Understandably, the focus of the profession for the past 18 months has been on the array of COVID-19 support measures available around the country and assisting to keep your clients afloat during extended lockdowns. Understandably, turning your attention to some ‘less urgent’ developments in tax and superannuation policy and administration has not been a priority for some of you; after all, there are only 20 hours in each working day. Nevertheless, some non-COVID measures are scheduled to commence in the coming months, and they are important and becoming increasingly pressing.
Stapled superannuation funds — from 1 November 2021
As part of the Federal Budget 2020–21, the Federal Government announced the Super Reforms – Your Future, Your Super measure. One of its key elements is the requirement, from 1 November 2021, for most employers to check with the ATO if their new employee who has not chosen a superannuation fund has an existing superannuation account, known as a ‘stapled fund’, into which the employee’s superannuation guarantee (SG) contribution will be paid.
A ‘stapled fund’ is an existing superannuation account which is linked, or ‘stapled’, to an individual employee so that it follows them as they change jobs.
The legislative framework is contained in new Division 7 of Part 3A (about choice of fund requirements) of the Superannuation Guarantee (Administration) Act 1992. The new rules were inserted by Schedule 1 to the Treasury Laws Amendment (Your Future, Your Super) Act 2021, which was enacted on 22 June 2021.
Currently, if an employee does not choose a fund, their employer may make SG contributions on behalf of the employee into the employer’s chosen default fund. But allowing employers to make SG contributions into their chosen default fund has resulted in the creation of unintended multiple superannuation accounts which has lessened members’ retirement savings through the payment of unnecessary fees and insurance premiums on unintended multiple superannuation accounts.
New stapled fund rules
The new rules are designed to limit the creation of multiple superannuation accounts. The rules apply only where the employee:
- starts their employment on or after 1 November 2021 (new employee);
- has a stapled fund; and
- has not chosen a fund to receive SG contributions.
In this case, their employer will be required to make SG contributions on behalf of the employee into the stapled fund.
Employers can continue to make SG contributions to their preferred default fund for new employees only where:
- the employee has not chosen a fund to receive SG contributions;
- the employer has requested that the Commissioner identify whether the employee has a stapled fund; and
- the Commissioner has notified the employer that there is no stapled fund for the employee.
During a proposed transitional period from 1 November 2021 until 31 October 2022, the Commissioner will reduce any choice shortfall to nil if that shortfall arose due to the employer’s lack of knowledge of the stapled fund requirements rather than intentional disregard.
Single Touch Payroll Phase 2 — from 1 January 2022
The expansion of Single Touch Payroll (STP), referred to as ‘STP Phase 2’, to include additional information will reduce the reporting burden for employers who need to report information about their employees to multiple government agencies, including Services Australia. The mandatory start date for Phase 2 reporting is 1 January 2022.
It has always been intended that digital service providers (DSPs) can apply for deferrals that will cover any of their clients who use their solution. However, the professional bodies have been advocating for a deferral for employers, many of whom would have found it difficult to meet their new reporting obligations from 1 January 2022, given the ongoing focus on COVID-19 support measures and dealing with the challenges of lockdowns.
It is pleasing to see that the ATO recently advised that:
- If your STP Phase 2 reporting solution is ready for 1 January 2022, you should start Phase 2 reporting.
- If you can start Phase 2 reporting before 1 March 2022, you will be considered to be reporting on time and you won’t need to apply for more time.
- If you need more time, you will be able to apply for a delayed transition from December 2021.
- The ATO will not impose penalties for genuine mistakes for the first year of Phase 2 reporting, that is, until 31 December 2022.
The hard deadline has now shifted twice, after the ATO deferred the initially proposed start date of 1 July 2021 to 1 January 2022, acknowledging the substantial and abnormal pressures on employers in dealing with the impact of the pandemic.
