The Super System Review has released Self-Managed Super Solutions, its report which sets out the Panel’s preliminary recommendations on self-managed superannuation funds (SMSFs).

The Panel supports trustees keeping control over their SMSFs: it is not proposing compulsory education for trustees or requiring third party custodians to hold SMSF assets. It is also not proposing that all SMSF’s have corporate trustees or that there be a minimum SMSF asset size.

In support of its principal concern for the integrity and adequacy of retirement savings, its key preliminary recommendations include:

• prohibiting investment in collectables and personal-use assets (such as artworks, wine collections, exotic cars and yachts);
• reducing the potential to benefit illegally from related party transactions by prohibiting the acquisition of in-house assets and imposing restrictions on the way in which an SMSF can transact with related parties;
• strengthening the competence and independence of approved auditors;
• expanding the ATO’s enforcement powers;
• tightening the SMSF registration process, including the introduction of member identity requirements, to reduce instances of fraud and illegal early release schemes.

The SMSF Preliminary Report is consistent with the Government’s Future of Financial Advice reform package, in particular,
in areas such as adviser competency and remuneration and the removal of the accountants’ licence exemption.

The Panel will make its final recommendations on SMSFs by 30 June 2010.

The Minister for Housing has released a Discussion Paper: Regulation and Growth of the Not-For-Profit Housing Sector.

This paper puts forward options for potential reforms of community housing in Australia and to seek input from the not-for-profit sector, investors, tenant groups, Indigenous community housing, developers and the business community into the formulation of clear policy direction to support the growth and sustainability of the community housing sector in Australia.

The paper contains a useful analysis of existing community housing regulation by jurisdiction and proposes 5 options for national regulation of the sector.

The Credit (Commonwealth Powers) Act 2010 (Qld) was assented to on 21 April.

The Act refers constitutional power for credit (including finance broking) to the Commonwealth and repeals Queensland’s own credit legislation.

However it reintroduces the 48% maximum annual percentage rate.

Queensland has not adopted either the NSW or Victorian methods of calculating the cap.

The Government has issued the Future of Financial Advice reforms package for consultation.

The Future of Financial Advice package includes the following:

• A prospective ban on conflicted remuneration structures including commissions and volume based payments, in relation to the distribution and advice of retail investment products including managed investments, superannuation and margin loans. The measure does not initially apply to risk insurance.
• The introduction of a statutory fiduciary duty of financial advisers to act in the best interests of their clients, subject to a ‘reasonable steps’ qualification, and to place the best interests of their clients ahead of their own when providing personal advice to retail clients.
• Advisers will only be able to charge ongoing advice fees if a payment plan has been agreed with the client, or if the charge relates to the provision of an ongoing service. If an adviser is to provide an ongoing service, the adviser must send an annual renewal notice to the client. If the client does not renew the services, the adviser cannot continue to charge the client.
• Percentage-based fees (known as assets under management fees) will only be charged on ungeared products or investment amounts and only if this is agreed to with the retail investor.
• Strengthening the powers of the Australian Securities and Investments Commission (ASIC) to act against unscrupulous operators.
• removes of accountants’ licensing exemption in relation to self-managed superannuation funds
• The examination of a statutory compensation scheme.

The proposals include a ban on:

• Initial/upfront commission and trail commission. There must be separate fees for the product and advice.
• Any form of payment relating to volume or sales targets (including employee sales and volume targets) from any financial services business, relating to the distribution and provision of advice for retail financial products.

The ban does not initially apply to soft dollar benefits. The newly established expert advisory panel, in relation to its review of ethical standards, will consider whether these payments are consistent with those standards. Treasury will advise Government to the best way of extending the ban on conflicted remuneration structures to material soft dollar payments.

The majority of these reforms will commence from 1 July 2012.

The ASX Corporate Governance Council has published an exposure draft of Proposed Amendments to the ASX Corporate Governance Council Corporate Governance Principles and Recommendations.

The proposed amendments take into account recommendations made in the last 12 months by:
i. The Corporations and Markets Advisory Committee (CAMAC) Report “Diversity on Boards of Directors” dated August 2009
ii. The CAMAC Report “Aspects of Market Integrity” dated June 2009
iii. The Productivity Commission Inquiry Report “Executive Remuneration in Australia” dated January 2010.

