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CBA apologises to shareholders

CBA apologises to shareholders



Annie Kane – 17 Nov 2017  

The heads of the Commonwealth Bank of Australia have apologised to shareholders for the bank’s “deficiency” in compliance and the “distress” it has caused customers.

At the annual general meeting on Thursday, 16 November, both the chairman and CEO of the major bank offered apologies to the shareholders and the wider public.

While chairman Catherine Livingstone AO noted that the bank’s net profit rose to $9.9 billion for the 2017 financial year, she recognised that the “progress and performance have been overshadowed by a range of reputational and regulatory matters which have impacted the bank”.

The chairman said: “Those matters have generated adverse perceptions of the Commonwealth Bank’s culture and trustworthiness, qualities which are vital for its ongoing success.”

Touching on Australia’s anti-money laundering and counter-terrorism financing regulator (AUSTRAC) commencing legal proceedings against the bank in relation to alleged breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act, Ms Livingstone said: “These allegations and legal proceedings are very serious, and the board is treating them with the gravity they warrant.”

Outlining that a special board committee has been established, which has oversight of the preparation of the bank’s response to AUSTRAC’s allegations (as well as ensuring compliance with their regulations), the CBA chairman said that the response will be lodged with court by 15 December and made public. The committee will also consider whether any “further action on accountability” is required for parts of the bank or individuals.

Ms Livingstone emphasised that the bank first became aware of the “compliance deficiencies” in relation to the IDMs in 2015, but was “not aware that AUSTRAC had decided to launch legal action until the civil proceedings were filed on the 3rd August”.

Further, the chairman revealed that the statement of claim “included matters of which the bank had no prior knowledge”.

In relation to ASIC’s investigation, Ms Livingstone said that the bank was “in the process of responding to its request for information” and was “cooperating fully” with APRA’s inquiry into the bank’s accountability, governance and culture frameworks and practices — a progress report for which is due at the end of January 2018, with a final report at the end of April.

Noting the shareholder class action, Ms Livingstone said that there were “limits” to what she could say while legal proceedings were ongoing, but said that the bank “intend[s] to defend it vigorously” and would be “transparent as possible about these matters”.

Ms Livingstone told shareholders: “It is also important to stress that there is no suggestion in AUSTRAC’s statement of claim that anyone at the bank knowingly contributed to the matters that have been identified, nor that there has been misconduct on the part of bank employees.

“Nonetheless, it is clear that the bank was deficient in aspects of its compliance with AUSTRAC’s regulations, and it is equally clear that this has damaged our reputation: with customers, shareholders, regulators and government.

“As chairman, and on behalf of the board, I apologise sincerely for this deficiency and its consequence.”

The chairman continued: “Shareholders, I can assure you that these concerns command the highest priority of the board, and we are determined to ensure that our risk management systems, including regulatory compliance, are of the high standard, which is expected of us, and that we rebuild trust in the bank.”

Outgoing CEO apologises

The AGM also heard from outgoing CEO Ian Narev. Like Ms Livingstone, Mr Narev also offered an apology to shareholders.

Mr Narev said: “Our reason for being is safeguarding people’s life savings, extending loans to build or buy houses and businesses, and helping them to insure their lives and assets.

“The products and services we provide are fundamental to people’s wellbeing. So, when we get it wrong, we can cause significant distress. When we do, it is of no comfort to the affected customers that they are in a minority, that the experience of the vast majority of others has been good. What they care about, rightly and understandably, is their own experience.”

He continued: “At times, in our dealings with these customers, we have listened poorly, and been too bureaucratic. As chief executive, I take responsibility for that and I apologise for the distress we have caused.”

The CEO highlighted that the bank had reviewed more than one million customer files, resulting in the payment of nearly $35 million to financial advice customers; updated its heart attack definition in its insurance policies, paying 33 customers more than $4 million; and revised its remuneration for front-line staff, among other measures.

Touching on operational risks, Mr Narev said: “We will often be judged by our areas of weakness, not by overall performance. We need to accept that, and adapt.

“It is clear, as our chairman has said, that in the case of our management of Financial Crimes controls, we did not reach the standards we should have. We let people down.

“We have apologised, have taken accountability and are addressing the weaknesses, and, equally importantly, making sure we learn from our mistakes.”