Key benefits of STP Phase 2
STP Phase 2 will provide the following key benefits:
- Allow reporting of income types, such as salary and wages, closely held payees, working holiday makers, foreign employment income, seasonal worker programme, voluntary agreement and labour hire;
- Allow separate reporting of gross, paid leave, allowances, overtime, bonuses and commissions, directors’ fees, lump sum W and salary sacrifice, instead of reporting a single gross amount;
- Remove the need to send employees’ TFN declarations to the ATO;
- Enable advising the ATO if a concessional reporting option, such for as closely held payees, is being used;
- Remove the need to provide Lump Sum E letters to employees;
- Allow software or an employee’s payroll ID to be changed;
- Allow the sharing of payroll information in near real-time with Services Australia;
- Remove the need to provide separation certificates when employees leave; and
- Allow voluntary reporting of child support deductions and/or garnishees.
Director identification numbers
On 12 September 2017, the then Minister for Revenue and Financial Services, the Hon. Kelly O’Dwyer MP, announced that a comprehensive package of reforms to address illegal phoenixing would include the introduction of a Director Identification Number (DIN) to deter and penalise phoenix activity. The reforms were made by Schedule 2 to the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020, which was enacted on 22 June 2020.
Currently, although directors are required to provide their details to the Australian Securities and Investments Commission (ASIC), ASIC has not been required to verify the identity of directors. This has made it difficult to trace a director’s relationships across companies, track directors of failed companies and prevent the use of fictitious identities. These reforms will assist regulators and external administrators to investigate a director’s involvement in what may be repeated unlawful activity including illegal phoenix activity.
Requiring all directors of companies and body corporates to apply for a DIN will compel them to confirm their identity. The DIN will be a unique permanent identifier for each person who consents to being a director.
Directors don’t need to do anything now, as the commencement date is yet to be proclaimed (must be no later than 23 June 2022) and the ATO is currently testing the director ID application process in a private beta.
A series of draft legislative instruments have been issued which set out:
- the proposed transitional application periods;
- what information may be requested and collected in an application for a director ID and how this information will be used.
Under the proposed transitional arrangements:
- Existing directors will have until 30 November 2022 to apply for a DIN;
- If a person is appointed as a director within the first 12 months of the new regime, they must apply for a DIN within 28 days of becoming a director;
- Otherwise, the person will need to have a DIN before they are appointed as a director.
Strengthening client verification
On 27 April 2021, the ATO released a consultation paper titled Transition to strengthening client verification. The ATO is seeking to prescribe guidelines for client verification within tax and superannuation practices to address the growing risk of identity theft and fraud. The guidelines are designed to set a minimum standard to be applied across the tax profession to ensure due diligence is taking place when engaging new clients, or where there is a concern that an existing client may have had their identity compromised.
The guidelines will apply to all tax practitioners, particularly registered tax agents and registered BAS agents using the Online services for agents, and superannuation practitioners.
The ATO is proposing to establish a new client verification standard for tax and superannuation practitioners as part of a transitional approach during 2021. Practitioners are encouraged to voluntarily adopt these standards into their practices now, with the view for the standards to become compulsory in the future following an initial transition period and further consultation with the profession.
You are not expected to go back and verify your entire client base. Rather, identity checks should be performed from this point on for:
- all new clients, including representatives of new clients;
- new representatives of existing clients; and
- existing clients where there are concerns the client may not be who they claim to be.
Verification may be undertaken using one of three methods:
- Visual — Suitable only when you are interacting with the client in person or by video. In most cases, a visual check of a driver’s licence will be sufficient.
- Source ATO — Compares data provided by the client against data held by the ATO, such as bank account details, a notice of assessment reference number or an activity statement document identification number, or payment plan details.
- Source DVS (Document Verification Service) — Compares a client’s details on government issued identity documents against details held by a DVS provider.
For each method, two separate proofs of identity must be verified, unless a primary photographic proof of identity document can be verified using the Visual method.
Professional judgment will need to be applied in circumstances where identity documents are not readily available, such as for those living in remote Indigenous communities, those affected by natural disasters, refugees and those who have limited access to identity documents due to experiencing family or domestic violence or homelessness.
The ATO should be contacted if you are unable to verify a client or suspect potential fraud.
The guidelines will set out:
- who needs to be verified;
- the verification methods;
- what identity documents are required;
- verifying the authorised relationship for clients who purport to act on behalf of other people or entities;
- recording the client verification process.
Further information regarding these four measures will be available as the commencement dates approach.
Robyn Jacobson, senior advocate, The Tax Institute