TREASURY LAWS AMENDMENT (2022 MEASURES NO. 4) BILL 2022 Explanatory Memorandum

Commonwealth of Australia Explanatory Memoranda

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TREASURY LAWS AMENDMENT (2022 MEASURES NO. 4) BILL 2022

2022 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES TREASURY LAWS AMENDMENT (2022 MEASURES NO. 4) BILL 2022 EXPLANATORY MEMORANDUM (Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Table of Contents Glossary................................................................................................. iii General outline and financial impact ...................................................... 1 Digital games tax offset ............................................. 13 Taxation treatment of digital currency ........................ 45 Reducing the compliance burden of record keeping for fringe benefits tax ...................................................... 53 Skills and Training boost ............................................ 59 Technology investment boost .................................... 75 Financial reporting and auditing requirements for superannuation entities .............................................. 85 Deductible gift recipients .......................................... 149 Amendment of the Clean Energy Finance Corporation Act 2012 .................................................................. 155 Taxation of military superannuation benefits: Reversing the Douglas decision ............................................... 159 Statement of Compatibility with Human Rights ........ 173

Glossary This Explanatory Memorandum uses the following abbreviations and acronyms. Abbreviation Definition AAT Administrative Appeals Tribunal ABN Australian Business Number APRA Australian Prudential Regulation Authority Arts Minister Minister for the Arts ASIC Australian Securities and Investments Commission ASIC Act Australian Securities and Investments Commission Act 2001 ATO Australian Taxation Office Bill Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 CEFC Clean Energy Finance Corporation CEFC Act Clean Energy Finance Corporation Act 2012 Commissioner Commissioner of Taxation Corporations Act Corporations Act 2001 Corporations Regulations Corporations Regulations 2001 DFRDBS Defence Force Retirement and Death Benefits Scheme Douglas Commissioner of Taxation v Douglas [2020] FCAFC 220 FBT fringe benefits tax FBTAA Fringe Benefit Tax Assessment Act 1986

Glossary Financial Services Royal Commission Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry FS(CD)Act Financial Sector (Collection of Data) Act 2001 GST Goods and Services Tax GST Act A New Tax System (Goods and Services Tax) Act 1999 GST Regulations A New Tax System (Goods and Services Tax) Regulations 2019 Guide to Framing Commonwealth A Guide to Framing Commonwealth Offences Offences, Infringement Notices and Enforcement Powers, September 2011 edition. ICCPR International Covenant on Civil and Political Rights ICESR International Convention on Economic, Social and Cultural Rights IT(TP) Act Income Tax (Transitional Provisions) Act 1997 ITAA 1936 Income Tax Assessment Act 1936 ITAA 1997 Income Tax Assessment Act 1997 ITAR 2021 Income Tax Assessment (1997 Act) Regulations 2021 Legislation Act Legislation Act 2003 MEC Group Multiple Entry Consolidated Group MSBS Military Superannuation Benefits Scheme MYEFO Mid-Year Economic and Fiscal Outlook PGPA Act Public Governance, Performance and Accountability Act 2013

RSE audit company A company that is appointed as auditor of a registrable superannuation entity RSE audit firm A firm that is appointed as auditor of a registrable superannuation entity RSE auditor An individual, company or firm that is appointed as auditor of a registrable superannuation entity RSE licensee Registrable superannuation entity licence-holder SIS Act Superannuation Industry (Supervision) Act 1993 SIS Regulations Superannuation Industry (Supervision) Regulations 1994 TAA 1953 Taxation Administration Act 1953

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 General outline and financial impact Schedule 1 - Digital games tax offset Outline Schedule 1 to the Bill introduces a refundable tax offset in relation to eligible expenditure incurred in the development of digital games. Date of effect Schedule 1 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October after Royal Assent. The Digital Games Tax Offset applies to qualifying Australian development expenditure incurred in relation to eligible game development from 1 July 2022. Proposal announced The Digital Games Tax Offset was announced in the 2021-22 Budget and expanded in the 2021-22 MYEFO. Financial impact This measure is estimated to increase payments by $34.9 million over the 4 years from 2021-22. All figures in this table represent amounts in $m. 2021-22 2022-23 2023-24 2024-25 - - -10.6 -24.3 Human rights implications This Schedule does not raise human rights issues. See Statement of Compatibility with Human Rights -- Chapter 10. Compliance cost impact The measure provides for a tax offset. It is expected that there will be a minor initial compliance cost in the first year of the operation as companies make themselves aware of the new offset and embed the certificate application in their business processes. The compliance cost will decrease over time a s it becomes part of standard reporting requirements and income tax lodgement. 1

General outline and financial impact Schedule 2 - Taxation treatment of digital currency Outline Schedule 2 to the Bill amends the ITAA 1997 to clarify that digital currencies (such as bitcoin) continue to be excluded from the income tax treatment of foreign currency. For the purpose of these amendments, the term digital currency does not include digital currencies issued by, or under the authority of, a government agency ('government- issued digital currency') which continue to be taxed as foreign currency. Date of effect The amendment to the definition of foreign currency in subsection 995-1(1) of the ITAA 1997 applies to income years that include 1 July 2021 and later income years. The amendments to the GST Act and GST Regulations apply in relation to supplies or payments made on or after 1 July 2021. Proposal announced Schedule 2 to the Bill was announced by the Treasurer in a joint media release with the Assistant Treasurer on 22 June 2022. Financial impact The measure has no financial impact. Human rights implications This Schedule does not raise human rights issues. See Statement of Compatibility with Human Rights -- Chapter 10. Compliance cost impact Nil. 2

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Schedule 3 - Reducing the compliance burden of record keeping for fringe benefits tax Outline Schedule 3 to the Bill amends the FBTAA to reduce compliance costs for employers finalising their FBT returns by empowering the Commissioner to allow them, where it is appropriate to do so, to rely on adequate alternative records holding all the prescribed information instead of seeking that information again by way of statutory evidentiary documents, such as prescribed employee declarations. This Schedule reduces and simplifies FBT record keeping requirements for employers while producing similar compliance outcomes with lower compliance costs, consistent with the Government's commitment to remove 'red tape' for business. Date of effect Schedule 3 applies to FBT years starting on or after the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives the Royal Assent. Proposal announced The 'Fringe Benefits Tax - reducing the compliance burden of record keeping' measure was announced in the 2020-21 Budget. Financial impact This measure is estimated to result in a small but unquantifiable decrease in receipts over the forward estimates period. Human rights implications This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights -- Chapter 10. Compliance cost impact Overall, the measure is expected to result in an ongoing compliance saving for employers. 3

General outline and financial impact Schedule 4 - Skills and Training Boost Outline Schedule 4 to the Bill amends the IT(TP) Act to provide small businesses (with aggregated annual turnover of less than $50 million) with access to a bonus deduction equal to 20% of eligible expenditure for external training provided to their employees. This is a temporary measure to incentivise small businesses to train and upskill their employees, helping to build a more productive workforce. Date of effect The amendments apply to eligible expenditure incurred from 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 until 30 June 2024. The amendments apply to enrolments or arrangements for the provision of training made or entered into at or after 7.30pm (by legal time in the Australian Capital Territory) on 29 March 2022. Proposal announced The 'Small Business - skills and training boost' measure was announced in the March 2022-23 Budget. Financial impact This measure is estimated to decrease receipts by $550.0 million over the forward estimates period. All figures in this table represent amounts in $m. 2021-22 2022-23 2023-24 2024-25 2025-26 - - -150.0 -250.0 -150.0 Human rights implications This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights -- Chapter 10. Compliance cost impact The measure is expected to have minimal regulatory impact. 4

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Schedule 5 - Technology investment boost Outline Schedule 5 to the Bill amends the IT(TP) Act to provide small businesses (with aggregated annual turnover of less than $50 million) with access to a bonus deduction equal to 20% of their eligible expenditure on expenses and depreciating assets for the purposes of their digital operations or digitising their operations. This is a temporary measure to support small businesses to operate digitally. The bonus deduction applies to the total of eligible expenditure of up to $100,000 per income year or specified time period, up to a maximum bonus deduction of $20,000 per income year or specified time period. Date of effect The amendments apply to eligible expenditure incurred from 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 until 30 June 2023. Proposal announced The 'Small Business - technology investment boost' measure was announced in the March 2022-23 Budget. Financial impact This measure is estimated to decrease receipts by $1.0 billion over the forward estimates period. All figures in this table represent amounts in $m. 2021-22 2022-23 2023-24 2024-25 2025-26 - - -500.0 -350.0 -150.0 Human rights implications This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights -- Chapter 10. Compliance cost impact The measure is expected to have minimal regulatory impact. 5

General outline and financial impact Schedule 6 - Financial reporting and auditing requirements for superannuation entities Outline Schedule 6 to the Bill amends the Corporations Act, the ASIC Act and the SIS Act to extend and adapt the financial reporting and auditing requirements in Chapter 2M of the Corporations Act to apply to registrable superannuation entities. Date of effect The amendments in Schedule 6 commence on 1 July 2023. Proposal announced The proposal was announced on 12 August 2021 - coinciding with the public release of the exposure draft legislation. Financial impact The measure has no financial impact. Regulation Impact Statement The Financial Services Royal Commission Final Report has been certified as being informed by a process and analysis equivalent to a Regulation Impact Statement for the purposes of the Government decision to implement this reform. The Financial Services Royal Commission Final Report can be accessed through the Australian Parliament House website.1 Human rights implications Schedule 6 does not raise any human rights issues. See Statement of Compatibility with Human Rights -- Chapter 10. Compliance cost impact The measure has a low compliance cost impact. https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22publ ications%2Ftabledpapers%2Fbc83795c-b7fa-4b42-a93b-fa012cffffc2%22 6

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Schedule 7 - Deductible gift recipients Outline Schedule 7 to the Bill amends the ITAA 1997 to: • list Melbourne Business School Limited, Leaders Institute of South Australia Incorporated, St Patrick's Cathedral Melbourne Restoration Fund, Jewish Education Foundation (Vic) Ltd, Australian Education Research Organisation Limited, and Australians for Indigenous Constitutional Recognition Ltd as deductible gift recipients; • extend the deductible gift recipient listings of Sydney Chevra Kadisha and Australian Women Donors Network; and • remove the deductible gift recipient listing of the Mt Eliza Graduate School of Business and Government Limited. Date of effect The amendments in Schedule 7 apply to gifts made: • on or after 1 July 2022 to the Melbourne Business School Limited; • in the period 1 July 2022 to 30 June 2027 inclusive to Leaders Institute of South Australia Incorporated; • in the period 1 July 2022 to 30 June 2027 inclusive to St Patrick's Cathedral Melbourne Restoration Fund; • in the period 1 July 2021 to 30 June 2026 inclusive to Jewish Education Foundation (Vic) Ltd; • on or after 1 July 2021 to the Australian Education Research Organisation Limited; and • in the period 1 July 2022 to 30 June 2025 inclusive to Australians for Indigenous Constitutional Recognition Ltd. The amendments extend the period of the listing of Sydney Chevra Kadisha so that it applies to gifts made on or after 31 December 2017 and on or before 30 June 2024. The amendments extend the period of the listing of Australian Women Donors Network so that is applies to gifts made on or after 8 March 2018 and on or before 8 March 2028. The amendments remove the listing of Mt Eliza Graduate School of Business and Government Limited apply on and after 1 January 2023. 7

General outline and financial impact Proposal announced Schedule 7 to the Bill partially implements: • the measure Philanthropy - updates to specifically listed deductible gift recipients from the March 2022-23 Budget; and • the measure Philanthropy - updates to the list of specifically listed deductible gift recipients from the 2021-22 MYEFO. Schedule 7 to the Bill fully implements the measure Philanthropy - updates to specifically listed deductible gift recipients from the October 2022-23 Budget. Financial impact The listing of the Jewish Education Foundation (Vic) Ltd and Australian Education Research Organisation Limited was part of the 2021-22 MYEFO and was estimated to have a negligible cost from 2022-23 to 2025-26. All figures in this table represent amounts in $m. 2021-22 MYEFO 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 - 0.0 .. .. .. .. .. Not zero but rounded to zero The listing of the Melbourne Business School Limited, Leaders Institute of South Australia Incorporated, St Patrick's Cathedral Melbourne Restoration Fund, extending the listing for the Sydney Chevra Kadisha and removing the listing of Mt Eliza Graduate School of Business and Government Ltd was part of the March 2022-23 Budget and was estimated to decrease receipts by $6.3 million from 2023-24 to 2025-26. All figures in this table represent amounts in $m. March 2022-23 Budget 2021-22 2022-23 2023-24 2024-25 2025-26 - - -2.9 -2.5 -0.9 The listing of the Australians for Indigenous Constitutional Recognition Ltd and extending the listing of Australian Women Donors Network was part of the October 2022-23 Budget and was estimated to decrease receipts by $0.8 million from 2023-24 to 2025-26. All figures in this table represent amounts in $m. 8

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 October 2022-23 Budget 2021-22 2022-23 2023-24 2024-25 2025-26 - - -0.2 -0.3 -0.3 Human rights implications Schedule 7 does not raise any human rights issue. See Statement of Compatibility with Human Rights -- Chapter 10 Compliance cost impact The measure has a low compliance cost impact. Schedule 8 -Amendment of the Clean Energy Finance Corporation Act 2012 This Schedule was prepared by the Department of Climate Change, Energy, the Environment and Water Outline The CEFC, as established by the CEFC Act, is an independent statutory authority with an objective to facilitate increased flows of finance into the clean energy sector and to facilitate the achievement of Australia's greenhouse gas emissions reduction targets. It meets this objective by making investments in clean energy technologies and projects, typically alongside private sector investors and financiers. It also partners with the finance industry to attract, develop and mobilise existing and new sources of capital for the clean energy sector, including climate bonds, equity funds and other financial mechanisms. The CEFC Act (in conjunction with other legislation such as the PGPA Act) sets out the governance and regulatory frameworks applicable to the agency. This Schedule modifies the CEFC Act to enable the CEFC to receive additional funds to implement Rewiring the Nation, establish the Powering Australia Technology Fund and streamline the ability of the government to provide the CEFC with additional funds in the future. The Schedule also clarifies the CEFC's governance arrangements in specifying its nominated Minister. Date of effect Schedule 8 to the Bill commences on the day after the Bill receives Royal Assent. 9

General outline and financial impact Proposal announced This Schedule implements the 'Powering Australia - Rewiring the Nation' measure from the October 2022-23 Budget and the 'Low Emissions Technology Commercialisation Fund' measure from the 2021-22 MYEFO. Financial impact The credits to the CEFC Special Account will not have an impact on the underlying cash balance. Human rights implications This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights -- Chapter10. Compliance cost impact Nil. Schedule 9 - Taxation of military superannuation benefits: Reversing the Douglas decision Outline Schedule 9 to the Bill amends various taxation laws to confirm the tax treatment of certain defined benefit pensions following the Full Federal Court decision in Douglas. This Schedule also provides a non-refundable tax offset for recipients of invalidity benefits paid in accordance with the MSBS and DFRDBS to ensure they do not pay additional income tax because of the Douglas decision. Date of effect Schedule 9 to the Bill commences the day after Royal Assent. Proposal announced This Schedule implements the Government's commitment from the announcement made on 25 July 2022 to ensure no veteran is worse off because of the Federal Court decision in Douglas. 10

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Financial impact This Schedule is estimated to decrease receipts by $60 million from 2022-23 to 2025-26. All figures in this table represent amounts in $m. 2022-23 2023-24 2024-25 2025-26 -40 -10 -10 0.0 Human rights implications This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights -- Chapter 10. Compliance cost impact The ongoing compliance cost is expected to be minimal. 11

Digital games tax offset Table of Contents: Outline of chapter ................................................................................ 13 Context of amendments ....................................................................... 13 Summary of new law............................................................................ 14 Detailed explanation of new law .......................................................... 16 Key features of the tax offset ......................................................... 16 Eligibility for the Digital Games Tax Offset .................................... 19 Certificates for the offset ............................................................... 23 Qualifying Australian development expenditure ............................ 26 Administration of the Digital Games Tax Offset ............................. 39 Consequential amendments ................................................................ 43 Commencement, application, and transitional provisions .................... 43 Outline of chapter 1.1 Schedule 1 to the Bill amends the ITAA 1997 to introduce a refundable tax offset for companies that develop digital games in Australia. This Schedule implements the Digital Games Tax Offset, which was announced in the 2021-22 Budget and expanded in the 2021-22 MYEFO. 1.2 All legislative references in this chapter are to the ITAA 1997 unless otherwise stated. Further, all references to "offset" in this chapter are references to the Digital Games Tax Offset unless the contrary intention appears. Context of amendments 1.3 The Government is passionate about the important role that Australia's arts and creative sectors play in the economy. Storytelling through interactive media is culturally significant, and digital games are an artform comprising creative vision and digital and technical skill. 13

Digital games tax offset 1.4 The digital games and interactive entertainment sector is the largest creative sector in the world and one of the fastest growing industries worldwide. The global digital games industry is worth approximately A$250 billion. In 2020-21, Australian game development studios generated A$226.5 million of income and employed 1,327 fulltime workers. 1.5 The digital games industry presents increasingly sophisticated opportunities for Australian creative talent to showcase their digital, musical and other artistic works to a global audience. Similarly, the high-end technical skills required in games development is highly transferrable across the IT sector and broader digital economy. 1.6 The Government recognises the economic and cultural value of the digital games industry. This offset aligns with the Government's ambition for a National Cultural Policy which will be a roadmap to guide the skills and resources required to transform and safeguard Australia's arts, entertainment and cultural sector now and into the future. 1.7 As one of the fastest growing creative industries, a thriving domestic digital games sector will: • provide a meaningful and diverse career path for Australian creatives; • support the growth of industry and employment opportunities in cities, suburbs and the regions; and • promote Australian stories and Australian talent, at home and abroad. 1.8 A home-grown game development industry will nurture Australia's next generation of entrepreneurial, skilled and knowledge-based workers in a variety of sectors beyond game development, such as defence, health, education, agriculture and urban planning. 1.9 With a particular focus on supporting critical technical, creative and project management roles, and key development activities such as game engine development, the offset will promote employment and career paths for Australia's creative and digital talent, building transferrable capabilities that can benefit a range of other sectors. 1.10 This measure is expected to strengthen the Australian digital games industry, expand employment opportunities for digital and creative talent, enhance the industry's international competitiveness and make Australia a more attractive destination for foreign investment. Summary of new law 1.11 Schedule 1 to the Bill amends the ITAA 1997 to introduce a 30% refundable tax offset in relation to the development of digital games in Australia, and 14