Mr Narev concluded: “I have a bit of time to go as chief executive, and I am determined to give of my best until the last minute of my last day in the job. However, since this will be my final AGM, I wanted to take this opportunity to thank all of you, our owners, for continuing to invest your hard-earned savings in the Commonwealth Bank. It has been, and remains, a privilege to work for you. When I do leave, it will be with a combination of pride in what we have achieved for you, and sadness for where we have disappointed you.”

Ms Livingstone thanked Ian Narev for his “unwavering commitment” to the bank, adding that a “global search” for his replacement is well advanced, and candidates were being considered from inside and outside the bank, both from Australia and offshore.

An announcement on the planned succession is expected by 30 June 2018.


‘Predatory loans’ & P2P lending

‘Predatory loans’: Central bank slams P2P lending




James Mitchell – 15 Nov 2017

Peer-to-peer lending platforms in the US have been likened to the subprime mortgages that triggered the global financial crisis a decade ago.

The Federal Reserve Bank of Cleveland has released a new research paper titled Three Myths about Peer-to-Peer Loans, in which it warns that problems in the US peer-to-peer (P2P) market are already appearing.

“Defaults on P2P loans have been increasing at an alarming rate, resembling pre-2007-crisis increases in subprime mortgage defaults, where loans of each vintage perform worse than those of prior origination years,” the bank said. “Such a signal calls for a close examination of P2P lending practices.”

The bank used a set of credit bureau data to examine P2P borrowers, their credit behaviour and their credit scores. It found that, on average, borrowers do not use P2P loans to refinance pre-existing loans, credit scores go down for years after P2P borrowing and P2P loans do not go to the markets underserved by the traditional banking system.

“Overall, P2P loans resemble predatory loans in terms of the segment of the consumer market they serve and their impact on consumers’ finance,” the bank concluded.

“Given that P2P lenders are not regulated or supervised for anti-predatory laws, lawmakers and regulators may need to revisit their position on online lending marketplaces.”

P2P lending came to the United States in 2006 and has grown considerably in recent years.

Back in 2009, P2P balances in the US were hovering around $45 billion. They more than doubled to just over $100 billion in 2016. The rise has coincided with the number of Americans with personal loans, from around 10 million in 2009 to almost 110 million last year.

The Federal Bank of Cleveland noted that while P2P lenders do not yet claim a significant share of the US retail financial market, the significance growth rates of P2P origination volumes and the rapidly expanding P2P customer base indicate that online lenders have the capacity to represent a “formidable market force” in the near future.

“The evidence we document, combined with the fast growth of the P2P market, suggests that the P2P industry has the potential to destabilise consumer balance sheets,” the bank said.

Consumers in the at-risk category — those with lower incomes, less education and higher existing debt — may be the most vulnerable. The overall performance of P2P loans strikingly resembles that of the subprime mortgage market before the 2007 subprime mortgage crisis.”

The bank said that there are currently no regulators that oversee America’s online lending marketplace and its players.

“It might be time to look more closely at P2P lending practices and evaluate their implications for consumer finance.”

P2P lending in Australia

While the Federal Reserve Bank of Cleveland has voiced concern with these type of loans, there does not seem to be the same level of concern in Australia.

In fact, the federal government has made clear its desire for more alternative lenders in the market.

Treasurer Scott Morrison has introduced legislation to lift the prohibition on the use of the word “bank” and is eager to see Australia move towards online lending models that have grown popular overseas.

Speaking at the Financial Services Council in Sydney on Monday, 30 October, Mr Morrison pointed to the UK, where authorities similarly removed the prohibition on the term “bank”, which led to a flood of new online lenders into the market, forcing the major banks to slash their interest rates and product pricing.

“Almost 60 new banks have piled into the UK market since regulatory changes in 2013, including digital banks like Monzo, Tandem and Starling — banks that sell themselves as ‘mobile first’,” Mr Morrison said.

“The future of our banking sector, under this similarly reduced licensing burden, is rather exciting.”

However, the prudential regulator is to be given more oversight over non-banks, such as P2P lenders, in a bid to create a more even playing field.

APRA chairman Wayne Byres has previously said that while competition can bring innovation and better customers outcomes, there have been times where APRA has needed to “temper competitive spirits” in the financial sector.

