Supplementary Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)Chapter 4: Corrections to the Explanatory Memorandum - Treasury Laws Amendment (2023 Measures No.1) Bill 2023
Corrections to Chapter 1
4.1 Three corrections are made to Chapter 1 of the Explanatory Memorandum to the Bill concerning the registration of relevant providers and assisted decision making. These corrections respond to the recommendation of the Senate Committee for the Scrutiny of Bills (Scrutiny Digest 6 of 2023) and provide additional information about the safeguards and context for ASIC's use of assisted decision making when dealing with applications for registration of relevant providers.
4.2 In Chapter 1, at the end of paragraph 1.22, add the following:
"Where the AFS licensee makes all the required declarations, ASIC must grant the registration application (without any requirement to scrutinise the validity of the declarations). ASIC must refuse a registration application for a banned or disqualified relevant provider."
4.2 In Chapter 1, paragraph 1.23, omit the last sentence
"The decision-making process lends itself to automation because the circumstances in which ASIC must approve or refuse an application are prescribed."
and substitute:
"The decision-making process lends itself to automation because the circumstances in which ASIC must approve or refuse an application are prescribed and non-discretionary. If the registration application is granted, the decision making process will be fully automated. If it appears that ASIC must refuse a registration application because the relevant provider is the subject of a banning or disqualification order, ASIC staff will take over the decision-making process. This is an important and appropriate safeguard to ensure that if the assisted decision process were to incorrectly refuse an application it would not adversely affect a potential relevant provider.
4.3 In Chapter 1, after paragraph 1.24, insert:
"1.24A The following existing components of the regulatory regime support the integrity and transparency of the assisted decision-making process:
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- ASIC must notify the AFS licensee (if applicable) and the relevant provider by sending out a notice of registration or notice of refusal;
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- ASIC must display the registration status of a relevant provider on the Financial Advisers Register (a public register); and
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- affected parties have a right of review of any registration decision in the Administrative Appeals Tribunal."
Corrections to Chapter 5
4.4 Three corrections are made to Chapter 5 of the Explanatory Memorandum to the Bill concerning past distribution practice and the explanation of the treatment of dividend reimbursement plans.
4.5 Firstly, paragraph 5.20 does not correctly describe the effect of the relevant provision. When considering if an established practice exists, past distributions to which the amendments would apply must not be considered. This ensures that any practice involving the sort of mischief the amendments seek to prevent does not protect future distributions.
4.6 In Chapter 5, paragraph 5.20, omit the last sentence:
"This is achieved by providing that the past distribution practice of an entity cannot be established from a franked distribution or a distribution that would be franked made either before on or after 15 September 2022 if these amendments do not apply to treat it as unfrankable."
and substitute:
"This is achieved by providing that the past distribution practice of an entity cannot be established from a franked distribution or a distribution that would be franked made either before, on or after 15 September 2022 if these amendments would apply to treat it as unfrankable."
4.7 Secondly, Chapter 5 of the Explanatory Memorandum to the Bill does not sufficiently explain that dividend reinvestment plans undertaken for normal commercial purposes are not intended to be affected by the amendments and that family or commercial dealings of private companies to facilitate the departure of one or more shareholders from the company are not intended to be affected by the operation of the measure.
4.8 In Chapter 5, after paragraph 5.45 of the Explanatory Memorandum to the Bill, insert: "5.45A Further, dividend reinvestment plans, including underwritten dividend reinvestment plans, undertaken for normal commercial purposes are not intended to be affected by the operation of the measure.
"5.45B Also, while it is intended that contrived arrangements undertaken by closely held companies to release franking credits to their shareholders are captured by these amendments, family or commercial dealings of private companies where the capital raising and distribution are initiated to facilitate the departure of one or more shareholders from the company are not intended to be affected by the operation of the measure. This would include, for example, unless the facts and circumstances indicate another (other than incidental) purpose:
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- where, as part of a succession plan, a new generation of family members funds and acquires equity in the company and the funds are applied to pay a franked dividend to the exiting generation of shareholders; or
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- to allow a particular shareholder to exit the company (e.g., due to a falling-out between family members), where the departing shareholder is paid a franked dividend funded by capital raised from those shareholders who remain.
The company directors may need to consider whether, in the particular facts and circumstances, existing anti-avoidance provisions in the tax law that deal with, among other things, the streaming of franking credits, would apply."
4.9 Thirdly, example 5.2 of Chapter 5 the Explanatory Memorandum to the Bill incorrectly implies that banks should not use dividend reinvestment plans or underwritten dividend reinvestment plans if there is a risk that the dividend will not materially change the company's financial position. This is corrected to clarify that dividend reinvestment plans and underwritten dividend reinvestment plans do not automatically have the principal effect and purpose of funding a related dividend.
4.10 In Chapter 5, example 5.2 (Underwritten dividend reinvestment plan funds special dividend): in the third paragraph of the example, after "for a purpose other than to fund the special dividend", insert:
"(for example, for the purpose of prudential capital management and capital raisings via dividend reinvestment plans, including underwritten dividend reinvestment plans, for general corporate purposes or acquisitions)"
and add at the end:
"This example is illustrative only of a special dividend, and not of dividend reinvestment plans (including underwritten dividend reinvestment plans) that occur in respect of dividends that fall within an established practice of dividend or distribution payments."