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 outlines the eligibility criteria, the method for calculating the offset, and how the offset will be administered: Table 1.1 Summary of new law Criteria Eligibility Legislative reference Which businesses are Companies that are Australian tax Subdivision 378-A, eligible? residents or foreign tax residents section 378-10 with a permanent establishment in Australia. What games are eligible? A digital game that can receive a Subdivision 378-A, classification, is made available to sections 378-20 and the general public over the internet. 378-25 The game does not include gambling or gambling like elements nor is used for advertising or for commercial purposes. What expenditure Qualifying Australian development Subdivision 378-B qualifies? expenditure that is incurred in relation to the development of the game primarily related to development roles and activities and is not excluded expenditure. Amount of the tax offset? The amount of the tax offset is Subdivision 378-A, 30% of a company's total section 378-15 qualifying Australian development expenditure as determined by the Arts Minister. The offset is capped at $20 million per company (or group of companies who are consolidated or related) per year. Reaching this cap requires approximately $66.7 million in eligible expenditure. How will the tax offset be The company must apply for a Subdivision 378-C administered? certificate, stating the amount of expenditure on which the offset will be determined. The offset will be claimed in the usual income tax process. 1.12 This offset is a new refundable tax offset. 15

Digital games tax offset Detailed explanation of new law 1.13 The Digital Games Tax Offset is a refundable income tax offset available to companies that develop digital games in Australia. It is designed to strengthen the Australian digital games industry, expand employment opportunities for digital and creative talent, enhance the industry's international competitiveness and make Australia a more attractive destination for foreign investment. 1.14 Division 378 is a new division in the ITAA 1997 providing for the offset. Section 378-1 provides a guide to Division 378 by outlining the objectives of the Division and some of the requirements to be eligible for the offset. [Schedule 1, item 2, section 378-1 of the ITAA 1997] Key features of the tax offset 1.15 The offset is available to an eligible company and is calculated with reference to the qualifying Australian development expenditure incurred by the company on developing an eligible digital game or games. 1.16 A company can receive the offset when the following conditions are met: • a certificate has been issued by the Arts Minister following the completion of a new digital game, the porting of a digital game to a new platform, or for ongoing development of one or more existing digital games during an income year; • the company claims the offset in its income tax return in respect of the income year; and • if the company is required to lodge a notice with the Commissioner - it has lodged the notice with the Commissioner. [Schedule 1, item 2, sections 378-10, 378-15 and 378-25 of the ITAA 1997] 1.17 The offset is 30% of a company's total qualifying Australian development expenditure incurred on developing new or existing digital games, including porting a digital game in Australia. The amount of the company's qualifying Australian development expenditure on the game is determined by the Arts Minister. [Schedule 1, item 2, section 378-15 of the ITAA 1997] 1.18 The offset is a refundable tax offset. A refund will occur where the total of the refundable tax offsets claimed exceeds the basic income tax liability that the company would have to pay if it had not received those tax offsets. Any amount of offset applied against tax liabilities or refunded to a company would not be assessable income for income tax purposes. [Schedule 1, item 1, section 67-23 of the ITAA 1997] 16

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Amount of the offset is capped at $20 million for a company and its connected and affiliated entities 1.19 The amount of the offset is capped at $20 million per company or group of companies, per income year even if the company applied for multiple certificates in the income year. The presence of the cap enhances the fiscal sustainability of the measure. To reach the $20 million cap, a company would need to incur $66.7 million of qualifying Australian development expenditure in an income year. 1.20 This cap applies to the offset for a single company and also applies to any amount of cumulative offset to which a group of related companies or consolidated groups would be entitled to. This rule ensures the cap remains effective across related companies, and to consolidated groups. 1.21 For the purposes of the cap, a related company is: • a company that is 'connected with' as defined by section 328-125 of the ITAA 1997, or • an 'affiliate of' a company as defined by section 328-130 of the ITAA 1997. 1.22 Generally, a company is 'connected with' another company if it controls that other company, or if both companies are controlled by the same third entity. The relevant control percentage is 40% of the voting power of the company. An 'affiliate of' a company is an entity which acts, or could reasonably be expected to act, in accordance with another entity's direction or wishes in relation to the affairs of the business of the entity. 1.23 This 'connected' or 'affiliated' test will be applied to all companies applying for the offset, and will require companies to actively assess who is a related party. This is a familiar test for many industry participants as it is same test used by small or medium enterprises to calculate small business turnover to determine eligibility for various small business tax concessions. Example 1.1 The $20 million cap applies across related entities Blue Co and White Co are companies that develop digital games in Australia. Hexagon Co, a large foreign company, owns a majority of shares in Blue Co and owns 30% of the shares in White Co with a majority number of board seat appointments who are also directors in Hexagon Co. Therefore, both Blue Co and White Co are affiliates, and the $20 million cap applies across both companies. However, if Hexagon Co owned less than 40% of shares in White Co, did not have other means of influence or control such as common directors or board seats, and could not instruct, direct or oblige White Co to undertake particular activities, then White Co 17

Digital games tax offset would generally not be considered as related to Blue Co and Hexagon Co and thus not be subject to the same $20 million cap. 1.24 When the cumulative offset for a company and its related companies exceeds $20 million, the company and its related companies must each provide the Commissioner with a notice in the approved form specifying an amount that will be that company's offset in relation to that income year. A company that is not seeking to claim the offset does not need to provide the Commissioner with a notice, and this will not impact the other company's ability to claim the offset. 1.25 The amount nominated in each company's notice cannot be greater than the offset that the company would have otherwise been entitled to, had the cap not applied in this way. The amount on the notice provided to the Commissioner by a company is that company's offset, provided that the sum of notices provided to the Commissioner by the company and its related companies does not exceed $20 million. 1.26 If a company is required to provide notice and no notice is lodged by a company and its related companies, the offset reduces to nil for that income year for the company and its related companies. To fulfil the Government's objective of maintaining the fiscal sustainability of the offset, the Government has deliberately chosen to include this provision to ensure that related companies collaborate and allocate the $20 million cap as they see fit. [Schedule 1, item 2, section 378-15 of the ITAA 1997] Notice is only revocable where there is an inadvertent error 1.27 If a company lodges a notice with the Commissioner, that notice is irrevocable. Additionally, when the company claims the offset in its income tax return, that claim is also irrevocable. 1.28 A company may vary the notice including the amount specified in the notice only where the amendments relate to additional connected or affiliated companies that were not included in the original notice because of an inadvertent error in determining whether another company is a related company. If a company has varied the notice, it can also vary its claim in the income tax return and lodge a varied notice and claim for consideration by the Commissioner. A company cannot amend a notice provided to the Commissioner in any other circumstance. 1.29 Inadvertent error is not defined in the ITAA 1997 and takes on its ordinary meaning. Whether or not there is an inadvertent error is an objective question to be determined by reference to all circumstances surrounding the failure to satisfy the requirements of section 378-15 in the ITAA 1997. 1.30 Who a company is 'connected with' or 'affiliated with' is not fixed; a company will need to consider actively and continuously who its related parties are for 18

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 the purpose of this Division. [Schedule 1, item 2, subsections 378-15(5) and 378-10(2) of the ITAA 1997] Eligibility for the Digital Games Tax Offset Company eligibility 1.31 The offset is available to an eligible business that is a company. The company must be an Australian tax resident or a foreign tax resident with a permanent establishment in Australia. This requirement ensures that only companies that carry on their business and game development activities in Australia are eligible to receive the offset. 1.32 A company is entitled to the offset for an income year if: • it is an Australian resident company with an ABN, or an Australian permanent establishment of a non-resident company with an ABN, when it lodges its income tax return and when the tax offset is due to be credited; and • the Arts Minister has issued to the company one or more certificates; and • the company claims the offset in its income tax return for the income year. [Schedule 1, item 2, section 378-10 of the ITAA 1997] Only the company primarily responsible for the actual development of the game in Australia is eligible for a certificate 1.33 A company is eligible for a certificate from the Arts Minister in relation to a digital game where the company is primarily responsible for the actual development of the game in Australia. The reference to 'game' includes an original game in its entirety, an expansion of an existing game or a component of a game. 1.34 The company that is primarily responsible for the actual development of the game in Australia is the company that owns or controls the rights to develop the digital game and that itself undertakes the development of the game. This is regardless of whether the game is a new game or an existing game. Only one company is eligible for a certificate in relation to development activity on an eligible game at a particular time, that is, the company with the most direct involvement in the actual development of the game in Australia. 1.35 A company that has been engaged to develop the game by the entity who owns or controls the rights to develop the game is eligible for a certificate in relation to the game if that company is primarily responsible for undertaking activities that are necessary for the development of the digital game in Australia. 19

Digital games tax offset A company that makes an unauthorised modification of a game is not an eligible company. 1.36 Where a company is engaged to develop a game or a component of a game by a foreign entity under an arm's length contract, expenditure incurred in directly developing that game or component is eligible expenditure for the company engaged to develop the game or component in Australia. However, if that foreign entity engages multiple companies in Australia, only the company that is primarily responsible for developing the game in Australia will be able to claim the offset. This is because the primary company has taken on the most commercial risk in developing the game and is most likely to have access to the necessary information to apply for the relevant certificates that a secondary company may not have sufficient visibility over. 1.37 Where a company that is primarily responsible for the actual development of the game is part of a consolidated group or a MEC group, the head company of the consolidated of MEC group applies for the relevant certificate(s) (see paragraph 1.133). [Schedule 1, item 2, subsections 378-20, 378-25 and section 378-55 of the ITAA 1997] Example 1.2 Only the company primarily responsible for the development is eligible for the offset Triangle Co is a video game publisher and holds the rights to a wizard adventure game but does not itself have the capability to develop the digital game. Triangle Co then engages Circle Co, a company that specialises in digital game development, to develop the game. Circle Co engages employees and independent contractors to work on the game and incurs qualifying Australian development expenditure exceeding $500,000. Circle Co is eligible for the offset as the company that has primary responsibility for developing the game. Game eligibility Meaning of digital game 1.38 A digital game is defined in section 378-20 of the ITAA 1997 as a game in electronic form that is capable of generating a display on a portable electronic device, computer monitor, television screen, liquid crystal or similar medium that allows the playing of an interactive game. An interactive game is not defined in the Act, but it is generally understood to be a game where the sequence of events is determined in response to the decisions, inputs and direct involvement of the player(s). 1.39 For the purposes of this offset, a digital game includes a component of a digital game in circumstances where a foreign resident company without a permanent 20

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 establishment in Australia owns and controls the rights to develop the digital game(s) engages an Australian developer company to develop the component of the digital game. Further, the Australian developer company that has been engaged must be primarily responsible for undertaking activities necessary for the development of the digital game in Australia in order to claim the offset. [Schedule 1, item 2, section 378-20 of the ITAA 1997] 1.40 Only eligible expenditure incurred in developing an eligible game or games can be claimed towards the offset. 1.41 An eligible digital game is primarily developed to be made available to the general public for educational or entertainment purposes and must be: • made available for use over the internet; or • primarily played through the internet; or • only operate when a player is connected to the internet. These requirements ensure the game is made available to a wide audience over the internet and ensure that public funding translates directly into end products that the general public can use. 1.42 Where a game has an offline mode (e.g. single player) it may still be an eligible game if it meets the other eligibility criteria. 1.43 A digital game is not eligible if it is: • a gambling service (within the meaning of the Interactive Gambling Act 2001) or substantially comprises gambling or gambling-like practices; or • a game containing elements that are likely to lead to the game being refused classification under the Classification (Publications, Films and Computer Games) Act 1995; or • a game that is primarily developed for industrial, corporate, or institutional purposes; or • a game that is primarily developed to advertise or promote a product or entity or service. 1.44 Whether or not a digital game substantially comprises gambling elements will depend on the composition of each game. However, the policy for excluding a digital game that substantially comprises gambling or gambling-like practices is intended to also exclude digital games that substantially comprise, have reliance on, or give prominence to features known as 'loot boxes' imbedded in games. 1.45 Certain loot boxes are likely to make a game ineligible. These are loot boxes that are substantially gambling-like in practice. They include loot boxes that allow a player to directly or indirectly purchase with real currency (or assets) unknown virtual items determined by randomisation or chance and allow, 21

Digital games tax offset within the game, for those items to be transferred for real currency (or assets), or cashed out for real currency (or assets). 1.46 The Arts Minister may issue guidance to assist applicants to understand how the definition of 'substantially comprises gambling elements', including in relation to loot boxes, will be applied in practice. Example 1.3 Games that substantially comprise gambling elements are ineligible Square Co develops a slot machine simulator game to be released to the general public for entertainment purposes. The slot machine simulator would not be an eligible digital game even though it did not involve any real money or money equivalent as it is comprised of gambling-like practices. However, a few months later, Square Co develops and releases an adventure game in which a player may advance to a higher level by winning a game of poker. The adventure game may be an eligible digital game because the gambling like element of the game is not a substantial component of the game. The game must be released to the general public 1.47 A game must be sold or otherwise made available to the general public in order to be eligible for the offset. 1.48 If a game is not sold or otherwise made available to the general public it is not an eligible game. For example, a game which is intended to be an in-house interactive training game is not an eligible game. 1.49 A game that is not completed is not an eligible game because such a game cannot receive classification nor is it widely available to the general public over the internet. For example, a game that is cancelled partway through development before release is not likely to meet the game eligibility requirements. 1.50 Games which are restricted to one or a very small number of locations such that they cannot be considered to be effectively available to the general public are also intended to be ineligible games. For example, an interactive installation at a museum which can only be accessed while onsite is not an eligible game. However, games which utilise some form of location tracking mechanism to enable play but are broadly accessible to the public at all times over the internet can still be an eligible game. 1.51 Games that are released to the general public but are for advertising or promoting an entity, product or service are also ineligible games. [Schedule 1, item 2, subsection 378-20(7) of ITAA 1997] 22

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Certificates for the offset 1.52 When a company completes a new game, conducts development activity to port an existing game, or engages in ongoing development on an existing game, it may apply to the Arts Minister for a certificate stating the total qualifying Australian development expenditure in relation to the activity. Arts Minister to determine a company's qualifying Australian development expenditure 1.53 When a company applies for a certificate, the Arts Minister will determine in writing, as soon as possible, the total amount of the company's qualifying Australian development expenditure in respect of the completion, porting or ongoing development of a digital game. 1.54 The determination is not a legislative instrument. The amount of eligible expenditure that is prescribed on a certificate is the only amount that the company can use when it works out its digital games tax offset in its income tax return. 1.55 A company may apply for a completion certificate which relates to a new game, a porting certificate which relates to a game that has been ported to a new platform, and/or an ongoing development certificate that relates to an existing game. A certificate in relation to an eligible game is issued by the Arts Minister if certain criteria in relation to the certificate are satisfied. [Schedule 1, item 2, sections 378-25 and 378-30 of the ITAA 1997] Completion certificate 1.56 A company may apply for a completion certificate where it develops a new game, including a component of a new game (see paragraph 1.39). Eligible expenditure incurred in developing a new game can be incurred over multiple income years. Provided the new game is an eligible game, a company may apply for this certificate to access an offset in respect an income year when: • the game is completed in that income year; • the total of the company's qualifying Australian development expenditure incurred in completing the game (possibly over multiple income years) is at least $500,000; and • the Arts Minister is satisfied that the eligibility conditions relating to the company applying for the certificate are met (see paragraph 1.34). 1.57 Before a company applies for a completion certificate, the digital game must be complete. A digital game is considered complete when it is first released for sale or otherwise made available to the general public (but not merely for testing purposes). In general, the concept of release will remain in control of 23

Digital games tax offset the company - for instance, the completion date will typically be the 'official release date' where the game is made available to the general public. Making the game available for pre-order or a limited early release is unlikely to be considered complete, depending on facts and circumstances. 1.58 If the company has developed the game under an arm's length contract for another company, the game is considered complete when the first company has handed the game to the second company in a state where it could be reasonably be regarded as ready to be released to the general public. The completion certificate is intended to be available for games that are new and have not yet been released or made widely available to the public. 1.59 A company can only apply for a completion certificate in relation to a new game for the income year in which the game was completed; however, the qualifying Australian development expenditure for this certificate can be incurred across multiple income years up until the game is complete. [Schedule 1, item 2, subsections 378-25(1) and (2) of the ITAA 1997] Porting certificate 1.60 A company may apply for a porting certificate in relation to a ported game. A digital game is ported when an eligible game that has already been completed is first made available to the general public (not merely for testing purposes) on a new gaming platform. 1.61 Provided the ported digital game is eligible, once it is ported, a company may apply for a porting certificate to access the offset in respect of a particular income year when: • the game is ported in that income year; and • the total of the company's qualifying Australian development expenditure incurred in porting the game is at least $500,000 (possibly incurred over multiple income years); and • the Arts Minister is satisfied that the conditions relating to the company applying for the certificate are met (see paragraph 1.34). 1.62 If a company has ported a game under an arm's length contract with another company, the game is considered to be ported where the first company has handed the ported game to the second company in a state where it could reasonably be regarded as ready and available to the general public on the new platform - whichever event is earlier. [Schedule 1, item 2, subsections 378-25(3) and (4) of ITAA 1997] 1.63 This certificate is intended for the scenario where a completed game is ported onto a new platform but does not have any other development work undertaken that would be eligible under another certificate (see paragraph 1.69). 24