“Our current interventions in relation to housing lending are a case in point,” Mr Byres said.

“We have not been concerned with lenders competing on price or service standards, but we have been concerned that intense competition was leading to a material erosion in lending standards. This was unhealthy both for individual institutions and the long-run interests of the community as a whole.”

The new APRA powers have been met with mixed responses, with some non-banks warning that they could trigger a “credit crunch” while other commentators suggesting that it could make RMBS “credit positive”.

Aussie home buyers are racing against the clock

Aussie home buyers are racing against the clock


Charbel Kadib –  14 Nov 2017

Three-quarters of Australian home buyers believe that they have less time to make a property purchasing decision now than they did five years ago, a TicToc survey has found.

According to the research by the instant home loan fintech, 73 per cent of Australian home buyers felt pressed for time when looking to purchase property.

The results were gathered from a panel of 1,000 Australians nationwide who have purchased property in the last three years.

The research also revealed that 44 per cent of the respondents purchased a property, or know of someone who did, on the same day of the inspection; 29 per cent made an offer before the auction date; 46 per cent made an offer before the property was inspected or before a strata or post-report was completed.

TicToc Home Loans founder and CEO Anthony Baum said that despite reports of a slowdown in the housing market, the fast-paced purchasing decisions of buyers were likely to continue.

“Regardless of whether the property market price growth slows down further, the last few years have changed vendor and agent expectations and, in turn, made an impact on the buyer experience,” the CEO said.

“I can’t see the accelerated pace between choosing a property, making an offer, having it accepted and exchanging contracts slowing down anytime soon.

“Australians need faster home loans to keep up with the market. Now more than ever, buyers can’t afford to wait 22 days to have their home loan approved; they are expected to act immediately to avoid missing out to the next person in line.”

When comparing data between states, panelists from NSW (82 per cent) were most inclined to believe that the purchasing process is faster now than it was five years ago.

The survey also included respondents from different age demographics; however, there was no indication of a significant statistical disparity between the groups.

SMSFs cautioned on temptation with super saver scheme

SMSFs cautioned on temptation with super saver scheme 



By: Miranda Brownlee – 13 November 2017

SMSF clients tempted to include adult children in their fund following the introduction of the First Home Super Saver Scheme should be reminded of the risks associated with this, warns a technical expert.

SuperConcepts general manager technical services and education Peter Burgess said there have been suggestions that it will most likely be the parents that are going to fund the contributions for their kids for the First Home Super Saver Scheme.

“Now if you have clients with SMSFs, it’s going to be tempting for them to put their kids in their fund for this purpose,” said Mr Burgess.

“Now we know it’s not always a good idea to put kids in the fund. So if you have SMSF clients looking to make use of this measure, it’s probably worth having a discussion with them about the pros and cons of having their children in their SMSF and some of the unintended estate planning outcomes that can result if you’ve got kids in the fund.”

One of the other advice considerations to note, Mr Burgess said, is that the associated earnings are added on top of contributions and that for the current financial year, the ATO is going to calculate the associated earnings right back from 1 July this year.

“Any contributions your clients make this financial year will count towards what they can take out next year. So if they do happen to make any voluntary contributions this year for this purpose, well the associated earnings will be calculated as if that contribution was made on 1 July 2017, even though they may not have made that contribution till June 2018,” Mr Burgess explained.

“So if you’ve got clients interested in doing this, it might actually be a good idea for them to make a voluntary contribution in June next year, because if they do that the associated earnings will be quite high, as if they made it on 1 July 2017.”

He also explained that once the money has been released, the member has to use it to purchase a first home and they have 12 months within which to do that.

“If they don’t they just have to put the money back, if they don’t put the money back, it’s a 20 per cent tax penalty that applies at that time,” he said.


Fully fledged recession’ needed to shake up government

Fully fledged recession’ needed to shake up government



Lucy Dean and James Mitchell – 13 Nov 2017 

The chief investment officer of a Sydney-based wealth management firm believes that a blinkered view of macroeconomic data will “come and bite us” in the coming years.

Speaking in Sydney last week, Koda Capital’s chief investment officer, Brigette Leckie, said that Australia will only be able to address its deficit through a recession.