It is intended that the change in the reporting requirement will apply to an entity’s first financial year commencing on or after 1 January 2011. While the formal commencement date of operation of the proposed amendments to the Corporate Governance Principles and Recommendations is 1 January 2011, Council considers that, especially in the case of the recommendations on diversity, listed entities with a balance date of 30 June 2010 should be able to establish a diversity policy and report against the new Recommendations in respect of the year commencing 1 July 2010.

Austrac has released details of proposed changes to Chapter 19 of the AML/CTF Rules which set out the reportable details for threshold transactions which must be supplied by reporting entities in a threshold transaction report. These AML/CTF Rules currently do not require reporting entities to supply reportable details where the person conducting the transaction is not the customer.

From 1 January 2011, the Chapter 19 AML/CTF Rules will require reporting entities to supply specified details on persons who are conducting a transaction but are not the customer.

The Assistant Treasurer, Senator Nick Sherry, has announced a tightening of the foreign investment rules as they relate to residential real estate and a package of new civil penalty, compliance, monitoring and enforcement measures.

Amendments are being proposed to the Foreign Acquisitions and Takeovers Act 1975, the Foreign Acquisitions and Takeovers Regulations 1989 and Government Policy to ensure that foreign non-residents can only invest in Australian real estate if that investment adds to the housing stock, and that investments by temporary residents in established properties are only for their use whilst they live in Australia.

All temporary residents seeking to purchase an existing property in Australia will now be brought within the FIRB notification, screening and approval process. Temporary residents will be required to notify, be screened or be approved by FIRB in the same way currently required of foreign non-residents.

In addition, temporary residents who are approved will now have to:

• compulsorily sell the established property they have bought when they depart Australia; and
• be required, where undeveloped land has been purchased, to commence construction on that land within 24-months or have the land compulsorily sold.

These changes will also be strictly applied to temporary residents who are here on foreign student visas.

As part of a new civil penalties regime, the Government will introduce:

• sanctions for purchasers, sellers and agents for being involved in transactions in breach of FATA;
• an explicit compulsory divestment requirement where property has been purchased in breach of the real estate investment regime; and
• an additional monetary penalty equivalent to any capital gain made by the breaching purchaser at the time of the forced sale, with the capital gain to be measured in accordance with the relevant tax legislation.

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, has released an exposure draft of Corporations Amendment (No.2) Bill 2010 which will give effect to the Government’s decision to reverse the High Court decision in Sons of Gwalia v Margaretic (previously discussed here).

The Sons of Gwalia decision determined that, in a corporate winding up, certain compensation claims by shareholders against the company ranked equally with the claims of other creditors.

The Bill also introduces reforms relating to notices to creditors, shareholder voting and clarifies the position of shareholders bringing claims for damages against companies.

Treasury has released for consultation draft legislation that makes it easier for takeovers and mergers regulated by the Corporations Act 2001 to qualify for capital gains tax (CGT) scrip for scrip rollover.

The scrip for scrip rollover enables taxpayers to defer realising capital gains from exchanging shares in one company for shares in another as part of a merger or takeover. Similar relief is also available for the exchange of trust interests.

It is a requirement of the scrip for scrip rollover that members in the target entity have the ability to participate in the arrangement on substantially the same terms.

This measure applies to CGT events that happen from 6 January 2010, the day the Assistant Treasurer announced the Government’s intention to introduce the legislation.

The Assistant Treasurer has announced 3 changes relating to capital instruments:

• the debt/equity transitional period for Upper Tier 2 instruments has been extended to 1 July 2010 to enable issuers sufficient time to amend their instruments to come within the terms of a final set of Upper Tier 2 regulations which are still the subject of consultation;
• new Regulations which apply to payments made under term subordinated notes on or after 1 July 2001. The Regulations will allow debt tax treatment of certain term subordinated notes by ensuring that certain clauses relating to solvency and capital adequacy do not preclude those notes being considered as debt interests for the purposes of the debt/equity rules;
• draft legislation is now available for Taxation of Financial Arrangements (TOFA) reforms.