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Ongoing development certificate 1.64 A company may apply for an ongoing development certificate for an income year in relation to the ongoing development of one or more completed digital games. Ongoing development means activities undertaken to maintain, update, expand or improve a digital game that has already been completed. This development activity can include the addition of new levels, maps, characters, vehicles, storylines, cosmetic items, addressing 'bugs', work required to ensure that the game can continue to operate, or porting to new platforms. 1.65 The ongoing development certificate can be claimed with respect to expenditure on multiple eligible games incurred in the income year to which the certificate relates. 1.66 A company may apply for the ongoing development certificate in relation to a particular income year if: • ongoing development occurs in relation to eligible games in that income year. • the total of the company's qualifying Australian development expenditure on the ongoing development of the games in the income year is at least $500,000. • the Arts Minister is satisfied that the conditions relating to the company applying for the certificate are met for each game that expenditure is claimed in relation to (see paragraphs 1.33 - 1.37). 1.67 Unlike the completion and porting certificates, the ongoing development certificate allows a company to claim qualifying Australian development expenditure on multiple eligible games in the same income year towards its $500,000 threshold. 1.68 However, the company can only claim qualifying Australian development expenditure for the income year it was incurred. This makes it different to the completion and porting expenditure, which can be recognised in respect of multiple income years. [Schedule 1, item 2, subsections 378-25(5) and (6)] In the case of expenditure on porting, companies can choose which certificate is most suitable for their circumstances 1.69 Expenditure related to porting a game to a new platform that occurs before that game has been completed can still be claimed under a completion certificate; similarly, expenditure related to porting an existing game can still be claimed under an ongoing development certificate, at the discretion of the applicant company. 1.70 There are situations where the porting of a game and the porting expenditure is eligible for either the completion certificate (for example, a game being simultaneously developed for multiple platforms), porting certificate (a one-off 25

Digital games tax offset discrete port from an existing platform to another platform) or the ongoing development certificate (porting an existing game to one or more platforms over time). The company may choose between the three depending on the circumstances around the development of the game. 1.71 A key consideration is when the qualifying Australian development expenditure in relation to the game is incurred. Eligible expenditure can be incurred across multiple income years if a company is applying for a completion or porting certificate in relation to the income year in which the game was complete or ported. However, eligible expenditure in relation to an ongoing development certificate (see paragraph 1.68) can only be incurred in relation to the income year for which the company is applying for the certificate, but accrued across multiple game titles. Example 1.4 Porting expenditure may be eligible for a porting or ongoing development certificate Red Co develops a sporting game for release on an old gaming platform. The game was very popular and in future income years, Red Co ports the game to a new and different platform. In porting the game, Red Co incurs $600,000 in qualifying Australian development expenditure over multiple income years. Red Co may apply for a porting certificate. Due to its success in porting its sports game, Red Co ports its adventure game to a new platform. Red Co incurs $400,000 in qualifying Australian development expenditure in a single income year. In the same income year, Red Co incurred $150,000 in expanding and updating its sporting game. Red Co cannot apply for a porting certificate for the adventure game as the $500,000 threshold has not been met. However, Red Co can apply for an ongoing development certificate for both the adventure game and sporting game, as the $500,000 threshold for the income year has been met across multiple eligible game titles. Qualifying Australian development expenditure 1.72 The amount of a company's offset is determined by the amount of the qualifying Australian development expenditure that appears on the certificate or certificates issued by the Arts Minister. Qualifying Australian development expenditure is a subset of a company's overall development expenditure on an eligible game. 1.73 The Digital Games Tax Offset is not a general business support program; instead, it incentivises expenditure on core game development roles and activities. This will support the technical and creative talent with transferrable skills necessary for a digital and creative economy. In particular, qualifying 26

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Australian development expenditure includes employee remuneration for those directly working on game development - particularly programmers, project managers, and various creatives - as well as activities including Research and Development, prototyping, and creating underling game technology, such as game engines and anti-cheating controls. Development expenditure 1.74 Development expenditure is expenditure that a company incurs in the development of a game. 1.75 Some items of expenditure that may fit the general definition are specifically excluded given the policy objective of the offset to support transferrable digital and creative skills. General test 1.76 The general test for development expenditure in relation to a digital game is that any expenditure that a company incurs in or in relation to the development of the game is eligible expenditure, unless it is specifically excluded. The purpose of this general test is to appropriately cover roles and activities that may vary in title or substance between companies and between particular games (such as product managers), as well as to cover future developments in the industry over time, with sufficient justification through the certification process. 1.77 A company develops a game by doing any of the activities necessary to complete, port, update, improve or maintain an eligible game. 1.78 Subject to the specific inclusions and exclusions, expenditure will count as development expenditure when it has been incurred, which can be a different time to when a payment actually occurs. This will allow expenditure to count on accruals basis as some part of the payment for developing game may be unpaid at a particular time, for example at the time of completion. [Schedule 1, item 2, section 378-35(1) of the ITAA 1997] Specific inclusions 1.79 Without limiting the general test for development expenditure, the specific inclusions are targeted to support the type of expenditure that contributes to the growth of the digital games industry that are highly consistent between companies and across games. This provision explicitly lists activities that would be expected to be directly relevant to the development of the game and eligible in the calculation of the offset. 1.80 Remuneration provided to employees or independent contractors engaged by the company who carry out work in connection with the development of the 27

Digital games tax offset game is specifically included. The legislation includes roles that are primarily, directly, and actively involved in the development of a game. These roles are described broadly in a manner that is widely understood to cover the activities rather than be limited to specific job titles. 1.81 The term remuneration covers costs such as salary, wages and superannuation, but does not include bonuses that are linked to the performance of the game (such as number of players) or the performance of the company (such as meeting a revenue or profit target). 1.82 Expenditure on research for the game and expenditure on prototyping for the game are specifically included in order to support innovation in the digital games industry. Expenditure incurred in prototyping for elements of the game that may not ultimately be adopted in the final game can be eligible, provided there is a nexus between the activities and the final game. 1.83 Furthermore, prototyping expenditure is intended to include expenditure previously incurred (on or after 1 July 2022), but not claimed, in the development of another otherwise eligible game that may not have ultimately been completed. For example, expenditure incurred in creating a working mock-up of a payments system developed for a cancelled project that forms the clear basis for the payments system used in an eligible game could, in the opinion of the Arts Minister, be eligible prototyping expenditure. Companies would need to justify why such expenditure is eligible. 1.84 Expenditure on underlying game technology is specifically included in the legislation. This expenditure is characterised by its necessity for a digital game to function. Common examples include: game engines, physics engines, dynamic lighting, user interfaces, game-related payments systems, anti- cheating controls and similar technology. However, the expenditure incurred in developing such technology if used across multiple games can only be claimed once - where the 'base' technology is then modified for a particular game, only the additional expenditure can be claimed if the base technology has been previously claimed. 1.85 The other specific inclusions include: • expenditure on user testing, debugging, and collecting user data for the game; • expenditure on updating the game; • expenditure on obtaining or maintaining a classification under the Classification (Publications, Films and Computer Games) Act 1995; and • expenditure on adapting the game for use on particular platforms. [Schedule 1, item 2, section 378-35(2) of the ITAA 1997] 28

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Specific exclusions 1.86 Similarly, there are a number of specific exclusions for expenditure that will not be eligible to be included as development expenditure, even if the expenditure is captured by the general test or even the list of specific inclusions. The offset does not prevent a company from incurring such expenditure; only that the expenditure is excluded for the purposes of calculating the offset. 1.87 These specific exclusions are to ensure that only roles and activities that are directly, clearly and unambiguously related to the game development activity are counted as development expenditure for the purpose of this offset. The focus of the policy is on eligible expenditure on game development roles and activities that build the core technical and creative skills that are transferrable across the digital economy, and not expenditure that is merely incidental or unrelated to game development activity. [Schedule 1, item 2, subsection 378-35(3) of the ITAA 1997] 1.88 Development expenditure also excludes expenditure incurred on activities that are incidental to, but not directly attributable to, the development of the game. The list of activities contained in the legislation is not exhaustive but captures common examples in the games industry such as expenditure on externally-provided training, attending conferences, hiring equipment, hosting game release events, or trade show demonstrations. [Schedule 1, item 2, paragraph 378-35(3)(g) of the ITAA 1997] 1.89 General company business overheads are excluded. The reason for this exclusion is that the offset is not intended to subsidise or incentivise fixed or corporate costs a company may incur whilst carrying on its development business. Company overheads includes expenditure on or in relation to insurance, audit services, accounting services, recruitment services and legal services even if the expenditure directly relates to the game. [Schedule 1, item 2, paragraph 378-35(3)(a) of the ITAA 1997] 1.90 Development expenditure also specifically excludes expenditure incurred on or in connection with employees and independent contractors: • whose roles are not related to the development of the game, such as administrative employees; or • whose roles are incidental to, but not directly attributable to, the development of the game, such as social media managers, community managers, forum administrators or moderators. Such roles have a primary purpose that is other than directly working on the development of the game; or • who were not Australian tax residents at the time the expenditure was incurred, in order to promote employment in Australia and to provide consistent eligibility between employment and the purchase of goods and services in Australia. Whether or not an employee or contractor 29

Digital games tax offset was an Australian tax resident takes on its ordinary meaning in the context of the Australian tax law. [Schedule 1, item 2, paragraph 378-35(3)(b) of the ITAA 1997] 1.91 The following is also specifically excluded, expenditure incurred on: • travel, accommodation, catering, entertaining or hospitality expenditure for employees, regardless of whether or not their roles are directly and substantially related to the development of the game; • marketing, advertising or promotion of the game or company, or to distribute the game or acquire users for the game. For example, press expenses, photography, public relations, packaging and similar expenses; • purchasing or renting computer hardware and servers is excluded as it does not directly contribute to employment in the games development industry; • software, to acquire copyright, or a license in relation to copyright. Expenditure on accessing existing copyrighted material - as opposed to the creation of new works - is not new game development activity; • the use of land or premises, for example on rent; and • obtaining permission to use the image, likeness or a person or entity, or obtaining an endorsement by a person or entity. 1.92 Expenditure incurred by way of or in relation to financing of the game or company is not development expenditure. This exclusion will specifically cover interest, or other returns, on amounts invested in the game or company and costs connected with raising and servicing finance for the game or company. 1.93 A range of exclusions prevent eligible expenditure from being double-counted with other Government programs or tax offsets. These exclusions extend to any expenditure (even if it satisfies the general test or list of specific inclusions) that: • is previously claimed under the digital games tax offset; • is directly or indirectly funded by a Commonwealth or sub-national government program that is widely available to business (not just limited to the digital games sector) to maintain consistency with such businesses; • is claimed for the purposes of another tax offset, including for the purposes of section 355-100 (tax offsets for Research and Development), or gives rise to notional deductions for the purposes of section 355-205 (about deductions for Research and Development expenditure) or towards the Research and Development intensity test. 30

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 1.94 Eligible expenditure can only be claimed once. This principle is particularly relevant for prototyping and the development of underlying game technology that could have application to multiple eligible games. If a company claimed expenditure in a previous offset application (such as expenditure incurred in creating a component for another game that is then re-used in a new game) this expenditure cannot be claimed as development expenditure in relation to the new game. However, if the component is re-used but then modified for the new game, the expenditure incurred in making those modifications would generally be eligible expenditure. [Schedule 1, item 2, subsection 378-40(5) of the ITAA 1997] 1.95 The Digital Games Tax Offset does not prevent a company from receiving assistance in developing a game from an Australian or State or Territory government agency. However, it is the responsibility of the applicant to determine if claiming the Digital Games Tax Offset may affect the company's eligibility for such State, Territory or local government programs. Commonwealth and sub-national government grants are generally treated as income for Australian tax purposes, unless specifically exempted. 1.96 Where a depreciating asset has declined in value and the decline in value may be attributable to the use of the asset in the development of the game, a company cannot claim the decline in value as development expenditure in relation to a game. [Schedule 1, item 2, subsection 378-35(6) of the ITAA 1997] Specific exclusions that are integrity measures 1.97 There are three specific exclusions that are integrity measures to ensure the offset remains well-targeted and is fiscally sustainable. These exclusions are for expenditure incurred on developing an eligible game in relation to another entity: • in further subcontracting; or • in relation to an entity that is an associate of the company; or • in connection with a transaction in which the company and another party to the transaction did not deal with each other at arm's length. [Schedule 1, item 2, subsections 378-35(4) and (5) of the ITAA 1997] Further subcontracting integrity test 1.98 Only the company primarily responsible for the actual development of an eligible game in Australia can claim the offset. In recognising the specialisation in the digital games industry, a company primarily responsible for the development of the game in Australia can claim expenditure incurred on subcontracting, subject to other eligibility and integrity provisions. 1.99 However, in order to prevent complex structuring arrangements that might defeat other eligibility or integrity rules, if the subcontracted company further 31

Digital games tax offset subcontracts game development work or services (except in particular circumstances outlined below), then any expenditure incurred by the applicant company on the subcontractor is not eligible (see Diagram 1.1). 1.100 Where a contractor subcontracts work or services that are not related to the development of the game it has been contracted to develop, such as cleaning services, advertising, training, work on an unrelated game, or any other activity, then such contracting does not affect the eligibility of the applicant's expenditure on the contractor. The further subcontracting rule only applies in the context of the development of the applicant's digital game. [Schedule 1, item 2, paragraph 378-35(4)(a) of the ITAA 1997] Exception to the further subcontracting integrity rule 1.101 There is only one exception to the exclusion of further subcontracting rule. Where a subcontracted company has engaged independent contractors who are natural persons to perform work or services on the digital game, the expenditure incurred on the subcontracted company remains eligible for the applicant. 1.102 This will enable Australian development companies to access labour hire companies or engage other studios to complete game development work, and ensure such expenditure remains eligible even if those companies had independent contractors who were essentially employees, which is a common industry practice. 1.103 Where a foreign resident company engages an Australian resident company to develop a game, including a component of a game, the Australian company (being the company primarily responsible for developing the game in Australia) is not considered to have been subcontracted for the purposes of this test as the test begins at the applicant company. That is, the Australian company engaged by the foreign company can subcontract game development work or services to a second Australian company, but any further subcontracting on that game would make the expenditure ineligible. 1.104 This specific exception ensures that the companies that are primarily and directly responsible for the development of the game can continue to source specialist services to develop eligible games without creating undue integrity risks. [Schedule 1, item 2, paragraph 378-35(4)(a) of the ITAA 1997] 32

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Diagram 1.1 Expenditure on further subcontracting is ineligible Scenario Outcome Eligible ✔ ✔ ✖ Not eligible In diagram 1.1, the Australian Development Company (that is primarily responsible for the development of the eligible game in Australia) can incur eligible expenditure on independent contractors to perform work or services on developing the game, whether or not it is engaged by a foreign company (that is, Contractor 1 is eligible expenditure). Expenditure on Contractor 2 is also eligible expenditure because it has only engaged a subcontractor who is a natural person akin to an employee to develop the game. Should that subcontractor further subcontract, then the expenditure on Contractor 2 would not be eligible. Expenditure on Contractor 3 is not eligible expenditure because it has further subcontracted entities that are not natural persons to develop the game. Associates integrity test 1.105 Expenditure incurred in relation to an entity that is an associate of the company is excluded. This integrity test is a critical integrity measure to prevent abuse of the offset by related parties engaging in complex arrangements or otherwise artificially inflate expenditure that is eligible to be counted towards an offset. 1.106 Therefore, if a company incurs expenditure in relation to an associate, that expenditure is excluded in its entirety; there is no apportioning or separating such expenditure to work out the amount of expenditure had the transaction occurred between parties that are not associates. However, nothing in the offset prevents a company from incurring such expenditure. 33

Digital games tax offset 1.107 An associate of a company is defined by section 318 of the ITAA 1936. Whether or not the expenditure will be excluded under this test will be a matter of fact and degree. 1.108 This test focuses on whether another entity has sufficient influence on the company, and has been previously used in the income tax law and understood by industry. The High Court considered the meaning of "sufficiently influenced" in the context of section 318 of the ITAA 1936 in BHP Billiton Limited v Commissioner of Taxation [2020] HCA 5. The High Court found that sufficiently influenced directs attention to three time periods - the past, the present and the future. It directs attention to the facts necessary to underpin a finding that the company (or its directors) has acted, is acting, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the other entity. This is so whether the directions, instructions or wishes are (or might reasonably be expected to be) communicated directly, or indirectly through interposed companies, or other entities. 1.109 The concept of an associate is broader than the concepts of 'connected with' or 'affiliate with' (see paragraph 1.22) and can extend to other relationships between parties including relatives, shared ownership interests, or any other relationship that could direct, instruct or influence the company or its directors. In the context of the offset, such influence might be in relation to pricing transactions on commercial terms. [Schedule 1, item 2, paragraph 378-35(4(b) of the ITAA 1997] Exception to the associates integrity test 1.110 There are two exceptions to the associates test. The first exception relates to employees (or independent contractors who are natural persons) who are associates of their employer but without sufficient influence or control to be considered influential. For instance, employees who may have some minor shareholding under an employee share scheme or some other arrangement could be considered an associate of the company. Expenditure incurred on the remuneration of such ordinary employees (provided it is otherwise eligible under section 378-35) is eligible expenditure despite the minor shareholding. This is not an explicit exception, it is only eligible to the extent that such an employee is not otherwise an associate of the company or if they are, the second exception below applies. 1.111 The second exception relates to employees (or independent contractors who are natural persons) who are associates of the company and have sufficient influence or control (influential employees). For instance, an influential employee could be a founder-CEO who is also a director of the company, or a lead designer who is also a major shareholder (whether through an ESS or otherwise). Expenditure incurred on the remuneration of such influential employees is eligible expenditure up to a limit set in legislation. The provisions set this limit at $65,000 per employee per year. The $65,000 per employee is only claimable to the extent that it is eligible expenditure; that is, incurred in 34

