industry to ensure SuperStream phase 2 and the move to events-based reporting will be as successful as the initial implementation.

    4 The superannuation ‘road map’

    Industry can see our full program of work over the next 18 months through our super road map. It shows the interaction between SuperStream, Single Touch Payroll and the 2016 super changes and is available on ato.gov.au.

    Improvements to Single Touch Payroll will give the ATO much richer and more accurate data.

    We are on a unique journey, but this road map will help us reach our destination together.

    5 Super changes

    If there’s a good example of how effectively we can work with industry to achieve positive and successful outcomes, it’s the way we all managed the introduction of the 2016 super Budget measures.

    The changes were wide-reaching and affected industry, super and tax professionals, individuals and intermediaries in diverse ways. I think we can all be proud of what we’ve achieved since November when the legislation was enacted.

    Though of course, the challenge has only just begun. Now we must put the changes into practice and embed them into our super lives.

    5.1 Working with industry on the 2016 changes

    Once the 2016 changes become law, our first step was to engage industry and ensure we were driving along the same super highway. We consulted, collaborated and communicated right through the process.

    We set out to provide early engagement and certainty about reporting requirements. Our law companion guidelines and practical compliance guidelines were designed to give practical certainty on how the laws would be applied.

    We spoke with industry through a variety of forums and listened to their needs and questions, tailoring communication to suit. I’m delighted to say that we’re still listening and still working with industry to reach mutually desired outcomes.

    We have all solidified our roles and, more importantly, strengthened relationships and our shared resolve to make the super system work.

    And at the ATO, we’re still updating our resources and creating new tools and calculators to help navigate this new terrain. General information about the super changes can be found at ato.gov.au/superchanges to assist those still seeking answers.

    5.2 The 2017-18 Budget super measures

    The changes to super announced in the 2017-18 Budget aren’t as wide-reaching as those we’ve just encountered, but there are two elements likely to impact large funds.

    The First Home Super Saver Scheme is set to affect those at or near the start of their super life cycle. Effective from 1 July 2017, the scheme is designed to allow first-home buyers to use salary-sacrificed super contributions as a deposit. Up to $15,000 per year, and $30,000 in total, can be taken from super accounts to buy a first home. Concessional contributions and earnings withdrawn will be taxed at marginal rates less a 30 per cent offset. Release applications can be lodged from 1 July 2018.

    The other initiative that could affect large funds is the ‘Downsizer’ scheme, which allows those aged 65 or over to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. This comes into effect from 1 July 2018.

    The contribution will be in addition to those currently permitted under existing caps and will be exempt from the work test and $1.6 million total super balance cap. Any contribution made under this scheme will still count towards the pension asset test.

    We’re working closely with Treasury to communicate to funds the likely impact these changes will have and will engage you to ensure you’re well prepared, much as we did through the 2016 changes.

    6 Partnership building

    We have shown that by working together we can develop a world-class super system. We all have a role to play in building on the work we’ve already done. We must not pat ourselves on the back too long or too vigorously. Our industry is ever evolving and we need to keep working together in an efficient and streamlined way to maintain momentum.

    Now is certainly not the time to rest on our laurels. Yes, we have managed huge amounts of change, we’re transforming the way we do business and the national focus on super has never been more acute. These are profound achievements.

    The advantage of undergoing major change is the opportunity to conduct a root-and-branch review of how you operate. At the ATO, we’ve not only streamlined the reporting process, we’ve streamlined our approach to industry.

    For example, I recently appointed an industry co-chair to one of the key superannuation forums to increase industry confidence and enhance the group’s mutual benefit. This is not just a symbolic move but an important safeguard against the meeting becoming ‘just about us’. It underlines our emphasis on mutual respect and industry collaboration. It emphasises that industry’s role is valued and important.

    We’ve held 51 ‘specific purpose’ consultation meetings with industry since November 2016. Part of this consultation has been to design and implement the events-based reporting framework I discussed earlier.

    7 Key focus areas for large funds

    7.1 Exempt current pension income

    The 2016 super reforms that came into effect on 1 July 2017 include some of the most significant changes ever to superannuation law. We recognise that industry is still catching their breath and the implementation of these reforms is likely to require ongoing work.

    One of the most fundamental changes is the introduction of a transfer balance cap of $1.6 million which will limit the total amount of super that can be transferred into the retirement phase. In addition, transition-to-retirement income streams or TRISs will no longer be eligible for the tax exemption from earnings if the recipient is not in retirement phase.

    7.2 Transitional CGT relief for transfer balance cap and TRIS changes

    Law companion guidelines and practical compliance guidelines have been issued to assist funds with the 2016 reforms. On 8 March 2017 we issued a Law Companion Guide (LCG 2016/8) Superannuation reform: transfer balance cap and transition-to-retirement reforms: transitional CGT relief for superannuation funds. On 30 March 2017 we issued a Practical Compliance Guideline (PCG 2017/3) on transitional CGT relief in relation to segregated funds.

    We understand unsegregated funds have concerns with applying the transitional CGT relief. We remain open to working with industry on possible administrative approaches which are consistent with the policy framework of the transitional CGT relief.

    7.3 Innovative retirement-income stream products

    A cross-agency process has been developed and published to assist product providers offering Innovative retirement income-stream products, to meet their compliance obligations.