“The only time you get decent policy change is when your back is against the wall,” she told attendees at the Association of Goals Based Advice (AGBA) conference.

“We escaped the last two global recessions for a lot of well-known, documented reasons, but in order to get genuine, real, reformist policy out of Canberra, we need to have a fully fledged recession.”

The CIO explained that wages have “done absolutely nothing” while Australian asset prices have soared, as low interest rates inflate assets and benefit those who own them. Meanwhile, living standards are collapsing. In this environment, those fixated on the standard macroeconomic data “are missing the point”.

“I think, ultimately, this is what’s going to come and bite us,” Ms Leckie said.

The CIO believes that technology will gradually replace jobs, creating layoffs and forcing governments to respond with “nationalistic policies” such as banning foreign ownership of Australian real estate.

“We’re already seeing smatterings of that — we’ve seen it in Canada, we’ve seen it in the last couple of weeks in New Zealand. I think that is something to keep an eye on.

“If you ask me where this is going to end, what is going to cause it, I actually think government policy clamping down on financial asset ownership could do it.

“The other thing — which is far more alarmist — is this escalates to the point whereby we end up with a revolution.”

Rather than being “totally fixated on the economic and macroeconomic data”, Ms Leckie urged financial professionals to keep an eye on what is going on and politically keep abreast of any policy changes.

Her comments come after Westpac chief economist Bill Evans warned mortgage brokers and real estate agents that a Labor win in 2019 will create major shifts in property investor sentiment as new tax policies are introduced.

Speaking at a Loan Market event in Sydney on 20 October, Mr Evans told mortgage brokers and real estate agents that as we head into 2018, people are going to start focusing on Labor’s tax policies.

“I’m not sure which way it will go. Investors may think, ‘Well, the negative gearing changes are going to be grandfathered so I better get in now,’” Mr Evans said.

“You might see a surge in investors next year.

“But watch out what happens when you get a change of government. The whole thing might roll over, or people could become more cautious, worry about retrospective changes in the rules, and things will flatten out as we get closer and closer to that election and a change in the policy environme

Brokers are moving from Big four

Fed up with the big four, brokers are going elsewhere




by MPA – 10 Nov 2017

Key concern of ASIC’s remuneration review addressed as share of loans going to big four falls steadily since 2015

Brokers are moving away from the major banks and their subsidiaries, new data from the MFAA has revealed.

The proportion by value of loans going to the major banks fell by 4.6% from October to March, according to the MFAA’s Industry Intelligence Service report. This was compounded by a 10.7% fall in business to non-major banks owned by the majors.

In fact, the share of loans going to the majors has fallen during almost every quarter since August 2015, going from 59.8% to 53.0%.

“This report is showing a shift in the broker use of loan products from majors and regionals aligned to majors to specialist lenders, international lenders and broker white label products,” MFAA CEO Mike Felton said.

“Greater diversity is good news in that it strengthens the broker proposition and competition within the mortgage market.”

Why market share matters to ASIC

By reducing the proportion of loans going to major banks, brokers have addressed one of the key concerns of ASIC’s Review of Mortgage Broker Remuneration.

80% of loans written by the average broker business went to just four lenders, ASIC found. The most commonly recommended lender for 74% of broker businesses was a major bank.

ASIC used their findings on market share to argue for strong restrictions on commissions and volume related bonuses and soft-dollar incentives, noting: “we consider that the improvements to remuneration structures we are proposing and a new public reporting regime could improve competition in the home loan market.”

The MFAA’s findings are well-timed, with the Combined Industry Forum due to recommend changes to commissions to the Treasury this month.

Who’s benefitting? 

International lenders were the big beneficiaries of the major banks’ struggles during October to June, with their lending growing 29.4%.

However, over the long-term, the growth of the non-bank sector is most noticeable. During 2013 the non-banks’ marker share hovered around the 2% mark; in March this year, it hit 5.7%.

Non-banks have benefitted from the ability to lend to investors and in some cases non-residents, they told MPA’s recent Non-Banks Roundtable.

Firstmac founder Kim Cannon argued that non-banks could appeal beyond niche borrower groups: “competing for owner-occupied customers; we’re not just picking up the scraps from the banks because they fall into our laps today, and when they’re ready they’ll come back and take it from us.”