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 the development of an eligible game. For the avoidance of doubt, an influential employee who does not directly work on developing eligible games cannot claim any remuneration as eligible expenditure. These exceptions are illustrated in Diagram 1.2. 1.112 As influential employees could be able to effectively decide or influence their salary, and since employee expenses attract a 30% tax offset, there is the clear risk of inflated expenditure. That is why the claimable limit of $65,000 has been set and is below market rates. An explicit cap balances the contribution of such remuneration to small development companies reaching the qualifying Australian development expenditure threshold, and these integrity risks. It will also ensure the decision for such major employee-shareholders between receiving returns via dividends (not eligible expenditure) and wages (eligible expenditure) remains as neutral as possible. 1.113 Nothing in the offset prevents a company from paying more than the prescribed amount to such an employee; however, only the amount up to the limit can be claimed for the purposes of this offset. [Schedule 1, item 2, sections 378-35(4) and (5) of the ITAA 1997] Diagram 1.2 Expenditure on an influential employee is eligible up to $65,000 Step Method Reference Step 1 Has the company incurred development Subsection 378-35(1) of General test expenditure in relation to the development of the ITTA 1997 a game? Step 2 Is the expenditure specifically included? Paragraph 378-35(2)(a) Specific Remuneration provided to a person who of the ITTA 1997 inclusion performs work or services directly to the company for development of game is eligible. However, influential employees in subsection 378-35(5) if the ITAA 1997 are not included. Step 3 Is the expenditure specifically excluded? Subsection 378-35(3) of Specific If expenditure is specifically excluded, it is the ITTA 1997 exclusion not eligible expenditure regardless of whether it satisfies the general test or is specifically included. Step 4 Is the expenditure otherwise eligible Paragraph 378-35(4)(b) Integrity expenditure but excluded by an integrity of the ITTA 1997 provision provision? Expenditure that is otherwise eligible is excluded under the integrity provisions if it is incurred in relation to an associate. 35

Digital games tax offset Step Method Reference Step 5 Does an exception apply to an integrity Subsection 378-35(5) of Exception to provision? the ITTA 1997 the integrity There are limited exceptions to the integrity provision provisions. Expenditure on an influential employee who is an associate of a company is eligible, however, a company can only claim the lower of $65,000 or expenditure incurred per year per influential employee. Arm's length integrity test 1.114 Otherwise eligible expenditure incurred in connection with a transaction where the company and another party to the transaction did not deal with each other at arm's length is not eligible expenditure. 1.115 The concept of 'Arm's length' is defined in section 995-1 of the ITAA 1997 to mean that when determining whether parties deal at arm's length, consideration is given to any connection between them and any other relevant circumstance. This test is used in this Division to consider whether the relevant expenditure incurred in relation to a transaction or transactions was made on commercial terms. 1.116 For the purposes of the offset, where the company incurs expenditure directly or indirectly under an arrangement and any parties to the arrangement did not deal with each other at arm's length, there is no apportionment - the whole amount is excluded. This integrity measure is to ensure companies do not engage in non-commercial transactions which would have the unjustifiable effect of increasing the amount of eligible expenditure and the offset. 1.117 An example of expenditure that would fail an arm's length test is where an independent contractor is obligated to source goods and services (such as a game engine) from a particular provider at inflated prices. [Schedule 1, item 2, paragraph 378-35(4)(c) of the ITAA 1997] Qualifying Australian development expenditure 1.118 If a company has incurred an item of expenditure, that item can be claimed as qualifying Australian development expenditure if it is incurred for, or is reasonably attributable to, goods and services provided or acquired in Australia. 1.119 An item of expenditure will be able to be fully claimed as qualifying Australian development expenditure if it is substantially attributable to the development of the game. Substantially attributable is intended to mean that a large portion of an item of expenditure, such as 90% or more, can be in fact attributable to the development of the game. For instance, an employee may be 36

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 developing an eligible game 90% of their time, but she also attends meetings, internally-provided training and team-building activities that account for the remainder of her time. The purpose of this provision is that all of the expenditure on that employee is eligible for the purposes of the offset, rather than requiring complex and burdensome time accounting arrangements for the company. 1.120 If an item of expenditure is directly but in part, and not substantially, attributable to developing the game, the item is claimable to the extent that the expenditure is attributable to developing the game. For instance, where an employee is developing both an eligible game and an ineligible game, only the expenditure in relation to the eligible game is claimable. 1.121 Similarly, where an item of expenditure is substantially attributable to two eligible games, then it is apportioned between those games. For example, where an employee works on one eligible game 50% of their time, and another eligible game 45% of their time, and the first game is claimable on an ongoing development certificate at the end of the income year, and the other game is on a completion certificate that is expected to be claimed in two years, then the remuneration of that employee should be appropriately apportioned across those certificates. 1.122 These rules will benefit companies by avoiding unnecessary apportionment of an item of expenditure where the item is substantially incurred for the development of the game, and ensures an appropriate balance between administrative complexity and proper targeting of the measure. [Schedule 1, item 2, sections 378-40(1) and (2) of the ITAA 1997] Where a company can no longer claim qualifying Australian development expenditure 1.123 There are certain points in the development of a new game, or the porting of an existing game, where a company can no longer claim expenditure on that game as qualifying Australia development expenditure. 1.124 In relation to a completion or a porting certificate, if expenditure would otherwise be qualifying Australian development expenditure but is incurred after the earlier of the following events: • the day on which the game is completed or ported; • the date on which the company applies for a completion or porting certificate in relation to the digital game; or • the date on which the completed or ported digital game has been available to the public for the purposes of conducting testing for one year; that expenditure is not claimable under the completion or porting certificate. 37

Digital games tax offset 1.125 This condition ensures that there is an appropriate event - which is clearly discernible and under the control of the company - where it would be unreasonable for the company to continue to incur qualifying Australian development expenditure with respect to a completion or porting certificate. This relates only to expenditure, it does not otherwise affect when the game is complete or ported for the purposes of subsections 378-25(2) and (4), see paragraphs 1.50 - 1.54. [Schedule 1, item 2, subsections 378-35(3) and (4) of the ITAA 1997] 1.126 In a situation where the company has incurred development expenditure for porting a game that could count as qualifying Australian development expenditure for either the porting certificate or the ongoing development certificate, the expenditure can only be counted as qualifying Australian development expenditure under one certificate. [Schedule 1, item 2, subsection 378-40(5) of the ITAA 1997] 1.127 Subsection 378-40(5) also prevents double-claiming prototyping or underlying game technology. However, expenditure on changing, modifying or improving the underlying game technology is claimable (see paragraphs 1.54 and 1.61). Amount of expenditure does not include GST 1.128 The amount of expenditure for the purposes of the offset does not include GST. [Schedule 1, item 2, section 378-50 of the ITAA 1997] Deductibility of qualifying Australian development expenditure 1.129 Although used to calculate the amount of the offset, qualifying Australian development expenditure may still be deducted in accordance with and subject to Division 8 of the ITAA 1997. Generally, this means that eligible expenditure for the offset remains deductible for company income tax purposes, thereby ensuring that the offset remains additional. Expenditure incurred by a prior company 1.130 In some cases, a company will take over the development of a game from another company (which may itself have taken over the development of the game from another company, and so on). In those cases, each company developing the game is taken to have incurred the development expenditure of the previous companies. Its development expenditure excludes, then, any expenditure incurred to enable it to take over the development of the game (taking over is not part of actually developing the game, in the same way that, financing, promoting and distributing the game are not part of developing the game). [Schedule 1, item 2, section 378-45 of the ITAA 1997] 38

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Administration of the Digital Games Tax Offset Certification 1.131 The certification process is the same for all the three certificates. This offset is administered by the Arts Minister. Requirements for certification 1.132 Once a digital game is completed, ported or the company has finished incurring its development expenditure for the income year, the company may apply to the Arts Minister for a certificate in relation to the offset. A certificate allows the applicant to receive the offset provided by the certification, calculated with reference to the game's qualifying Australian development expenditure. 1.133 A company may apply for a certificate or certificates depending on its development activity. Where the company that undertakes the development of the game is a member of a consolidated group or a MEC group, the head company of the consolidated or MEC group applies for the certificate in relation to the development of the game. This is due to the operation of the single entity rule in section 701-1 of the ITAA 1997 which provides that, in working out a group's tax liability, the actions of all subsidiaries of a group are taken to be the actions of the head company. For example, the game development activity undertaken by a subsidiary company in a group will be taken to be undertaken by the head company when working out the head company's tax liability. [Schedule 1, item 2, section 378-55 of the ITAA 1997] 1.134 Certification requires that the Arts Minister is satisfied of a number of requirements. The Arts Minister must be satisfied that the digital game is completed, ported or ongoing development activities have occurred. 1.135 The Arts Minister will determine the form of the application for a certificate in the Rules (see paragraph 1.144) issued by the Arts Minister for that purpose. Issuing a certificate 1.136 For a company to be entitled to the offset for a game, the Arts Minister must have issued a certificate for the game. Further, the Arts Minister will determine the level of qualifying Australian development expenditure for the certificate after considering the application for a certificate. Allowing the Arts Minister to determine the qualifying Australian development expenditure will provide certainty to applicants as to the amount of eligible expenditure claimable under each certificate. A determination of qualifying Australian development 39

Digital games tax offset expenditure is not a Legislative Instrument within the meaning of the Legislative Instruments Act 2003. 1.137 Any certificate that the Arts Minister issues is expected to be in writing, state the company's ABN, the date of issue of the certificate, that the game is eligible for the offset and the company's qualifying Australian development expenditure in relation to that certificate. 1.138 The Arts Minister must notify the Commissioner of the issue of the certificate within 30 days, and will give the company's name and address, the qualifying Australian development expenditure determined by the Arts Minister, and such other information as the Arts Minister and the Commissioner agree. [Schedule 1, item 2, section 378-65 of the ITAA 1997] Revocation and refusal of certificates 1.139 The Arts Minister will have the power to revoke the certificate if the issue of the certificate was obtained based on inaccurate information, fraud or by serious misrepresentation. If a certificate is revoked, it is taken to have never been issued. As such, revocation will have the effect of requiring full repayment of any offset credited or refunded through the tax return process. 1.140 Where a certificate is either not issued or revoked, the Arts Minister must give written notice to the company including reasons for the decision. 1.141 The decision not to issue a certificate, and a decision to revoke a certificate or amend a certificate, is a decision that is reviewable by the AAT on application by the affected company. A determination of qualifying Australian development expenditure by the Arts Minister is also a matter which can be reviewed by the AAT. 1.142 The notice of refusing to issue a certificate or to revoke a certificate and determination of qualifying Australian development expenditure need not set out the findings of material questions of fact, refer to the evidence and other material on which the findings were based or the reasons for the decision. The notice must, however, include advice that an application can be made to the AAT and that a statement outlining the above matters (unless reasons have already been supplied) may be requested. A failure by the Arts Minister to comply with these obligations will not, however, affect the validity of the decision to refuse to issue a certificate or to revoke a certificate or the determination of the qualifying Australian development expenditure. 1.143 Where a certificate issued to a company has been revoked under section 378-65 of the ITAA 1997 or amended under section 378-90 of the ITAA 1997, the income tax assessment of the company will need to be amended to reflect the revocation or amendment. The relevant period in which the Commissioner may amend assessment will be during a period of four years starting immediately after the revocation or amendment of the certificate. The Arts Minister has four years starting after a certificate is issued to amend a 40

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 certificate if the company requests an amendment or the Minister amends on their own initiative. [Schedule 1, item 2, sections 378-60, 378-65, 378-70, 378-75, 378-80, 378-85 378-90 and 378-100 of the ITAA 1997] Rule-making powers 1.144 The Arts Minister may make rules by legislative instrument for determining administrative requirements for applications for certificates for the offset, including: • the application form; • type of information to be provided; • methods of verification of that information; • procedures around the provision of supplementary or additional information that the Arts Minister requires; and • providing for provisional certificates. [Schedule 1, item 2, section 378-100 of the ITAA 1997] 1.145 The Arts Minister may also make rules that will outline how amendments of certificates are to be made including the circumstances in which an amendment may be requested and the form in which the request of the amendment may be made. [Schedule 1, item 2, section 378-75 of the ITAA 1997] Rules establishing a Digital Games Tax Offset Advisory Board 1.146 The Minister will have the discretion to make rules establishing a Digital Games Tax Offset Advisory Board. The Board's functions may include: • considering applications for certificates including provisional certificates; • advising the Minister on whether to issue certificates; and • performing any other functions in relation to this Division as are specified in the rules establishing the Board. 1.147 The rules establishing the Board will also specify the membership of the Board, the terms and conditions of appointment and specifying any procedures to be followed by the Board in performing its functions. [Schedule 1, item 2, section 378-105 of the ITAA 1997] 41

Digital games tax offset Digital game to be made available to the National Film and Sound Archive of Australia 1.148 A company that has been issued with a certificate under section 378-20 of the ITAA 1997 must make a copy of the digital game named in the certificate available to the National Film and Sound Archive of Australia. The game must be made available with any ancillary items that would generally be available for sale to the public. The purpose of this provision is so that a playable version of the game that receives Australian Government support is available to the National Film and Sound Archive for it to perform its statutory duties. The National Film and Sound Archive of Australia does not have to accept a game despite the game being made available to it. The company provides the game in the form that it would be made available to the public. The company does not need to provide any underlying coding relating to the game. [Schedule 1, item 2, section 378-95 of the ITAA 1997] Review of operation of this Division 1.149 After five years from commencement of this Division, the Minister must cause a review of the operation of this Division and its administration to be undertaken. The review must include the effectiveness of this Division in supporting the growth of the digital games industry in Australia and the ongoing fiscal sustainability of the measure. 1.150 A copy of the review to be table in each House of the Parliament within 15 sitting days of that House after the report is given to the Minister. [Schedule 1, item 2, section 378-115 of the ITAA 1997] Arts Minister may delegate powers 1.151 The Arts Minister may delegate all or any of their powers in Division 378 of the ITAA 1997 to the Secretary, SES or acting SES employee of the Department administered by the Arts Minister. The Arts Minister may issue directions when delegating these powers with which the delegate must comply. [Schedule 1, item 2, section 378-110 of the ITAA 1997] Translating amounts to Australian currency 1.152 For the purpose of the offset, amendments have been made to the ITAA 1997 setting out the rules for translating amounts to Australian currency. There are three rules dealing with amounts incurred in completing a game (table item 9D), porting a game (table item 9E), and ongoing development activities to a games(s) (table item 9F). The translation rules require the average of the exchange rates applicable from time to time. The rules also establish the 42

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 relevant period to determine the average exchange rates. [Schedule 1, item 3, subsection 960-50(6)] Consequential amendments 1.153 The consequential amendments are made in relation to section 995-1 of the ITAA 1997 affecting: • the definitions of 'completed' and 'development expenditure' as they apply to films and games; and • the insertion of digital game, ongoing development, ported and qualifying Australian development expenditure into the dictionary of the ITAA 1997. [Schedule 1, items 3, 4 and 5, sections 960-50(6) and 995-1 of the ITAA 1997] 1.154 Consequential amendments are made in relation to subsection 960-50(6) of the ITAA 1997. The amendments insert table items 9D, 9E, and 9F after table item 9C. These table items deal with translating foreign currency amounts to Australian currency for the purposes of calculating claimed expenditure. Commencement, application, and transitional provisions 1.155 The amendments commence on the first 1 January, 1 April, 1 July or 1 October to occur after the day this Bill receives the Royal Assent. 1.156 The amendments apply in relation to expenditure incurred by a company on or after 1 July 2022. 1.157 Only expenditure incurred on or after 1 July 2022 on a new game or ported game can be claimed with respect to a completion or porting certificate. 1.158 Only expenditure incurred on or after 1 July 2022 in relation to the ongoing development of an existing game can be claimed with respect to an ongoing development certificate. The game to which the expenditure relates can be a game that has been released before 1 July 2022. 1.159 When goods and services are considered incurred could be different to when they are actually paid for or received. [Schedule 1, item 7] 43

Taxation treatment of digital currency Table of Contents: Outline of chapter ................................................................................ 45 Context of amendments ....................................................................... 45 Comparison of key features of new law and current law ...................... 46 Detailed explanation of new law .......................................................... 46 Foreign currency does not include digital currency ....................... 47 Definition of digital currency .......................................................... 47 Regulation-making power .............................................................. 50 Consequential amendments ................................................................ 50 Commencement and application provisions ........................................ 51 Outline of chapter 2.1 Schedule 2 to the Bill amends the ITAA 1997 to clarify that digital currencies (such as bitcoin) continue to be excluded from the income tax treatment of foreign currency. For the purpose of these amendments, the term digital currency does not include digital currencies issued by, or under the authority of, a government agency ('government-issued digital currency') which continue to be taxed as foreign currency. Context of amendments 2.2 The Legislative Assembly of the Republic of El Salvador recognised bitcoin as an unrestricted legal tender by legislative decree which took effect on 7 September 2021. As an unintended consequence of this, there is the potential that bitcoin may be a 'foreign currency' for the purposes of the ITAA 1997 due to its status as a legal tender in El Salvador. 45