    The ATO will coordinate the process, which will involve APRA, ASIC and the Department of Social Services, giving a pathway for product providers to raise topics or issues arising from new innovative retirement income-stream products with the appropriate government agencies.

    7.4 Fund mergers

    We are aware that several funds are planning mergers this year, while others have already merged, and it’s a high priority for us to support them through this process. To this end, we have established a team to provide assistance to those funds that request it.

    In terms of merger expenses, we will look at issues such as:

    • revenue or capital characterisation
    • availability of the black-hole expenditure provisions under section 40-880
    • apportionment issues as outlined in TR 93/17.

    With the release of the addendum to TR 93/17 on 17 May 2017, we will examine if fair and reasonable outcomes have occurred when rollovers have been included as contributions in calculating the deductible portion of expenses through a merger.

    To support the release of the addendum to TR 93/17, on 18 August 2017 we released guidance material on Deductions for APRA-regulated super funds on our website. The material covers a range of expenses incurred by super funds including merger expenses, SuperStream costs, website expenditure and specific deductions for tax-related expenses.

    7.5 Offshore investment structures

    As at March 2017, super funds had invested approximately 32 per cent of assets offshore. We are improving our understanding of how funds are structuring these investments.

    On 17 May 2017, the ATO released draft ruling TR 2017/D4 on the meaning of ‘credits’ for partners in offshore limited partnerships treated as corporate limited partnerships. It provides clarity on when an amount is credited to a partner in a CLP, and thus when a deemed dividend must be included in the partner’s assessable income. Comments closed on 30 June. The feedback received was positive and only one minor change – to add an example – is needed. The change has been drafted and the new text is going through final approvals. We expect the final version of the ruling to be published in coming weeks.

    7.6 Country-by-country reporting

    To provide clarity to the industry, we have provided guidance on our country-by-country reporting Q&A page on the ATO website. The guidance responds to industry’s request for clarification about assessing significant global entities (SGE) status in the context of the new accounting standard AASB 1056.

    7.7 Post-tax reporting

    The Draft Practical Compliance Guidance (PCG) to explain our compliance approach to the use of propagation to select assets for disposal was issued for consultation on our website on 21 August 2017. We expect to publish the final PCG by the end of November.

    8 Risk differentiation framework

    8.1 Justified trust – income tax risks

    Our income tax approach to large funds follows the same ‘risk differentiation framework’ principles we apply to large public groups. We employ resources based on our assessment of the likelihood and consequence of non-compliance. We have begun a rolling four-year program of streamlined assurance reviews of all entities in the Top 1000 population. This population includes 78 large super funds and is separate from the ‘key’ funds we have engaged with over recent years as part of our work with the ‘Top 100’.

    By including large super funds as part of our justified trust approach, we can tailor our compliance engagement according to the level of risk assessment.

    Funds that comply with their income tax obligations earn a ‘justified trust’ rating where we can obtain assurance that they are paying the appropriate amount of tax under the law. The justified trust approach requires an evaluation that includes:

    • understanding a taxpayer’s tax governance framework
    • identifying tax risks, including those advised to the market
    • understanding significant and new transactions
    • understanding book-to-tax differences and ongoing tax effects.

    Historically, large funds generally show a willingness to work with us to meet their tax obligations and shape industry direction.

    As we move into the next tranche of our work in conducting streamlined assurance reviews of large market super funds in the Top 1000 population, fund trustees can expect that the specific risk focus areas covered here (and in the speech we gave to this conference last year) will be examined. We encourage trustees to self-review their tax positions and engage with us about any areas of uncertainty.

    8.2 Justified trust – superannuation reporting risks

    Currently, large super funds have their performance assessed across 13 quantitative reporting indicators. The results of these diagnostic reports allow funds to understand their performance relative to their peers and show industry trends.

    Funds are also actively involved in the governance process. They invest in the implementation of SuperStream, Single Touch Payroll and engage with us on managing the super changes.

    To reiterate, the results of managing risk in this collaborative and co-operative manner can be demonstrated by the fact that 99 per cent of funds met their reporting obligations to a good or high standard in 2016. It’s an impressive benchmark.

    Major changes to the super ‘ecosystem’ have given us the opportunity to again engage and work with industry to enhance the existing risk-differentiation framework which underpins our relationship.

    Our plan is to build a client-focused and contemporary system that can grow with the demands of the super environment. If we can capitalise on better data standards and more frequent reporting, we will provide a better service to the community and the industry as a whole.

    It’s a goal that we believe is achievable by working together.

    9 Conclusion

    I’ve covered a lot of territory today and hope I’ve given you some insight into the work we’re doing to support large funds, the wider super sector and, in turn, the Australian community. I trust too that I’ve given you some clarity around reporting requirements moving forward and the timeline for change.

    It’s an exciting time to be part of our industry and we will continue to work with large funds to ensure the sector delivers for all Australians.

    I look forward to working with you to build a more contemporary system. The Tax Institute is certainly a valuable partner and I appreciate your efforts in the super space. Thank you for having me here today.

    Our work is not done, but the superannuation industry should be proud of what has been achieved thus far.

    I’m now happy to take some questions.

      Last modified: 01 Sep 2017QC 53206