“We’re 5% of the market; let’s go to 10%; let’s go to 20%…I want to see our industry build.”

Millions to be refunded following Citibank error

Millions to be refunded following Citibank error



Charbel Kadib – 13 Nov 2017

A total of $4.3 million is to be refunded to thousands of Citibank credit card customers due to an error on accounts.

The consumer division of Citigroup has revealed that more than 40,000 credit card holders will be refunded after Citibank failed to reimburse customers whose accounts were closed with an outstanding balance, or weren’t compensated for unauthorised transactions made using their card details.

The error occurred on accounts existing as far back as 1994.

Roughly 39,500 customers who held Citibank and Citibank-funded products (including those under the Virgin Money, Bank of Queensland, Suncorp and Card Services brands) as well as Citibank credit loan customers will be refunded over $3.3 million in total.

Citibank has said that it is writing to eligible customers to advise that they will receive a refund of the credit balance with interest. Former customers will receive a bank cheque and current customers with an open account will receive a direct credit into their account.

The closed credit card and loan accounts with more than $500 in credit balances, which were not transacted on for seven years (or three years as applicable) have been transferred to ASIC as required under unclaimed money legislation.

The bank has said that it has now “strengthened” its systems so that cheques for credit balances are issued to customers automatically when they close their accounts.

“Customers should be confident that when they close an account, they are refunded any outstanding balance,” ASIC deputy chair Peter Kell said.

“If you think you might be impacted, your money may be with ASIC as unclaimed money. I strongly encourage you to search your name on ASIC’s MoneySmart unclaimed money search.”

Unauthorised transactions refund

As well as this, around 4,000 current and former Citibank customers have been refunded more than $1 million after the bank misstated its obligations around unauthorised transactions.

Citibank had refused customers’ requests to investigate unauthorised transactions because it claimed that the requests were made outside the time period permitted under the Visa and MasterCard scheme charge-back protections.

Affected customers had made reports to Citibank about “card not present” unauthorised transactions (such as internet transactions), where a payment was made using the credit or debit card number details, rather than the physical card itself.

The bank had reportedly “incorrectly stated that because the request was made outside the time frame specified by Visa and MasterCard, it was not required to assess the claim, and that the customer’s only options were to approach the merchant or a fair trading agency”.

ASIC found that this letter would likely have “misled customers about their protections under the ePayments Code”, which protects consumers for unauthorised transactions and are separate to the protections provided by Visa and MasterCard.

Citibank has also reviewed its processes to ensure that there are no further miscommunications about its obligations under the ePayments Code.

“If an unauthorised payment has been made on their account, customers should be confident that their bank will appropriately investigate the payment. Customers should never be misled about their rights under the code,” Mr Kell noted.

“Banks should ensure in all their communications that they are clear and accurate with customers about their consumer rights.”

The news of the refunds came just a day after Citibank released research regarding customer satisfaction with credit card rewards programs.

The research, commissioned by Citi Australia, reported that 38 per cent of Australians are unsatisfied with their credit card rewards program.

Citi Australia has launched a new rewards offer for its credit cards, inviting Australians to apply for a new Citi credit card and receive up to 150,000 bonus points.

“Regulatory changes have impacted credit card rewards across the board in 2017; however, we have seen that rewards points, alongside merchant acceptance, are still one of the most desirable offerings for current and new cardholders,” head of cards and loans at Citi Australia Alan Machet said.

“Through Citi’s latest rewards proposition, we want to put the power back in cardholders’ hands, providing them the flexibility of benefits they value, as well as enjoyable opportunities on us — whether it’s a trip to Thailand or a Christmas gift for themselves or a loved one.”

Victoria leads property funds growth

Victoria leads the way in property funds growth



Annie Kane – 13 Nov 2017

Between the quarters of July and September, the total volume of mortgages lodged in Victoria rose to 11 per cent, the highest in any state, new research has found.

According to analysis undertaken by comparison website, in partnership with mortgage broking services group AFG, the total volume of mortgages lodged in the first quarter of the 2018 financial year totalled $4.9 billion, up from $4.45 billion the prior quarter.

On a year-on-year basis, the growth was more marked, recording a 17 per cent increase.

