Welcome to the latest issue of the KHQ Super Alert, brought to you a day early due to the Victorian public holiday on Friday. This week, the ATO issued an updated ruling on income streams relevant to SFTs, and ASIC issued a media release on remediations. We also provide a brief overview of some recent Court decisions relevant to superannuation trustees.
ATO – Draft updates to taxation ruling on superannuation income streams
On 27 September 2023, the ATO released draft Taxation Ruling TR 2013/5DC1 (Draft Ruling) for consultation. The Draft Ruling explains when a superannuation income stream commences and when it ceases. The proposed changes reflect legislative amendments and clarify how the general principles in the Ruling will apply in the context of successor fund transfers (SFTs).
In relation to SFTs, the Draft Ruling states:
- ‘A superannuation income stream ceases for income tax purposes when the liability to pay superannuation income stream benefits is transferred without the consent of the member to another superannuation fund under a successor fund transfer.
- ‘Where the trustee of the successor fund assumes the liability to pay superannuation income stream benefits, a new superannuation income stream will be taken to commence from the interest in the successor fund on the first day of the period to which the first payment of the superannuation income stream relates.
The consultation will close on 10 November 2023.
Click here for details.
Federal Court – Efficiently, honestly and fairly obligation
On 26 September 2023, the Federal Court handed down its decision in Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited [2023] FCA 1150. Although not a decision relating to a superannuation fund trustee, it contains some guidance by analogy on the ‘efficiently, honestly and fairly’ duty wording which applies to Australian Financial Services licensees.
In this case the Court found, among other things, that the licensee had ‘failed to do all things necessary to ensure that the credit activities authorised by its credit licence were engaged in efficiently, honestly and fairly, and therefore contravened s 47(1)(a) of the National Consumer Credit Protection Act 2009 (Cth)’.
The Court followed the line of existing authorities which holds that the words ‘efficiently, honestly and fairly’ must ‘be read as a compendium describing a person who goes about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty’.
Click here for details.
ASIC – Licensees to ensure remediation policies and procedures align with RG 277
On 25 September 2023, ASIC issued a media release reminding AFS licensees to ensure they remediate affected customers ‘quickly and fairly’, consistently with ASIC’s Regulatory Guide 277 Consumer Remediation (RG 277).
In the release, ASIC outlines the findings of its recent review of remediation policies and procedures which identified ‘gaps where some licensees’ policies and procedures were inconsistent with RG 277 and could lead to poor outcomes for customers’. For example, ASIC found that:
- some policies inappropriately narrowed the scope of remediation review periods; and
- some policies applied low value payment thresholds inconsistently with RG 277.
ASIC expects licensees to consider the review’s findings, align their remediation practices with the guidance set out in RG 277, and make any necessary changes to their policies, procedures and practices.
Click here for details.
Supreme Court of Victoria – Trustee remuneration
On 20 September 2023, the Victorian Supreme Court handed down its judicial advice in Re Legal Super Pty Ltd [2023] VSC 545. The trustee had applied to the Court for judicial advice and orders in relation to the question of ‘whether the trustee is justified in exercising its powers under cl 50.2 of the Trust Deed to amend the Trust Deed in a way that gives the Trustee the power to determine a fee payable from the Fund for acting as trustee and which the Trustee determines is fair and reasonable’. So it is another case in a relatively long line of recent cases triggered by amendments to section 56 of the Superannuation Industry (Supervision) Act 1993.
The Court considered two questions:
- ‘whether the proposed amendment is within the power to amend the Trust Deed contained in cl 50.2’; and
- ‘whether the Court could be satisfied that, in exercising the power to introduce the proposed amendment, the Trustee was not acting improperly’.
The Court advised that, on the proper construction of clause 50.2, the trustee would be justified in deciding to amend the trust deed without requiring the consent of the members.
The Court was also satisfied that the trustee would not be acting improperly in exercising the power to make the amendment as the power was intended:
- ‘to be exercised in good faith’;
- ‘to be exercised with a real and genuine consideration of the exercise of the power’;
- ‘to be exercised in accordance with the purpose for which it was conferred’; and
- ‘not to be exercised for an ulterior purpose’.
Click here for details.
Federal Court – Investment of exited member’s insurance proceeds
On 20 September 2023, the Federal Court handed down its decision in Briebach v Host-Plus Pty Ltd [2023] FCA 1122, being an appeal from an AFCA determination. AFCA had affirmed the decision of the trustee to debit the applicant’s accumulation account by allocation of negative earnings applicable to a default ‘Balanced’ investment strategy. The applicant appealed. The Court allowed the appeal and remitted it back to AFCA to be determined again according to law.
In December 2011 the applicant had switched investment options from ‘Balanced’ to ‘Stable’. In February 2014, the applicant’s entire account balance was rolled over into an SMSF. Some six years later in February 2020, the applicant had an insured total and permanent disablement (TPD) benefit claim approved through the fund. So the trustee opened a new accumulation account to receive the TPD benefit, and it was invested in the fund’s default ‘Balanced’ option.
The Court found that because none of the ‘ceasing to be a member’ events in clause 21.8 of the trust deed had occurred, the applicant was actually still a member of the fund and ‘[u]p until the payment of the insurance proceeds, each party acted in a way consistent with this conclusion’.
The Court considered that there was no need for the trustee to open a new account to receive the insurance payment which should have been invested according to the applicant’s previous investment choice, not according to the trustee’s default investment strategy.
The Court also found that the fund’s business rules (on which the trustee and AFCA had based their decisions in this case) were not binding on members of the fund because the trust deed did not incorporate those rules.
Click here for details.
Federal Court – TPD benefit decline AFCA appeal
On 20 September 2023, the Federal Court handed down its decision in Edser v QSuper Board [2023] FCA 1120, being an appeal from a second AFCA determination affirming AFCA’s original decision in the matter.
This case has quite a long history, and concerns a declined TPD benefit in circumstances where there was a pre-existing medical condition.
In short, the Court dismissed the appeal, finding that it is within AFCA’s powers to ‘affirm a decision if it is satisfied that the decision is “fair and reasonable in all the circumstances”’ and that in this case, AFCA did affirm the previous decision in accordance with the law. The Court ordered the applicant pay the trustee’s costs.
Click here for details.
This alert was written by Kiara Leslie (Lawyer) and Natalie Cambrell (Director).
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