Taxation treatment of digital currency 2.3 This is inconsistent with current policy intent. Bitcoin and other similar digital currencies were never intended to be foreign currencies for Australian income tax purposes. 2.4 Separately, it is noted that the Board of Taxation is undertaking a Review of the Tax Treatment of Digital Assets and Transactions in Australia. Further, in August 2022 the Government announced that it was going to undertake further work to improve the way Australia's regulatory system manages crypto assets, to keep up with developments and provide greater protections for consumers. 2.5 The legislative amendment in Schedule 2 to the Bill is not impacted by these separate review processes; its scope is restricted to clarifying the current tax treatment of bitcoin and other similar digital currencies. Without this clarification, there would be uncertainty about the status of these assets for Australian income tax purposes. Comparison of key features of new law and current law Table 2.1 Comparison of new law and current law New law Current law Digital currencies (such as bitcoin) are not Digital currencies (such as bitcoin) may foreign currencies for the purposes of the potentially become a foreign currency for the ITAA 1997, even if they are adopted as a purposes of the ITAA 1997 if they are legal tender by a foreign jurisdiction. adopted as a legal tender by a foreign jurisdiction. Detailed explanation of new law 2.6 The amendments to the ITAA 1997 and the GST Act are intended to maintain the status quo prior to the El Salvador decree and clarify that bitcoin and similar digital currencies continue not to be treated as foreign currency, even if they are adopted as a legal tender by a foreign jurisdiction. 2.7 To achieve this, Schedule 2 to the Bill: • amends the definition of foreign currency in the ITAA 1997 to exclude digital currencies. The definition of digital currency has been adopted from the GST Act; • amends the GST Act definition of digital currency to ensure it excludes government-issued digital currencies and includes digital 46

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 currencies that are not government-issued but have been adopted as a legal tender; and • amends the ITAA 1997 to include a power to make regulations to provide for further exclusions from the definition of foreign currency in the ITAA 1997. Foreign currency does not include digital currency 2.8 The amendments to the foreign currency definition in subsection 995-1(1) of the ITAA 1997 ensure digital currencies such as bitcoin, but excluding government-issued digital currencies, are not foreign currencies. [Schedule 2, item 13, the definition of 'foreign currency' in subsection 995-1(1) of the ITAA 1997] 2.9 Subsection 995-1(1) of the ITAA 1997 provides that digital currency has the same meaning as in the GST Act. [Schedule 2, item 12, subsection 995-1(1) of the ITAA 1997] 2.10 This maintains the status quo prior to the El Salvador decree, being that the income tax treatment of digital currencies depends on the individual circumstances of the taxpayer. For example, if an investment in bitcoin is held on capital account, gains or losses arising from the disposal of bitcoin would be subject to the capital gains tax rules. Definition of digital currency 2.11 The amendments to the definition of digital currency in section 195-1 of the GST Act ensure the definition operates effectively for the purposes of excluding digital currency from being foreign currency under the ITAA 1997. In doing so, the amendments clarify that bitcoin and other similar assets will remain digital currencies in circumstances where they are adopted as a legal tender. Government-issued digital currencies are excluded 2.12 The digital currency definition has been amended to ensure it excludes government-issued digital currencies and includes digital currencies that are not government-issued but have been adopted as a legal tender. 2.13 The existing requirement under paragraph (d) of the digital currency definition effectively excludes digital currencies that are denominated in a country's currency. If a digital currency is adopted as a legal tender (e.g. bitcoin), that digital currency may potentially be seen as a currency of the country that adopted it and, therefore, excluded from the digital currency definition. This is not the intended policy outcome. 47

Taxation treatment of digital currency 2.14 Schedule 2 to the Bill amends paragraph (d) of the digital currency definition to allow for digital currencies to be denominated in a currency, provided the currency is not issued by, or under the authority of, an Australian government agency or foreign government agency. [Schedule 2, item 1, the definition of 'digital currency' in section 195-1 of the GST Act] 2.15 This amendment ensures bitcoin continues to be a digital currency. Despite it being adopted as a legal tender and therefore potentially being considered a currency, it is decentralised and it is not issued or controlled by any government. In contrast, what are commonly referred to as 'central bank digital currencies' are a government-issued digital form of money that will continue to be money, not digital currency. Digital currency is not money 2.16 Under the current law, if something is both money and digital currency it is considered money due to the operation of paragraph (g) of the digital currency definition, which excludes money from being digital currency. The amendments change this order of priority so that something that is both money and digital currency is considered to be digital currency. [Schedule 2, items 2 and 3, the definition of 'money' in section 195-1 of the GST Act] 2.17 This ensures that where a government adopts a digital currency as a legal tender it remains a digital currency and does not become money, despite potentially being considered a currency and therefore meeting the definition of money. Apart from the instance of bitcoin, there is unlikely to be any current overlap between the definitions of money and digital currency. GST outcomes are not affected 2.18 The amendments made to the GST Act are not intended to affect GST outcomes. The treatment of digital currency remains the same. That is, supplies and acquisitions of digital currency are generally disregarded for the purposes of GST. Consistent with supplies of money, supplies of digital currency are only recognised for the purposes of GST if the supply is made in exchange for money or digital currency. 2.19 Whether or not bitcoin is considered a digital currency or money does not have a material impact for the purposes of GST, as both digital currency and money receive the same treatment. 2.20 The main purpose of the amendments to the GST Act are to ensure the digital currency definition can be used for the purposes of excluding digital currency from being foreign currency under the ITAA 1997. Additionally, these 48

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 amendments also clarify that bitcoin remains a digital currency for GST purposes. Example 2.1 - An existing digital currency remains digital currency Coin A is a cryptographic currency using a consensus-based distributed ledger. New Coin A is issued under an automated process to entities that participate in the process of validating the ledger. Prior to 2025, it satisfied all of the requirements to be a digital currency under section 195-1 of the GST Act. In 2025, Coin A is made a legal tender in a foreign country. As a result, it may potentially be considered a currency satisfying the definition of money under paragraph (a) in section 195-1 of the GST Act. However, under these amendments, Coin A remains within the definition of digital currency and is not money. This is because: • despite Coin A potentially being considered the currency of a foreign country, it is not issued by or on behalf of a foreign government agency and so it satisfies subparagraph (d)(ii) of the definition of digital currency. • its treatment as digital currency means that it cannot meet the definition of money as a result of these amendments which excludes digital currency from the definition of money (at paragraph (j)). This change means that if something is both digital currency and money, then it will always be digital currency. For income tax purposes, as Coin A meets the definition of digital currency it is not foreign currency under the amended definition of foreign currency in the ITAA 1997. The income tax treatment of Coin A will depend on the individual circumstances of the taxpayer who holds it. Example 2.2 - Government-issued digital currencies are money The government of a foreign country establishes a digital currency, Coin B. It is a digital unit of value that has the status of a legal tender in that jurisdiction. Despite this, Coin B cannot be digital currency as it does not satisfy paragraph (d) of the digital currency definition because: • it is denominated in the currency of the foreign country; and • it is issued by or on behalf of a foreign government agency. 49

Taxation treatment of digital currency As Coin B would be considered currency, it satisfies paragraph (a) of the definition of money. Under these amendments, the digital currency exclusion in the money definition does not apply as Coin B is not digital currency. Coin B will be money unless, in specific cases, it falls within one of the other exclusions set out in paragraphs (f) to (i) of the definition of money, such as being a collector's piece. For income tax purposes, as Coin B is a currency of a foreign country, and not a digital currency, it will be foreign currency. Regulation-making power 2.21 The amendments include a power to make regulations to provide for further exclusions from the definition of foreign currency in the ITAA 1997. [Schedule 2, item 13, the definition of 'foreign currency' in subsection 995-1(1) of the ITAA 1997] 2.22 This will enable digital currency-like assets not captured by these amendments to be excluded from being foreign currency through regulations in the future, if required. 2.23 This regulation-making power is necessary because the crypto ecosystem is relatively new and continues to evolve. Further exclusions may be needed to respond to unforeseen circumstances outside of the Government's control, including changes in technology and decisions taken by foreign jurisdictions. For example, if a country were to adopt as a legal tender a digital currency-like asset that is not captured by the definition of digital currency. 2.24 The regulation-making power will allow the Government flexibility to provide taxpayers and administrators with clarity and certainty on income tax arrangements in a timely manner. The regulations would be subject to disallowance and therefore will be subject to appropriate parliamentary scrutiny. Consequential amendments 2.25 To support the amendments to the ITAA 1997 and the GST Act, Schedule 2 to the Bill makes consequential amendments to the GST Regulations. [Schedule 2, items 4-11, subsection 40-5.09(3), section 40-5.12, subsection 70-5.02(1) and section 196-1.01, clause 10 of Schedule 2 of the GST Regulations] 2.26 The GST Regulations refer to 'foreign currency' and 'currency of a foreign country'. To ensure the GST Regulations are consistent with, and do not limit, the intended effect of the amendments to the ITAA 1997 and the GST Act, 50

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 these terms have been given the same meaning as foreign currency in the ITAA 1997. However, this does not include the regulation-making power that exists in the ITAA 1997, as it is not needed for the purposes of the GST Regulations. 2.27 Additionally, references to 'currency of a foreign country' in the GST Regulations have been replaced with 'foreign currency' to provide consistency in terminology. 2.28 Consistent with the amendments to the GST Act, the amendments to the GST Regulations do not affect GST outcomes. Commencement and application provisions 2.29 The amendments commence on the first 1 January, 1 April, 1 July or 1 October to occur after the date the Bill receives Royal Assent. 2.30 The amendments to the GST Act and GST regulations apply in relation to supplies or payments made on or after 1 July 2021, to align their application with the application of the amendments to the ITAA 1997. Accordingly, these amendments also have retrospective application. [Schedule 2, item 14 and subitem 15(1)] 2.31 The amendments to the definition of foreign currency in the ITAA 1997 apply in relation to income years that include 1 July 2021 and to subsequent income years. Accordingly, the amendments have retrospective application. [Schedule 2, subitem 15(2)] 2.32 The purpose of applying the amendments to income years that include 1 July 2021 is to ensure consistent tax outcomes for all taxpayers, including those with substituted accounting periods. For example, for a taxpayer with a 31 December year end, the amendments will apply for the income year starting on 1 January 2021 until 31 December 2021. 2.33 Retrospective application is necessary to clarify that the tax treatment of digital currencies that applied prior to 7 September 2021 (the date at which the El Salvador decree took effect) continues to apply after that date. The effect of the El Salvador decree was unexpected and could potentially lead to unintended income tax outcomes. Therefore, it is appropriate for the amendments to apply retrospectively to pre-date the event that creates the uncertainty. 2.34 The amendments maintain the status quo of the income tax treatment of digital currencies like bitcoin, prior to the El Salvador decree. Further, they do not alter any substantive outcome for GST. In that respect, retrospective application does not adversely impact or disadvantage taxpayers. 51

Taxation treatment of digital currency 2.35 If the amendments did not apply retrospectively, the potential unintended change in the tax treatment of bitcoin could result in risks to revenue in the broader tax system. It would also result in bitcoin receiving inconsistent income tax treatment with other crypto assets that share similar characteristics. Therefore, retrospective application is justified to ensure these unintended outcomes are avoided. 52

Reducing the compliance burden of record keeping for fringe benefits tax Table of Contents: Outline of chapter ................................................................................ 53 Context of amendments ....................................................................... 53 Summary of new law............................................................................ 54 Comparison of key features of new law and current law ...................... 55 Detailed explanation of new law .......................................................... 55 Outline of chapter 3.1 Schedule 3 to the Bill amends the FBTAA to reduce compliance costs for employers finalising their FBT returns by empowering the Commissioner to allow them, where it is appropriate to do so, to rely on adequate alternative records holding all the prescribed information instead of seeking that information again by way of statutory evidentiary documents, such as prescribed employee declarations. 3.2 The Schedule reduces and simplifies FBT record keeping requirements for employers while producing similar compliance outcomes with lower compliance costs, consistent with the Government's commitment to remove 'red tape' for business. Context of amendments 3.3 Employers pay FBT on certain benefits they provide to their employees or associates of their employees (for example, their employees' family). Employers are required to pay tax on these fringe benefits. Income tax is separate to FBT; FBT is instead calculated on the taxable value of the fringe benefit. The rules for FBT are set out in the FBTAA, which is administered by the Commissioner. 53

Reducing the compliance burden of record keeping for fringe benefits tax 3.4 Employers are required to self-assess their FBT liability and lodge an FBT return following the end of the FBT year, where there is a fringe benefits taxable amount for the year. As part of this process, employers must keep and preserve all records for the fringe benefits they provide for five years from the date they are prepared, obtained or the transactions completed. During this period the ATO may request an employer's records for compliance purposes. 3.5 Part III of the FBTAA contains numerous provisions requiring employees to provide information to employers about fringe benefits received, and employers to prepare declarations in a form approved by the Commissioner. The ATO website contains 20 different approved employee declarations tailored to various fringe benefits, two FBT employer declarations and a travel diary requirement, to be used as statutory evidentiary documents for this purpose. 3.6 The requirement for certain records to be in an approved form to comply with FBT record keeping obligations forces employers, and in some cases employees, to create additional records despite the required information being already captured through other record keeping processes, including in the employer's own corporate records. 3.7 Providing employers with an option to rely on existing or other alternative records, as determined by the Commissioner, without the need to prepare additional records such as employer declarations or obtain declarations from employees in the approved form, reduces and simplifies the employer's record keeping compliance burden without compromising the ATO's ability to ensure an employer's compliance with the FBT laws. It also encourages businesses which initially may be unable to rely on adequate alternative records to establish and maintain robust corporate records for this purpose. 3.8 The kind of alternative documents or records which reasonably satisfy the employer's record keeping obligations for various types of fringe benefits will be determined by the Commissioner by way of legislative instrument. 3.9 The amendments do not change or reduce what information employers need to hold to support their FBT return under the FBTAA but alters the prescriptive format and process for obtaining and holding that information. Summary of new law 3.10 Schedule 3 amends Part X of the FBTAA by: • giving the Commissioner power to make legislative instruments determining the kinds of adequate alternative records which may be kept and retained by employers in lieu of statutory evidentiary documents for specified fringe benefits, for FBT record keeping purposes; and 54

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • providing that employers are taken to have kept and retained a statutory evidentiary document for a specified fringe benefit for FBT record keeping purposes if they keep and retain those adequate alternative records determined by the Commissioner, for the specified fringe benefit. Comparison of key features of new law and current law Table 3.1 Comparison of new law and current law New law Current law Employers have the option, for each fringe Employers must keep and retain the benefit, to: designated statutory evidentiary documents in the approved form for each fringe benefit, • rely on adequate alternative records for FBT record keeping purposes. (as determined by the Commissioner) which contain the information required for FBT record keeping purposes; or • keep and retain the designated statutory evidentiary documents in the approved form for FBT record keeping purposes. Detailed explanation of new law 3.11 The purpose of the legislative changes is to reduce the compliance burden on taxpayers while maintaining the integrity of the fringe benefits taxation system. 3.12 This Schedule provides the Commissioner with the power to make determinations, by legislative instrument, specifying the kind of alternative documents or records which reasonably satisfy the employer's record keeping obligations for the various types of fringe benefits. [Schedule 3, item 1, section 123AA of the FBTAA] 3.13 Alternative documents or records will be other documents or records made or held by an employer that both meet the information requirements stipulated in the FBTAA and provide the Commissioner with the ability to enforce compliance with the FBTAA. 3.14 It is appropriate to delegate power to the Commissioner to make legislative instruments for this purpose due to the technical nature of the instruments, which are tailored to cover a range of fringe benefits of varying complexity and different statutory evidentiary documents applicable for each fringe 55

Reducing the compliance burden of record keeping for fringe benefits tax benefit. Enabling the Commissioner to determine, by way of legislative instrument, the kind of alternative documents or records which can be utilised for this purpose provides an efficient and flexible mechanism to enable employers to identify the kind of records that will meet their record keeping obligations. This gives employers certainty, supports the purpose of the amendment to reduce FBT record keeping obligations for employers and supports the operation of the FBT regime generally. 3.15 Instruments made under section 123AA of the FBTAA are disallowable under section 42 of the Legislation Act, and are also subject to sunsetting in accordance with the FBTAA. 3.16 The content of determinations made by the Commissioner gives employers the ability to identify the kind of alternative documents or records they could use, including their own records if available, which would reasonably satisfy their FBT record keeping obligations. To achieve this, the Commissioner will determine the years of tax, the classes of persons and the classes of statutory evidentiary documents applying to the relevant fringe benefit, and the kind of alternative documents or records an employer may use to satisfy their record keeping obligations. Specifying different classes of persons and statutory documents in determinations enables the Commissioner to tailor determinations to various types of fringe benefits and employers based on the different circumstances and compliance risks associated with employers in different parts of the economy. [Schedule 3, item 1, paragraph 123AA(2)(a) to (d) of the FBTAA] 3.17 While the option to use alternative records will generally reduce the record keeping burden for employers, it is not envisaged that the Commissioner will specify alternative record keeping options for all available fringe benefits or all situations where fringe benefits may be provided. It is anticipated that for records that are exhaustively defined within the legislation, such as log books and odometer records, employers are likely to need to continue to meet their record keeping obligations under the current requirements, but new technological applications may in the future result in alternate records being held by employers that could be determined as adequate. 3.18 Due to the wide range and varying complexity of available fringe benefits and the circumstances to which they apply, employers may choose to continue to use the approved form or use adequate alternative records or use a combination of these options for each benefit provided to an employee, to meet record keeping requirements. 3.19 A person who is an employer is taken to keep and retain a statutory evidentiary document if, at a certain time, the person keeps and retains alternative documents or records of a kind specified in a determination made by the Commissioner. This allows employers to rely on their own record keeping processes and systems rather than duplicating existing records to fulfil their FBT record keeping obligations, as long as their existing records meet the requirements determined by the Commissioner and provide the same 56