In comparison, NSW only recorded a 1 per cent increase in mortgages lodged over the September quarter, with the year-on-year figure actually showing a 4 per cent decline to $5.2 billion.

Total funds lodged in real estate transactions in the mining state of Western Australia remained depressed; for the fifth straight quarter, WA had a 3 per cent decline in the volume of funds lodged between the fourth quarter of the previous financial year and the first quarter of this financial year.

WA mortgages were down by a whopping 19 per cent year-on-year to $1.5 billion.

In Queensland, between the end of the previous financial year and the first quarter of the current one, there was a 2 per cent decline in the volume of funds lodged through AFG, with year-on-year transaction figures sitting at -8 per cent.

Overall, there was a jump in AFG’s home loan volumes from $14.5 billion to $15.1 billion since last quarter. spokesperson Abigail Koch said that the figures show that the property market is “facing a fork in the road” ahead of potential rising interest rates and in response to “a bull run in real estate”, as borrowers and lenders respond to tighter lending rules.

She commented: “Existing and prospective property owners need to do their homework as Sydney’s property market is plateauing after recent highs, while other markets like Melbourne are improving, which will produce plenty of good buying opportunities, but also risks in some markets.”

Ms Koch noted that investor loans were at the lowest level since the first quarter of FY2013, at just 29 per cent of all transactions lodged last quarter — reflecting changes in prudential standards — while the number of borrowers refinancing loans has dropped from 29 per cent of AFG loans processed in the final quarter of FY2017 to 25 per cent this quarter.

A draft law to shut down the salary sacrificing loophole

A draft law to shut down the salary sacrificing loophole





By: Gary Chau & Bryce Figot – 10 November 2017

While salary sacrificing arrangements continue to be available post 30 June 2017, some employees are still let down by the way the salary sacrifice regime works. However, a draft law aims to change this.


A salary sacrifice arrangement is still worthwhile post-30 June 2017 since some employees find it both administratively easier and tax effective for their employer to contribute more into superannuation in lieu of their future salary and wages.

Unfortunately, some employees will be let down by a gap in the way our salary sacrifice regime operates, which allows employers to meet their mandated superannuation guarantee (SG) obligation and overall contribute less money to an employee’s superannuation fund. However, a draft law aims to close this gap.

What is a salary sacrifice arrangement?

Broadly, a salary sacrifice arrangement is where an employee, with their employer’s consent, foregoes a certain amount of their future salary and wages and the employer is expected to contribute the sacrificed amount to the employee’s superannuation fund.

These contributions are deductible for the employer and are not included in the assessable income of the employee (subject to the possibility of the employee exceeding their concessional contributions cap). Rather, these contributions are included in the assessable income of the superannuation fund and generally taxed concessionally at a rate of 15 per cent.

The SG regime

The SG regime is established under the Superannuation Guarantee (Administration) Act 1992 (Cth) (‘SGAA’). Broadly, the regime requires employers to make superannuation contributions for their employees equal to at least the minimum level of superannuation support set out in the legislation, which is 9.5 per cent for the 2017-18 financial year.

Technically, the SGAA does not place a positive obligation on an employer to pay superannuation contributions on behalf of an employee. However, where an employer fails to pay the minimum level of superannuation contributions on behalf of an employee, which is measured on a quarterly basis for the quarters ending on 31 March, 30 June, 30 September and 31 December, the employer will be liable to pay the SG charge on their SG shortfall (s 16 of the SGAA).

The gap in the current salary sacrifice regime

To illustrate the gap under the current regime, consider the following scenario:

Tony works for his employer, BAD BOSS PTY LTD, and receives $100,000 in salary and wages. His ordinary time earnings for the purposes of the SGAA is $25,000 per quarter. Tony would have an entitlement to $2,375 in SG contributions per quarter, which is determined by multiplying $25,000 by 9.5 per cent (the current minimum SG contribution rate).

Tony enters into a salary sacrifice arrangement with BAD BOSS PTY LTD where he sacrifices $2,000 for each quarter from his salary and wages and in return, his employer is meant to contribute the $2,000 to his superannuation fund (on top of the employer’s mandated SG obligation). Tony expects his superannuation contributions to rise to $4,375 per quarter.