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 information otherwise obtained in statutory evidence document. Determinations made by the Commissioner are intended to apply to a variety of circumstances in which adequate alternative records are kept and retained by the employer for record keeping purposes. These circumstances include where the employer or associate holds existing adequate alternative records of a kind that can be taken to be a statutory evidentiary document, and where the recipient of the fringe benefit gives the employer a document of a kind that can be taken to be a statutory evidentiary document. [Schedule 3, item 1, subsection 123AA(1) of the FBTAA] 3.20 The Commissioner's determination applies to alternative records when the determination is in force and specifies the years of tax, the classes of statutory evidentiary documents, the classes of employer to which the determination applies, and the kind of alternative documents specified in the determination. [Schedule 3, item 1, paragraphs 123AA(1)(a) to (e) of the FBTAA] 3.21 It is anticipated that there may be a wide variety of arrangements under which a certain fringe benefit is provided and for which statutory evidentiary documents must be kept and retained by the employer. Consequently, the Commissioner may make determinations applying to certain fringe benefits specifying that in relation to certain classes of persons and certain statutory evidentiary documents, different sets of alternative records may be taken to be statutory evidentiary documents. The Commissioner may also make further determinations specifying additional records which can be taken to be statutory evidentiary documents in relation to that fringe benefit. [Schedule 3, item 1, paragraphs 123AA(1)(c) and 123AA(1)(d) of the FBTAA] 3.22 Where alternative records are kept and held by a third party in relation to a fringe benefit, and the person or associate has access to those records, the Commissioner may determine whether the person or associate is taken to keep and retain those alternative records. [Schedule 3, item 1, paragraph 123AA(1)(e) of the FBTAA] 3.23 A determination made by the Commissioner may only specify kinds of documents or records if the Commissioner is reasonably satisfied that such documents or records are an adequate alternative to the statutory evidentiary documents for the applicable fringe benefit. If the Commissioner is not reasonably satisfied that adequate alternative records are available for certain fringe benefits, employers are expected to continue utilising the approved form to ensure they retain statutory evidentiary documents that meet their record keeping obligations. [Schedule 3, item 1, subsection 123A(3) of the FBTAA] 57

Skills and Training boost Table of Contents: Outline of chapter ................................................................................ 59 Context of amendments ....................................................................... 59 Summary of new law............................................................................ 60 Detailed explanation of new law .......................................................... 60 Bonus deduction for external training for small business employees ...................................................................................................... 60 Entities eligible for the bonus deduction ........................................ 60 Eligible expenditure for the bonus deduction ................................. 61 Consequential amendments ................................................................ 73 Commencement, application, and transitional provisions .................... 73 Outline of chapter 4.1 Schedule 4 to the Bill amends the IT(TP) Act to provide small businesses (with aggregated annual turnover of less than $50 million) with access to a bonus deduction equal to 20% of eligible expenditure incurred on external training provided to their employees. 4.2 This is a temporary measure to incentivise small businesses to upskill their employees or train new employees. Context of amendments 4.3 The measure supports small businesses to build a better trained and more productive workforce. 4.4 Small businesses will have access to a bonus deduction equal to 20% of eligible expenditure on external training for employees, helping to address skills shortages by upskilling existing staff or training new staff. 59

Skills and Training boost 4.5 The new tax incentive, which is available until 30 June 2024, will also create opportunities for employees to enhance their skills and contribute to the growth of the small business. Summary of new law 4.6 This Schedule allows small businesses with an aggregated annual turnover of less than $50 million to deduct 20% in addition to an existing available deduction for eligible expenditure incurred on external training for employees. 4.7 The bonus deduction is a temporary measure, available for eligible expenditure incurred between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and 30 June 2024. Detailed explanation of new law Bonus deduction for external training for small business employees 4.8 The bonus deduction is available to small businesses that incur eligible expenditure on external training for their employees. It is calculated as 20% of the amount of expenditure that is both deductible under another taxation law provision and eligible for the bonus deduction under the other rules introduced by these amendments. 4.9 Special rules provide for the income year in which the bonus deduction can be claimed. This depends on the period in which the expenditure is incurred and whether the small business has a substituted accounting period. Entities eligible for the bonus deduction 4.10 The bonus deduction is available to entities that meet the definition of a small business entity under section 328-110 of the ITAA 1997. Section 328-110 defines a small business entity as an entity that carries on business with an aggregated annual turnover of less than $10 million. [Schedule 4, item 1, paragraphs 328-445(1)(a), (2)(a) and (3)(b) of the IT(TP) Act] 4.11 The bonus deduction is also available to entities that would meet the definition of a small business entity under section 328-110 of the ITAA 1997 if the reference to $10 million was replaced by a reference to $50 million. [Schedule 4, item 1, subsection 328-445(4) of the IT(TP) Act] 60

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 4.12 Small businesses are eligible for the bonus deduction if they meet these requirements in the income year in which the expenditure is incurred. Eligible expenditure for the bonus deduction 4.13 The bonus deduction is available to eligible small businesses that incur expenditure which meets the following criteria: • expenditure must be for training employees, either in-person in Australia, or online; • expenditure must be charged, directly or indirectly, by a registered training provider and be for training within the scope of the provider's registration (unless the provider is a registered higher education provider within the meaning of the Tertiary Education Quality and Standards Agency Act 2011 in which case there is no scope of registration requirement); • the registered training provider must not be the small business or an associate of the small business; • expenditure must already be deductible under the taxation law; • expenditure must be incurred within a specified period (between 7.30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and 30 June 2024); and • expenditure must be for the provision of training, where the enrolment or arrangement for the provision of the training occurs at or after 7.30pm (by legal time in the Australian Capital Territory) on 29 March 2022. Expenditure must be incurred for training employees Employee training 4.14 The bonus deduction is only available in relation to expenditure incurred on external training for the employees of the small business. [Schedule 4, item 1, paragraph 328-450(1)(a) of the IT(TP) Act] 4.15 Expenditure for training persons other than employees is not eligible for the bonus deduction. For example, the bonus deduction is not available for the training of non-employee business owners such as sole traders, partners in a partnership and independent contractors (who are not 'employees' of the business within the ordinary meaning). 'Employee' takes its ordinary meaning, and it is noted that there is extensive case law on the meaning of an 'employee'. 61

Skills and Training boost 4.16 The bonus deduction is targeted at employee training specifically because a key aim of the bonus deduction is to support small businesses to grow their workforce which could include taking on less-skilled employees that may need external training to develop their skills and enhance their productivity. Training covered by the bonus deduction 4.17 The bonus deduction is available for a broad range of external training across all industry sectors. As the bonus deduction is only available where expenditure is already deductible under the taxation law, the training must be necessarily incurred in carrying on a business for the purpose of gaining or producing income. 4.18 The bonus deduction is only available for expenditure incurred on external training for employees that is provided by certain registered training providers. The training provider must meet relevant registration requirements at the time the expenditure is incurred (explained in detail below). The training must also be within the scope of the provider's registration, where the provider's registration has scope requirements (explained in detail below). [Schedule 4, item 1, subparagraph 328-450(1)(b) of the IT(TP) Act] 4.19 This requirement ensures that the cost of in-house or on-the-job training is not eligible expenditure for the purpose of the bonus deduction. The bonus deduction is not intended to cover general business operating costs. 4.20 The training also cannot be provided by the small business claiming the bonus deduction or any 'associates' (within the meaning of the ITAA 1997 which refers to the definition of 'associates' in the ITAA 1936 of the business. The definition of associates outlines a number of circumstances in which an entity or person is considered an associate of another entity or person. These include a relative, spouse or partner of an entity or person, a trustee of a trust that benefits an entity or person and a company that is sufficiently influenced by an entity or person. [Schedule 4, item 1, paragraph 328-450(1)(c) of the IT(TP) Act] 4.21 This requirement also reduces potential integrity risks associated with related party dealings. 4.22 Training can be provided either in person to employees physically located in Australia, or online. There is no requirement for employees to be physically located in Australia when undertaking online training. The intent is to allow for circumstances in which employees for example may be temporarily located overseas for operational reasons or working remotely. Training can also be delivered in a hybrid format where employees are located in Australia for the in-person component of the training. [Schedule 4, item 1, paragraph 328-450(1)(a) of the IT(TP) Act] 4.23 It is also a requirement that enrolment in a training course or arrangement with the registered training provider must be made or entered into at or after 7:30pm 62

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 (by legal time in the Australian Capital Territory) on 29 March 2022. This ensures that the bonus deduction is available for enrolments or arrangements made following the announcement of the bonus deduction in the March 2022-23 Budget. [Schedule 4, item 1, paragraph 328-450(1)(d) of the IT(TP) Act] 4.24 Where the training is a component of a larger program or course of training, the enrolment or arrangement that must occur at or after this time is the enrolment or arrangement relating to the component for which the relevant expenditure is committed. 4.25 For example, if an employee of an eligible small business is midway through a university degree on 29 March 2022, any enrolments into courses or classes after 29 March 2022 will result in the expenditure on those courses being eligible for the bonus deduction, provided that the other criteria for the bonus deduction are met, including that the small business incurs the expenditure within the specified period. 4.26 The employee's enrolment in the broader degree prior to 29 March 2022 does not preclude this outcome. 4.27 Where an enrolment is considered to be different to an arrangement for the provision of training, it is the later of the two that must have been entered into after 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 in order for the expenditure to be eligible for the bonus deduction, subject to meeting the other eligibility requirements. Expenditure must be charged by the registered training provider 4.28 In order for training expenditure to be eligible for the bonus deduction, it must be charged by the registered training provider. This means that only the amount charged by the training provider to the small business may be eligible for the bonus deduction. [Schedule 4, item 1, paragraph 328-450(1)(e) of the IT(TP) Act] 4.29 Training expenditure can include costs incidental to training, provided it is charged by the registered training provider. For example, the cost of books or equipment necessary for the training course will be eligible expenditure only if the training provider charges the small business for these costs. Expenditure may be charged directly or indirectly 4.30 The amendments clarify that provided the expenditure is charged by the registered training provider, the expenditure may be charged directly or indirectly to the small business in order to be eligible expenditure. [Schedule 4, item 1, paragraph 328-450(1)(e) of the IT(TP) Act] 4.31 For example, the registered training provider may charge relevant expenditure indirectly, such as through an invoice from an intermediary on behalf of the registered training provider to the small business. 63

Skills and Training boost 4.32 Costs added onto an invoice by an intermediary on top of the cost of training, such as commissions or fees, are not eligible for the bonus deduction. This is because these additional costs are not considered to be charged directly or indirectly by the registered training provider, but rather they are being charged directly by the intermediary. Registration requirements for training providers 4.33 The bonus deduction is available for eligible training expenditure delivered by a broad range of registered training providers. The training provider must meet certain registration criteria for their training services to be eligible for the bonus deduction. The registered training provider must also be acting within the scope of their registration where applicable. These criteria must be satisfied at the time the taxpayer incurs the training expenditure. This provides certainty to small businesses at the time expenditure is incurred. [Schedule 4, item 1, paragraph 328-450(1)(b) of the IT(TP) Act] 4.34 In order for training to be eligible for the bonus deduction, the training provider must be registered at the time the expenditure is incurred with at least one of the following four government authorities: • Tertiary Education Quality and Standards Agency (within the meaning of the Tertiary Education Quality and Standards Agency Act 2011); • Australian Skills Quality Authority (ASQA) (within the meaning of the National Vocational Education and Training Regulator Act 2011); • Victorian Registration and Qualifications Authority (within the meaning of the Education and Training Reform Act 2006 (Vic)); or • Training Accreditation Council of Western Australia (within the meaning of the Vocational Education and Training Act 1996 (WA)). [Schedule 4, item 1, subsection 328-450(2) of IT(TP) Act] 4.35 This registration requirement ensures that training eligible for the bonus deduction is delivered by providers that are regulated by government authorities and can meet rigorous government standards. This supports the quality and integrity of the provider and helps assure the training enhances the skills of employees. Training must be within the scope of the provider's registration 4.36 In order for training to be eligible for the bonus deduction, if the training provider is a registered Vocational Education and Training provider under one or more of the three Acts listed below (see paragraph 4.38), it must be within the scope of the registered training provider's registration for that kind of registered body. This ensures that the bonus deduction is not available for training delivered by a registered provider that is not permitted to provide such 64

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 training. [Schedule 4, item 1, subparagraph 328-450(1)(b)(ii) of the IT(TP) Act] 4.37 Where there is a requirement for the training to be within the provider's scope of registration, the training must be within scope at the time the expenditure is incurred. This aligns with the requirement for when the provider needs to be registered. This will provide certainty to small businesses at the time expenditure is incurred. [Schedule 4, item 1, subparagraph 328-450(1)(b)(ii) of the IT(TP) Act] 4.38 Scope of registration is only relevant for training providers registered under: • the National Vocational Education and Training Regulator Act 2011; • the Education and Training Reform Act 2006 (Vic); or • the Vocational Education and Training Act 1996 (WA). 4.39 For the Vocational Education and Training Act 1996 (WA), the rules defining 'scope of registration' are made under regulations pursuant to section 58 of that Act (see subsection 7(1) of the Vocational Education and Training (General) Regulations 2009 (WA)). 4.40 The scope of registration refers to training that an organisation is registered to provide. These registered training providers must operate within the scope of their registration, which reflects the existing regulatory framework that applies to Vocational Education and Training providers. 4.41 Provided that the training is within the provider's scope of registration, it does not matter whether that training will result in a formal qualification. This is because a training provider's scope of registration can include several types of training products, such as individual units, skill sets, qualifications and Vocational Education and Training accredited courses. For example, where eligible employees undertake single units of study, it does not matter that the employee is not enrolled in the full qualification. 4.42 Small businesses can check whether training is within the scope of a registered provider's registration via the www.training.gov.au website. 4.43 A different regulatory framework applies to registered higher education providers within the meaning of the Tertiary Education Quality and Standards Agency Act 2011. Higher education training providers under this Act are not subject to a registration requirement that they deliver training within the scope of their registration. Thus, the scope of registration requirement is not relevant for higher education training for the purpose of the bonus deduction. 4.44 The Tertiary Education Quality and Standards Agency maintains a national register of higher education providers on its website. 65

Skills and Training boost Expenditure used to calculate the bonus deduction must be able to be deducted under another taxation provision 4.45 To qualify for the bonus deduction, expenditure must be deductible under another taxation provision. [Schedule 4, item 1, paragraphs 328-445(1)(c), (2)(c) and (3)(d) of the IT(TP) Act] 4.46 It is most likely that eligible expenditure for the bonus deduction will be deductible under section 8-1 of the ITAA 1997. Generally, businesses can deduct the cost of employee training as a general business operating expense under section 8-1 of the ITAA 1997. 4.47 Where training is capital in nature, expenditure for this training may be a capital deduction under another taxation provision. The requirement for the bonus deduction is that the expenditure is deductible under a taxation provision, which means that the bonus deduction is not limited to deductions made under section 8-1 of the ITAA 1997. 4.48 The requirement that expenditure is deductible under a taxation provision means that there are certain exclusions to eligible expenditure. For example, if a business is registered for GST and the training is not a GST-free supply, the bonus deduction is calculated on the amount of expenditure less the GST amount claimable as an input tax credit. The GST component of expenditure that is claimed as an input tax credit is not deductible in accordance with section 27-5 of the ITAA 1997. It is noted that the supply of an education course is generally a GST-free supply under Division 38 of the GST Act. 4.49 The amendments also clarify that the expenditure that is to be used to calculate the amount of the bonus deduction can be deductible in any income year, provided that the expenditure is deductible. [Schedule 4, item 1, paragraphs 328-445(1)(c), (2)(c) and (3)(d) of the IT(TP) Act] 4.50 This means that even where deductions are to be claimed over time (such as for certain capital deductions), the bonus deduction is to be calculated on the basis of the full amount that can be deducted, and is to be claimed upfront in the relevant income year. Information on which income year the bonus deduction can be claimed in is explained in detail below. The deductions operate as bonus deductions under the ITAA 1997 4.51 The amendments provide that the bonus deduction provisions have effect as if they were provisions of Division 25 of the ITAA 1997. This does not affect the requirement that the eligible expenditure must be able to be deducted under another taxation provision. [Schedule 4, item 1, subsection 328-445(5) of the IT(TP) Act] 66

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 4.52 Division 25 sets out amounts you can deduct under the ITAA 1997. Deductions set out in Division 25 are specific deductions under section 8-5 of the ITAA 1997. The bonus deduction introduced by these amendments will therefore be considered a specific deduction, ensuring it can be taken into account as a deduction when computing taxable income. 4.53 The amendments provide that section 8-10 of the ITAA 1997 (about no double deductions) does not prevent a taxpayer from claiming the bonus deduction. [Schedule 4, item 1, subsection 328-445(6) of the IT(TP) Act] 4.54 Section 8-10 specifies that when multiple provisions of the ITAA 1997 allow for deductions in respect of the same amount, the taxpayer can deduct only under the provision that is most appropriate. The deduction introduced by these amendments is a bonus deduction, where the same expenditure provides eligibility for the original deduction as well as the bonus deduction. The amendments clarify that section 8-10 of the ITAA 1997 does not apply to the bonus deduction to ensure that the bonus deduction can be claimed in addition to the ordinary deduction. 4.55 The amendments also provide that section 355-715 of the ITAA 1997 does not prevent a taxpayer from claiming the bonus deduction. [Schedule 4, item 1, subsection 328-445(6) of the IT(TP) Act] 4.56 Section 355-715 specifies that where a taxpayer is entitled to a notional deduction under the Research and Development Tax Incentive regime and another deduction under the tax law, then the taxpayer is only entitled to the notional Research and Development deduction, and not the other deduction. The notional Research and Development deduction is used to calculate a tax offset. 4.57 The deduction introduced by these amendments is a bonus deduction, where the same expenditure provides eligibility for the original deduction as well as the bonus deduction. Therefore, if expenditure is eligible for both the Research and Development Tax Incentive and the bonus deduction, the taxpayer may claim both the bonus deduction and the tax offset. The bonus deduction will not affect the amount of the tax offset. Example 4.1 Calculating the value of the bonus deduction Animals 4U Pty Ltd is a small business entity that operates a veterinary centre. The business recently took on a new employee to assist with jobs across the centre. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 for the employee to undertake external training in veterinary nursing. The training meets the requirements of a GST-free supply of education. The training is delivered by a registered training provider, whose scope of registration includes veterinary nursing. 67