Unfortunately, under the current SG regime, BAD BOSS PTY LTD could use the sacrificed amount, $2,000, to satisfy part of the BAD BOSS PTY LTD’s mandated SG obligations and only makes a contribution to Tony’s superannuation fund of $2,375 (which comprise mostly of Tony’s $2,000 salary sacrificed amount). In a perverse turn of events, it is also worth noting that BAD BOSS PTY LTD’s mandated SG obligations would also be lower at $2,185 and calculated in respect of $23,000 instead of $25,000 (ie, $25,000 minus salary sacrifice amount) per quarter.

In this scenario, Tony would only be sacrificing $2,000 from his quarterly salary and wages with no additional contributions being made to his fund beyond BAD BOSS PTY LTD’s mandated SG obligation. For Tony to realise the error, he would need to check with his superannuation fund, which, like most people, he checks only once a year around tax time.

While the above example may seem ludicrous and unconscionable (on the part of the employer), unfortunately it seems that this gap is utilised by some employers. In the Industry Super Australia and CBUS’s report, Overdue: Time for Action on Unpaid Super, released in December 2016, it estimates that up to $1 billion in superannuation guarantee in the 2013-14 financial year was met by employers using employee salary sacrifice contributions. In a contrary view, the Superannuation Guarantee Cross-Agency Working Group’s interim report released in January 2017, which is a report to the government, says that based on the available ATO evidence, this practice is not widespread and the stated $1 billion is likely to be a very large overestimate. Nevertheless, both the industry bodies and working group have recommended that the government close this gap.

A draft law to close the gap

Based on the recommendations from the Superannuation Guarantee Cross-Agency Working Group to the government, on 14 September 2017, the Minister for Revenue and Financial Services, Kelly O’Dwyer, introduced to Parliament the Treasury Law Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2007 (Cth) to ‘improve the integrity of the superannuation system by ensuring that an individual’s salary sacrifice contributions cannot be used to reduce an employer’s minimum superannuation guarantee (SG) contribution’.

This bill proposes to implement the Superannuation Guarantee Cross-Agency Working Group’s recommendations that the Superannuation Guarantee (Administration) Act 1992 (Cth) be amended to:

  1. prevent contributions made as part of a salary sacrifice arrangement from satisfying an employer’s SG obligations; and
  2. specifically include salary or wages sacrificed to superannuation in the base for calculating an employer’s SG obligations.

The bill proposes to introduce a number of new provisions to close the gap. In particular, the bill proposes to add a new interpretation provision, s 15A, titled ‘Interpretation: salary sacrifice arrangements’, which will contain the following:

15A Interpretation: salary sacrifice arrangements

Salary sacrifice arrangement

(1)      An arrangement under which a contribution is, or is to be, made to a complying superannuation fund or an RSA by an employer for the benefit of an employee is a salary sacrifice arrangement if the employee agreed:

(a)   for the contribution to be made; and
(b)   in return, for either or both of the following amounts to be reduced (including to nil):
(i)  the ordinary time earnings of the employee;
(ii)  the salary or wages of the employee.
(2)      If an amount mentioned in subparagraph (1)(b)(i) or (ii) is reduced under a salary sacrifice arrangement, the amount of that reduction is:
(a)   if ordinary time earnings for a quarter are reduced — a sacrificed ordinary time earnings amount of the employee for the quarter in respect of the employer; and
(b)   if salary or wages for a quarter are reduced — a sacrificed salary or wages amount of the employee for the quarter in respect of the employer.
Excluded salary or wages
(3)      In working out the amount of a reduction for the purposes of subsection (2), disregard any amounts that, had they been paid to the employee (instead of being reduced), would have been excluded salary or wages.
(4)      For the purposes of this section, excluded salary or wages are salary or wages that, under section 27 or 28, are not to be taken into account for the purpose of making a calculation under section 19.

In determining an employer’s SG shortfall for an employee for a quarter, a new formula under s 19(1) would be introduced as follows:

In calculating ‘quarterly salary and wages base’ in the above formula, the bill adds the following definition to s 19(1):

quarterly salary or wages base, for an employer in respect of an employee, for a quarter means the sum of:

(a)   the total salary or wages paid by the employer to the employee for the quarter; and

(b)   any sacrificed salary or wages amounts of the employee for the quarter in respect of the employer.

In calculating an employer’s SG shortfall, an employer must also include any amount salary sacrificed to work out their SG obligation to an employee. This ensures that an employee’s SG obligations are calculated on the employee’s pre-salary sacrifice base and not on the employee’s reduced salary and wages (ie, post-salary sacrifice).

Further, under the proposed changes to s 23(2), an employer’s SG charge, which arises if they have not met their mandated SG obligations (and thus have an SG shortfall), will only be reduced if the employer makes a contribution (other than a sacrificed contribution). A sacrificed contribution means ‘a contribution to a complying superannuation fund or an RSA made under a salary sacrifice arrangement’.

The scenario under the proposed bill

Revisiting the scenario above with Tony, the following would occur under the proposed bill:

Tony’s quarterly salary or wages is $25,000. Tony enters the salary sacrifices arrangement with BAD BOSS PTY LTD and sacrifices $2,000.

For Tony’s employer, BAD BOSS PTY LTD, the proposed s 19(1) formula provides that in working out BAD BOSS PTY LTD’s SG shortfall it is now calculated in respect of Tony’s quarterly salary or wages base. Tony’s quarterly salary or wages base is worked out by totalling Tony’s total salary or wages for the quarter, $23,000, and any sacrificed salary or wages amounts of the employee for the quarter, $2,000, which adds up to $25,000. Tony would have an entitlement to $2,375 in SG contributions per quarter. Hence, if BAD BOSS PTY LTD makes less than $2,375 in contributions to Tony’s superannuation fund, it would have a SG shortfall.

Thus, if BAD BOSS PTY LTD only contributed $2,375 for a quarter, which comprises mostly of the $2,000 that was salary sacrificed, it would have a SG shortfall for that quarter.

The new provisions make clear that salary sacrifice amounts cannot be used to reduce an employer’s mandated SG obligations.

Moving forward

The bill notes that the proposed changes  will apply on or after 1 July 2018.


New e-conveyancing platform

New e-conveyancing platform addresses pain points




by MPA  – 10 Nov 2017

With the July 1, 2019, deadline looming for all properties to be settled digitally on PEXA in NSW, conveyancers and other stakeholders in property transactions are looking for ways to digitise the conveyancing process.

Titlexchange, an e-conveyancing platform that automates conveyancing and features Australia’s first online marketplace of conveyancers, wants to fill the gap. With buyers and sellers of property frequently describing the conveyancing process as being both bewildering and stressful, Titlexchange wants to eliminate these pain points.

“The lack of standardisation and automation in the conveyancing process is a real problem,” said Gerard Healy, co-founder and managing director of Titlexchange. “We want to automate and streamline the process for consumers, conveyancers and the various stakeholders to the transaction, whilst adding a layer of confidence and transparency to the process that doesn’t exist today.”

Titlexchange automates parts of the conveyancing transaction, and facilitates completion of the rest of the process by matching property buyers and sellers with a local conveyancer. The platform also allows stakeholders to check on the progress of the transaction and communicate directly with their conveyancer.

The current settlement process for the transaction of property is highly complex, and relies heavily on paper records and parties being physically present at the transactions. They can also be very expensive.

“When it comes to fees, we’re seeing some conveyancers charging up to $2,000 for a simple conveyancing transaction; we’ve even seen them charging relative to the purchase price of the property,” Healy said.

“Similarly, there’s a lot of unnecessary overlap of work that consumes time, with conveyancers duplicating tasks and data collection already completed by mortgage brokers and real estate agents earlier in the property transaction process. This includes collecting consumer and property data, and performing identify verification checks.

“Titlexchange addresses all of these pain points. We do this by integrating with a variety of technology platforms and stakeholders in the broader property ecosystem and digitising what is now a manual process and paperwork heavy. Our marketplace technology then connects property buyers and sellers with conveyancers who meet our strict accreditation and ratings criteria.”

The e-conveyancing platform requires no physical human interaction. “Consumers can initiate the process themselves, and connect with a local conveyancer digitally. They also get the benefit of highly competitive and completely transparent fixed fees, with the ability to add additional services only as needed. There are no hidden surprises and they have complete control and certainty over pricing.”