Skills and Training boost The bonus deduction is calculated as 20% of 100% of the amount of expenditure that can be deducted under another provision of the taxation law. In this case, the full $3,500 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700. When the bonus deduction can be claimed in tax returns 4.58 The rules for when the bonus deduction can be claimed in tax returns differ partly depending on whether an entity is an early, late or normal balancer. Entities on a substituted accounting period with an income year starting after 1 July are referred to as late balancers. Entities on a substituted accounting period with an income year starting before 1 July are referred to as early balancers. Entities with an income year starting on 1 July are referred to as normal balancers. General rule: Bonus deduction to be claimed in the income year in which expenditure is incurred 4.59 Generally, consistent with deductions under the general deduction provision (section 8-1 of the ITAA 1997), small businesses claim the bonus deduction in the income year in which the expenditure is incurred. 4.60 This is mainly achieved by the provision providing for later bonus deductions, which applies for normal and late balancers starting from the 2023-24 income year and applies for early balancers starting from the 2024-25 income year. The provision providing for later bonus deductions ensures the bonus deduction is claimed in the income year in which the expenditure is incurred (described as the current year). [Schedule 4, item 1, paragraph 328-445(3)(a) of the IT(TP) Act] 4.61 For earlier income years (those not covered by the later bonus deduction provision), special rules set out when the bonus deduction may be claimed. For some expenditure, these rules still result in a claim in the same income year in which the expenditure is incurred, which is consistent with the general rule. [Schedule 4, item 1, subsections 328-445(1) and (2) of the IT(TP) Act] Special rules for initial bonus deductions (allowing for delayed claims) 4.62 For income years not covered by the later bonus deduction provision (see paragraphs 4.59 to 4.61), special rules apply for small businesses to claim the bonus deduction. 68

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 4.63 The special rules operate in the initial years where bonus deductions may be available, to allow additional time for administrative and legislative arrangements to be put in place before bonus deductions may be claimed. 4.64 The special rules apply only to claiming the bonus deduction. The rules do not affect the existing general deduction under the taxation law. 4.65 The special rules are different for early balancers vis a vis normal and late balancers. 4.66 The special rules set out when claims for the bonus deduction can be made in the 2022-23 income year for normal or late balancers. [Schedule 4, item 1, subsection 328-445(1) of the IT(TP) Act] 4.67 The special rules also set out when claims for the bonus deduction can be made in the 2023-24 income year for early balancers. [Schedule 4, item 1, subsection 328-445(2) of the IT(TP) Act] Special rule for normal or late balancers for the 2022-23 income year 4.68 Normal or late balancers that incur expenditure between 7:30pm (by legal time in the Australian Capital Territory) and the end of their 2022-23 income year, will claim the bonus deduction in respect to this expenditure in the 2022-23 income year. This partly covers expenditure incurred in the 2021-22 income year, as well as expenditure incurred in the 2022-23 income year. For expenditure incurred in the 2021-22 income year, the special rule results in a delayed claim, where a bonus deduction is claimed in the year following the year in which expenditure was incurred. [Schedule 4, item 1, subsection 328-445(1) of the IT(TP) Act] Example 4.2 When a normal balancer claims the bonus deduction B Co Pty Ltd (B Co) is a small business entity. B Co operates on an income year that begins on 1 July and ends on 30 June the following year. B Co is referred to as a 'normal balancer'. Expenditure incurred in the 2021-22 income year On 4 May 2022, B Co pays $1,000 for an employee to undertake training. The full $1,000 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $1,000. That is, $200. The cost of training ($1,000) should be claimed as a general deduction under section 8-1 of the ITAA 1997 in B Co's 2021-22 income year because this is the income year in which the expenditure is incurred. 69

Skills and Training boost As the training costs were incurred between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and the end of B Co's 2022-23 income year (30 June 2023), under the relevant special rules for initial bonus deductions, the bonus deduction ($200) should be claimed in B Co's 2022-23 income year. This results in a delayed claim, where a bonus deduction is claimed in the year following the year in which the expenditure was incurred. Expenditure incurred in the 2022-23 income year One year later, on 4 May 2023, B Co pays $3,000 for three new employees to undertake the same training. The full $3,000 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $3,000. That is, $600. The cost of training ($3,000) should be claimed as a general deduction under section 8-1 of the ITAA 1997 in B Co's 2022-23 income year because this is the income year in which the expenditure is incurred. As the training costs were incurred between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and the end of B Co's 2022-23 income year (30 June 2023), under the relevant special rules for initial bonus deductions, the bonus deduction ($600) should also be claimed in B Co's 2022-23 income year. This results in an outcome consistent with the general rule that deductions are claimed in the year in which the expenditure is incurred. Expenditure incurred in the 2023-24 income year Another year later, on 4 May 2024, B Co pays $6,000 for six new employees to undertake the same training. The full $6,000 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $6,000. That is, $1,200. The cost of training ($6,000) should be claimed as a general deduction under section 8-1 of the ITAA 1997 in B Co's 2023-24 income year because this is the income year in which the expenditure is incurred. Expenditure in the 2023-24 income year is covered by the later bonus deduction provision. As the costs were incurred in B Co's 2023-24 income year and before 30 June 2024, the bonus deduction should be claimed in B Co's 2023-24 income year in accordance with the later bonus deduction provision. This results in an outcome 70

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 consistent with the general rule that deductions are claimed in the year in which the expenditure is incurred. Overview of total amounts claimable in each income year This means that B Co will claim the following amounts: • $1,000 in the 2021-22 income year. This is the general deduction for the cost of training incurred on 4 May 2022. • $3,800 in the 2022-23 income year. This is made up of the general deduction for the cost of training incurred on 4 May 2023, as well as the bonus deductions for expenditure incurred on 4 May 2022 and 4 May 2023. • $7,200 in the 2023-24 income year. This is made up of the general deduction and the bonus deduction for the cost of training incurred on 4 May 2024. Special rule for early balancers for the 2022-23 income year 4.69 Early balancers for the 2022-23 income year that incur expenditure between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and the end of their 2022-23 income year, will claim the bonus deduction in respect to this expenditure in their 2023-24 income year. This results in a delayed claim, where a bonus deduction is claimed in the year following the year in which the expenditure was incurred. Early balancers are also able to claim the bonus deduction in their 2023-24 income year for expenditure incurred in that income year, consistent with the general rule. [Schedule 4, item 1, subsection 328-445(2) of the IT(TP) Act] Example 4.3 When an early balancer claims the bonus deduction Expenditure incurred in the 2022-23 income year M Co Pty Ltd (M Co) operates on an income year that begins on 1 January and ends on 31 December of the same year. M Co's 2022-23 income year starts on 1 January 2022. M Co pays $14,000 for two employees to undertake training on 7 May 2022. The full $14,000 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $14,000. That is, $2,800. The cost of training ($14,000) should be claimed as a general deduction under section 8-1 of the ITAA 1997 in M Co's 2022-23 income year because this is the income year in which the expenditure was incurred. 71

Skills and Training boost As the costs are incurred between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and the end of M Co's 2023-24 income year (31 December 2023), the bonus deduction ($2,800) should be claimed in M Co's 2023-24 income year in accordance with the special rule for early balancers. This results in a delayed claim, where a bonus deduction is claimed in the year following the year in which the expenditure is incurred. Expenditure incurred in the 2023-24 income year On 10 April 2023, M Co pays $21,000 for three new employees to also undertake the same training. The full $21,000 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $21,000. That is, $4,200. The cost of training ($21,000) should be claimed as a general deduction under section 8-1 of the ITAA 1997 in M Co's 2023-24 income year because this is the income year in which the expenditure is incurred. As the costs were incurred between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and the end of M Co's 2023-24 income year (31 December 2023), the bonus deduction ($4,200) should also be claimed in M Co's 2023-24 income year in accordance with the special rule for early balancers. This results in an outcome consistent with the general rule that deductions are claimed in the year in which the expenditure is incurred. Expenditure incurred in the 2024-25 income year On 8 April 2024 M Co pays $6,000 for two new employees to undertake training. The full $6,000 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction will be calculated as 20% of $6,000. That is, $1,200. The cost of training ($6,000) should be claimed as a general deduction under section 8-1 of the ITAA 1997 in M Co's 2024-25 income year because this is the income year in which the expenditure is incurred. Expenditure in the 2024-25 income year is covered by the later bonus deduction provision. As the costs are incurred in M Co's 2024-25 income year and before 30 June 2024, the bonus deduction ($1,200) should be claimed in M Co's 2024-25 income year in accordance with the later bonus deduction provision. This results in 72

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 an outcome consistent with the general rule that deductions are claimed in the year in which the expenditure is incurred. Overview of total amounts claimable in each income year This means that M Co will claim the following amounts: • $14,000 in the 2022-23 income year. This is the general deduction for the cost of training incurred on 7 May 2022. • $28,000 in the 2023-24 income year. This is made up of the general deduction for the cost of training incurred on 10 April 2023, as well as the bonus deductions for expenditure incurred on 7 May 2022 and 10 April 2023. • $7,200 in the 2024-25 income year. This is made up of the general deduction and the bonus deduction for the cost of training incurred on 8 April 2024. Consequential amendments 4.70 These amendments include a note which aims to guide readers of the legislation and explain the practical application of the bonus deduction. 4.71 The note explains that expenditure for on-the-job and in-house training is not eligible for the bonus deduction. [Schedule 4, item 1, note to subsection 328-450(1) of the IT(TP) Act] Commencement, application, and transitional provisions 4.72 The amendments commence on the first 1 January, 1 April, 1 July, or 1 October to occur after the day the Bill receives Royal Assent. [Section 2 of the Bill, item 2 of commencement table]. 4.73 The amendments apply to eligible expenditure incurred between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and 30 June 2024. [Schedule 4, item 1, paragraphs 328-445(1)(b), (2)(b) and (3)(c) of the IT(TP) Act]. 4.74 The amendments also only apply to enrolments or arrangements for the provision of training made or entered into at or after 7.30pm (by legal time in the Australian Capital Territory) on 29 March 2022. [Schedule 4, item 1, paragraph 328-450(1)(d) of the IT(TP) Act] 4.75 The amendments apply retrospectively from 7.30pm (by legal time in the Australian Capital Territory) on 29 March 2022. This ensures that entities 73

Skills and Training boost qualify for the bonus deduction retrospectively from the announcement in the March 2022-23 Budget. The changes are wholly beneficial to entities incurring expenditure affected by these amendments. 74

Technology investment boost Table of Contents: Outline of chapter ................................................................................ 75 Context of amendments ....................................................................... 75 Summary of new law............................................................................ 76 Detailed explanation of new law .......................................................... 76 Entities eligible for the bonus deduction ........................................ 76 Expenditure eligible for the bonus deduction ................................. 77 Commencement, application, and transitional provisions .................... 84 Outline of chapter 5.1 Schedule 5 to the Bill amends the IT(TP) Act to provide small businesses (with aggregated annual turnover of less than $50 million) with access to a bonus deduction equal to 20% of their eligible expenditure incurred on expenses and depreciating assets for the purposes of their digital operations or digitising their operations. 5.2 The bonus deduction applies to eligible expenditure incurred between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and 30 June 2023. It applies to the total of eligible expenditure of up to $100,000 per income year or specified time period, up to a maximum bonus deduction of $20,000 per income year or specified time period. Context of amendments 5.3 The measure supports small businesses to take advantage of digital technologies, which are key to a stronger, productive and resilient economy. 5.4 Small businesses will have access to a 20% bonus deduction for eligible expenditure incurred on business expenses and depreciating assets, to support their digital operations, up to a maximum bonus deduction of $20,000 per income year or specified time period. 75

Technology investment boost 5.5 The new tax incentive, which is available until 30 June 2023, will assist small businesses to adopt new technologies to operate more efficiently and grow. Digitisation can also assist small businesses to respond to customer demands, remain competitive and build resilience to changes in economic conditions. Summary of new law 5.6 Schedule 5 to the Bill amends the IT(TP) Act to allow small businesses (with aggregated annual turnover of less than $50 million) to claim a bonus deduction equal to 20% of their eligible expenditure incurred on expenses and depreciating assets for the purposes of their digital operations or digitising their operations. 5.7 To be eligible for the bonus deduction: • the expenditure must be eligible for a deduction under another provision of the taxation law; • the expenditure must be incurred between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and 30 June 2023; and • if the expenditure is on a depreciating asset - the asset must be first used or installed ready for use by 30 June 2023. 5.8 Generally, small businesses may claim a maximum bonus deduction of $20,000 per income year. 5.9 Certain kinds of expenditure, such as salary and wage costs, are not eligible for the bonus deduction. Detailed explanation of new law Entities eligible for the bonus deduction 5.10 The bonus deduction is available to entities that meet the definition of a small business entity under section 328-110 of the ITAA 1997. Section 328-110 defines a small business entity as an entity that carries on business with an aggregated annual turnover of less than $10 million. [Schedule 5, item 1, paragraphs 328-460(1)(a) and (2)(a) of the IT(TP) Act] 5.11 The bonus deduction is also available to entities that would meet the definition of a small business entity under section 328-110 of the ITAA 1997 if the reference to $10 million was replaced by a reference to $50 million. [Schedule 5, item 1, paragraphs 328-460(1)(a) and (2)(a) and subsection 328-460(3) of the IT(TP) Act] 76

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 5.12 Small businesses are eligible for the bonus deduction if they meet these requirements in the income year in which the expenditure is incurred. Expenditure eligible for the bonus deduction Digital operations 5.13 To be eligible for the bonus deduction, expenditure must be incurred wholly or substantially for the purposes of an entity's digital operations or digitising the entity's operations. That is, the eligible expenditure must have a direct link to the entity's digital operations for its business. A private use portion of expenditure is not eligible expenditure as it is not be able to be deducted under the taxation law. [Schedule 5, item 1, paragraphs 328-460(1)(d) and (2)(d) of the IT(TP) Act] 5.14 Expenditure on digital operations or digitising operations may include business expenditure on: • digital enabling items - computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks; • digital media and marketing - audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design; • e-commerce - goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services, and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth; or • cyber security - cyber security systems, backup management and monitoring services. 5.15 An entity's expenditure on digital operations or digitising its operations is not necessarily limited to these categories. A broad range of expenditure could be eligible for the bonus deduction, provided it meets the other eligibility requirements. Relevant time period for eligible expenditure 5.16 An entity can only claim the bonus deduction for expenditure incurred from 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 to 30 June 2023. 77

Technology investment boost 5.17 For the purposes of calculating and claiming the bonus deduction for normal or late balancers, this timing is expressed as two time periods ('the relevant time periods'): • from 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 until the end of the entity's 2021-22 income year ('the first time period'); and • from the start of the entity's 2022-23 income year to 30 June 2023 ('the second time period'). [Schedule 5, item 1, subparagraphs 328-460(1)(b)(i) and (2)(b)(i) of the IT(TP) Act] 5.18 Early balancers (i.e. if an entity's 2022-23 income year begins before 1 July 2022) have different relevant time periods, which are as follows: • from 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 until the end of the entity's 2022-23 income year ('the early balancer first time period'); and • from the start of the entity's 2023-24 income year to 30 June 2023 ('the early balancer second time period'). [Schedule 5, item 1, subparagraphs 328-460(1)(b)(ii) and (2)(b)(ii) of the IT(TP) Act] Expenditure used to calculate the bonus deduction must be able to be deducted under another taxation provision 5.19 In order to claim the bonus deduction for an amount of expenditure, the entity must be able to deduct the eligible expenditure under another provision of the taxation law, regardless of which income year they claim the deduction. [Schedule 5, item 1, paragraphs 328-460(1)(c) and (2)(c) of the IT(TP) Act] 5.20 Because of this, expenditure must necessarily be incurred in carrying on a business for the purpose of gaining or producing assessable income in order to be eligible for the bonus deduction. If expenditure is for multiple purposes (e.g. a mix of private and business use), the bonus deduction will apply to the proportion of the expenditure that is for an assessable income-producing purpose. The deductions operate as bonus deductions under the ITAA 1997 5.21 The amendments provide that the bonus deduction provisions have effect as if they were provisions of Division 25 of the ITAA 1997. This does not affect the requirement that the eligible expenditure must be able to be deducted under another taxation provision. [Schedule 5, item 1, subsection 328-455(3) of the IT(TP) Act] 78

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 5.22 Division 25 sets out amounts you can deduct under the ITAA 1997. Deductions set out in Division 25 are specific deductions under section 8-5 of the ITAA 1997. The bonus deduction introduced by these amendments will therefore be considered a specific deduction, ensuring it can be taken into account as a deduction when computing taxable income. 5.23 The amendments provide that section 8-10 of the ITAA 1997 (about no double deductions) does not prevent a taxpayer from claiming the bonus deduction. [Schedule 5, item 1, subsection 328-455(4) of the IT(TP) Act] 5.24 Section 8-10 specifies that when multiple provisions of the ITAA 1997 allow for deductions in respect of the same amount, the taxpayer can deduct only under the provision that is most appropriate. The deduction introduced by these amendments is a bonus deduction, where the same expenditure provides eligibility for the original deduction as well as the bonus deduction. The amendments clarify that section 8-10 of the ITAA 1997 does not apply to the bonus deduction to ensure that the bonus deduction can be claimed in addition to the ordinary deduction. 5.25 The amendments also provide that section 355-715 of the ITAA 1997 does not prevent a taxpayer from claiming the bonus deduction. [Schedule 5, item 1, subsection 328-455(4) of the IT(TP) Act] 5.26 Section 355-715 specifies that where a taxpayer is entitled to a notional deduction under the Research and Development Tax Incentive regime and another deduction under the tax law, then the taxpayer is only entitled to the notional Research and Development deduction, and not the other deduction. The notional Research and Development deduction is used to calculate a tax offset. 5.27 The deduction introduced by these amendments is a bonus deduction, where the same expenditure provides eligibility for the original deduction as well as the bonus deduction. Therefore, if expenditure is eligible for both the Research and Development Tax Incentive and the bonus deduction, the taxpayer may claim both the bonus deduction and the tax offset. The bonus deduction will not affect the amount of the tax offset. Eligibility of depreciating assets 5.28 An entity can claim the bonus deduction for expenditure on a depreciating asset only if the asset is first used, or installed ready for use, before 1 July 2023. This rule does not apply to expenses incurred in the development of in-house software allocated to a software development pool, consistent with current pooling rules. [Schedule 5, item 1, paragraphs 328-460(1)(g) and (2)(g) of the IT(TP) Act] 5.29 An entity cannot claim the bonus deduction for expenditure on a depreciating asset if any balancing adjustment event occurs to the asset while the entity holds it during the relevant time period, unless the balancing adjustment event 79

Technology investment boost is an involuntary disposal. This means, for example, that an entity cannot claim the bonus deduction if it sells the asset within the relevant time period. [Schedule 5, item 1, paragraphs 328-460(1)(f) and (2)(f) of the IT(TP) Act] 5.30 Repair and improvement costs for depreciating assets are eligible for the bonus deduction provided that these costs are incurred during the relevant time period. Exclusions 5.31 Some types of expenditure are ineligible for the bonus deduction even where they would otherwise meet the requirements. These are: • salary and wage costs; • capital works costs which can be deducted under Division 43 of the ITAA 1997; • financing costs; • training and education costs; and • expenditure that forms part of, or is included in, the cost of trading stock. [Schedule 5, item 1, paragraphs 328-460(1)(e) and (2)(e) and subsection 328-460(5) of the IT(TP) Act] 5.32 These types of expenditure are not directly related to digital operations or digitising operations. The bonus deduction is not intended to cover general operating costs relating to employing staff, raising capital, the construction of the business premises, and the cost of goods and services the business sells. 5.33 Training and education costs are excluded as these costs may be eligible for the Skills and Training Boost, which also provides a 20% bonus deduction. Calculating and claiming the bonus deduction 20% of expenditure 5.34 The amount of the bonus deduction is calculated as 20% of the total amount of eligible expenditure, up to a maximum bonus deduction of $20,000 per income year or specified time period. [Schedule 5, item 1, sections 328-455 and 328-460 of the IT(TP) Act] 5.35 This applies regardless of how the entity calculates any other deductions in respect of the expenditure. 5.36 The bonus deduction is intended to be a one-off bonus deduction that does not affect any other deductions in the taxation law. 80

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 5.37 The requirement that expenditure is deductible under a taxation provision means that there are certain exclusions to eligible expenditure. For example, if a business is registered for GST, and the expenditure is not for a GST-free supply, the bonus deduction is calculated on the amount of expenditure less the GST amount claimable as an input tax credit. The GST component of expenditure that is claimed as an input tax credit is not deductible in accordance with section 27-5 of the ITAA 1997. Calculating the bonus deduction for depreciating assets 5.38 Under the existing taxation law, for depreciating assets, small business entities generally either deduct the cost of a depreciating asset in one income year (for example, under the Temporary Full Expensing regime in Subdivision 40-BB of the IT(TP) Act) or deduct the decline in value of the asset over its effective life (for example, under the uniform capital allowance regime in Division 40 of the ITAA 1997). 5.39 The bonus deduction is equal to 20% of the cost (within the meaning of Division 40 of the ITAA 1997) of an eligible depreciating asset that is used for a taxable purpose. This means that regardless of the method of deduction that the entity takes (i.e. whether immediate or over time), the bonus deduction in respect of a depreciating asset is calculated based on the asset's cost. 5.40 When calculating the bonus deduction for expenditure on a depreciating asset, it is assumed that: • the entity will continue to hold the asset throughout its effective life; and • the entity will use the asset for a taxable purpose to the same extent that it does in the income year it first uses or installs the asset. [Schedule 5, item 1, subsection 328-460(4) of the IT(TP) Act] Example 5.1 Claiming the bonus deduction for a depreciating asset where Temporary Full Expensing applies Note that in all the worked examples, it is assumed that each business is registered for GST and costs are net of claiming GST input tax credit entitlements. A Co Pty Ltd (A Co) is a small business entity. On 15 July 2022, A Co purchased multiple laptops to allow its employees to work from home. The total cost was $100,000. The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use. As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of a capital expense. A Co can claim the cost of the laptops ($100,000) as a deduction under temporary full expensing in its 2022-23 income tax return. It 81

Technology investment boost can also claim the maximum $20,000 bonus deduction in its 2022-23 income tax return. Example 5.2 Claiming the bonus deduction for a depreciating asset where the entity claims depreciation deductions over a number of years B Co Pty Ltd (B Co) is a small business entity. On 15 July 2022, B Co purchased multiple laptops to allow its staff to work from home. The total cost was $100,000. The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use. As the holder of the assets, B Co is entitled to claim deductions for the depreciation of a capital expense. B Co has made the choice to opt out of Temporary Full Expensing and instead will claim depreciation deductions for the decline in value of the laptops over their effective life under the uniform capital allowance rules in Division 40 of the ITAA 1997. In its 2022-23 income tax return, B Co can claim a depreciation deduction for the decline in value of the laptops between 19 July 2022 and 30 June 2023. It can also claim the bonus deduction calculated on the entire amount of eligible expenditure ($100,000). This results in the maximum $20,000 bonus deduction. Depreciation deductions that B Co may be able to claim in 2022-23 and later income years are not altered by the bonus deduction. Cap on the bonus deduction 5.41 The total expenditure eligible for the bonus deduction is effectively $100,000 over the relevant time period such that entities can generally claim a maximum bonus deduction of $20,000 per relevant time period. [Schedule 5, item 1, section 328-455 of the IT(TP) Act] 5.42 The cap on the bonus deduction works on a cumulative basis in respect of the eligible expenditure. An entity may incur expenditure for its digital operations across various items. The cap operates to limit the bonus deduction to a maximum $20,000 per income year or specified time period. 5.43 Different cap rules apply if an entity's 2022-23 income year begins before 1 July 2022 (i.e. it is an 'early balancer'). Early balancers can claim a maximum bonus deduction of $20,000 for the early balancer first time period (i.e. from 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 to the end of their 2022-23 income year). 5.44 This means that for early balancers, the first $20,000 cap may be spread over two income years (i.e. 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 to the end of the 2021-22 income year and also the 2022-23 income year). [Schedule 5, item 1, paragraph 328-455(2)(a) and subsection 328-460(1) of the IT(TP) Act] 82

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 5.45 Early balancers can then claim up to a maximum bonus deduction of $20,000 for eligible expenditure during the period from the start of their 2023-24 income year to 30 June 2023. [Schedule 5, item 1, paragraph 328-455(2)(b) and subsection 328-460(2) of the IT(TP) Act] 5.46 This ensures that all entities can claim up to a maximum bonus deduction of $40,000 for the period from 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 to 30 June 2023. Timing for claiming the bonus deduction 5.47 Generally, entities must claim the bonus deduction for expenditure incurred in their 2021-22 income year in their 2022-23 return. This is to allow additional time for administrative and legislative arrangements to be put in place before the bonus deduction may be claimed. The bonus deduction for expenditure incurred in an entity's 2022-23 income year will also be claimed in its 2022-23 return. [Schedule 5, item 1, subsection 328-455(1) and subparagraphs 328-460(1)(b)(i) and (2)(b)(i) of the IT(TP) Act] 5.48 However, if an entity's 2022-23 income year begins before 1 July 2022 (i.e. it is an 'early balancer'), the entity must claim the bonus deduction for 2021-22 (if applicable), 2022-23 and 2023-24 in its 2023-24 return. [Schedule 5, item 1, subsection 328-455(2) and subparagraphs 328-460(1)(b)(ii) and (2)(b)(ii) of the IT(TP) Act] 5.49 This timing applies only to the bonus deduction amount. Entities must deduct any other amounts according to the relevant provisions of the taxation law. Example 5.3 Claiming the bonus deduction for 2021-22 and 2022-23 in an entity's 2022-23 income tax return (normal balancer) C Co Pty Ltd (C Co) is a small business entity with a normal accounting period (1 July to 30 June). On 23 April 2022, C Co set up an annual $2,000 subscription to a cloud service to store client and sales data. In its 2021-22 income tax return, C Co can claim a deduction for $2,000 under the general deduction provisions as the cloud subscription is a business operating expense. It can also claim a bonus deduction of $400 (20% of $2,000) in its 2022-23 income tax return. C Co renews the subscription on 23 April 2023 at the discounted price of $1,900. Therefore, in its 2022-23 income tax return C Co can claim a deduction for $1,900 under the general deduction provisions, and another bonus deduction of $380 (20% of $1,900). In summary, C Co can claim a deduction for $2,000 in its 2021-22 income tax return and $2,680 in its 2022-23 income tax 83

Technology investment boost return, comprising a general deduction of $1,900 and two bonus deductions of $400 (relating to eligible expenditure in 2021-22) and $380 (relating to eligible expenditure in 2022-23). Example 5.4 Claiming the bonus deduction for 2022-23 and 2023-24 in an entity's 2023-24 income tax return (early balancer) D Co Pty Ltd (D Co) is a small business entity and has a substituted accounting period of 1 January to 31 December. From April 2022, D Co pays monthly software subscription fees of $5,000. These fees are incurred on the first day of each month. D Co's software subscription fees for its 2022-23 income year (the period 1 January 2022 to 31 December 2022) are $45,000 ($5,000 for 9 months). This amount is a business operating expense and deductible in D Co's 2022-23 income tax return. These fees will also be eligible expenditure for the purposes of the Technology Investment Boost. However, because of the delayed claim rule, the bonus deduction of $9,000 (20% of $45,000) must be claimed in D Co's 2023-24 income tax return. D Co will also be able to claim the bonus deduction for the software subscription fees for six months from January 2023 to June 2023. Accordingly, D Co can claim a bonus deduction of $6,000 (20% of $30,000) for 2023-24. In total, D Co can claim $15,000 in bonus deductions in its 2023-24 income tax return. Commencement, application, and transitional provisions 5.50 The amendments commence on the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives Royal Assent. [Section 2 of the Bill, item 2 of commencement table] 5.51 The amendments apply to eligible expenditure incurred between 7:30pm (by legal time in the Australian Capital Territory) on 29 March 2022 and 30 June 2023. [Schedule 5, item 1, paragraphs 328-460(1)(b) and (2)(b) of the IT(TP) Act] 5.52 The amendments apply retrospectively from 7.30pm (by legal time in the Australian Capital Territory) on 29 March 2022. This ensures that entities qualify for the bonus deduction retrospectively from the announcement in the March 2022-23 Budget. The changes are wholly beneficial to entities incurring expenditure affected by these amendments 84

Financial reporting and auditing requirements for superannuation entities Table of Contents: Outline of chapter ................................................................................ 86 Context of amendments ....................................................................... 86 Summary of new law............................................................................ 87 Comparison of key features of new law and current law ...................... 89 Detailed explanation of new law .......................................................... 90 Key definitions ............................................................................... 91 Registrable superannuation entities .............................................. 98 Record-keeping requirements for registrable superannuation entities .................................................................................................... 100 Financial reporting requirements for registrable superannuation entities ......................................................................................... 103 Auditing requirements for registrable superannuation entities..... 113 Relief from the requirements in Chapter 2M of the Corporations Act .................................................................................................... 145 Disclosure of information ............................................................. 147 Commencement, application, and transitional provisions .................. 147 85

Financial reporting and auditing requirements for superannuation entities Outline of chapter 6.1 Schedule 6 to the Bill amends the Corporations Act, the ASIC Act and the SIS Act to extend and adapt the financial reporting and auditing requirements in Chapter 2M of the Corporations Act to apply to registrable superannuation entities. 6.2 The financial reporting requirements require the RSE licensee for a registrable superannuation entity to: • prepare and lodge financial reports for each financial year with ASIC; • make the financial report, directors' report and auditor's report for each financial year publicly available on the entity's website; • include details on how to access the financial report, directors' report and auditor's report for a financial year with the notice of the annual members' meeting; and • provide the entity's financial reports for a specified financial year to a member upon request. 6.3 The auditing requirements require the RSE licensee for a registrable superannuation entity to appoint an individual auditor, audit firm or audit company to conduct an audit of the entity and for the auditor to: • prepare an auditor's report for an audit of an entity's financial report; • report specified matters to the relevant Regulator; • meet auditor independence and rotation requirements; and • prepare, lodge and publish auditor transparency reports, if required. 6.4 The purpose of these amendments is to impose financial reporting obligations on registrable superannuation entities that are consistent with those that currently apply to public companies and registered schemes. This builds on other measures in recent years, including the Your Future, Your Super reforms introduced in 2021, to improve the compliance and transparency of the superannuation sector. Context of amendments 6.5 Prior to the amendments in this Schedule, superannuation funds were subject to different financial reporting obligations than public companies and registered schemes. In particular there was no requirement for registrable superannuation entities to lodge financial reports with ASIC or make them publicly available to members. While superannuation funds were required to provide financial information and data to APRA, this information was not subject to monitoring 86

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 and enforcement action by ASIC to ensure compliance with the relevant accounting and auditing standards. 6.6 Superannuation is important to the Australian economy and to ensure that Australians have sufficient financial resources in their retirement. As at 30 June 2022, superannuation funds with more than four members had a combined value of $2.2 trillion, similar in value as all listed companies in Australia ($2.3 trillion). Superannuation funds with more than four members also collectively own around 20% or $455.3 billion of all shares in the Australian Stock Exchange. Given the importance of superannuation and the need for trust and transparency in the sector, this Schedule requires these entities to prepare financial reports in accordance with Australian Accounting Standards and for these reports to be lodged on the public record with ASIC. 6.7 Requiring registrable superannuation entities to lodge financial reports with ASIC will increase the transparency of financial information and enable stronger enforcement action to be taken to promote compliance with the financial reporting requirements. 6.8 Schedule 6 to the Bill complements and leverages the recent changes to ASIC and APRA's roles in the regulation of superannuation made by the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, which came into force on 1 January 2021, by providing for: • ASIC to perform the role of 'conduct regulator' by extending and adapting the financial reporting and auditing requirements of Chapter 2M of the Corporations Act to apply to registrable superannuation entities; and • APRA to continue to perform the role of 'prudential regulator' by being responsible for the establishment and enforcement of prudential standards and practices required to ensure a stable, efficient and competitive financial system. 6.9 These amendments also ensure consistency of auditing requirements across the Corporations Act and SIS Act, by providing for audit firms and audit companies to also be able to be appointed as the auditor of a registrable superannuation entity. Summary of new law 6.10 Schedule 6 to the Bill amends the Corporations Act, the ASIC Act and the SIS Act to extend and adapt the financial reporting and auditing requirements in Chapter 2M of the Corporations Act to apply to registrable superannuation entities. 6.11 The financial reporting requirements require RSE licensees for registrable superannuation entities to do all of the following: 87

Financial reporting and auditing requirements for superannuation entities • keep relevant records for the preparation of correct financial reports; • prepare a financial report and a directors' report for each financial year; • have these financial reports audited and obtain a copy of the auditor's report; • lodge the financial report, directors' report and auditor's report for each financial year with ASIC; • make the financial report, directors' report and auditor's report publicly available on the entity's website; • include details of how to access the entity's financial report, directors' report and auditor's report with the notice of the annual members' meeting; and • provide a copy of the financial report, directors' report and auditor's report for a specified financial year to a member upon request. 6.12 An RSE licensee is required to appoint an individual auditor, audit firm or audit company to conduct an audit of the entity's financial reports within one month of the entity being registered as a registrable superannuation entity. Transitional provisions apply for entities already registered prior to the date these requirements commence. 6.13 The auditor of the entity must: • meet the eligibility requirements to be appointed as the auditor of a registrable superannuation entity; • prepare an auditor's report for an audit of a financial report for a financial year that complies with the auditing standards and provides a true and fair view of the entity's financial position and performance; • report suspected contraventions and attempts to interfere with the proper conduct of an audit; • comply with auditor independence requirements to identify, resolve and disclose conflict of interest situations; • comply with auditor rotation requirements; and • prepare, lodge and publish auditor transparency reports, if the auditor conducts ten or more audits of certain types of entities during a transparency reporting period. 6.14 Where an audit firm or company is appointed as the auditor of a registrable superannuation entity, the lead auditor for the audit is also subject to certain obligations, including compliance with the eligibility and fit and proper person requirements and reporting specified matters to the relevant Regulator. 88

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Comparison of key features of new law and current law Table 6.1 Comparison of new law and current law New law Current law Record-keeping For a year of income beginning on or after Trustees of a registrable superannuation 1 July 2023, the RSE licensee for a entity are required to keep accounting registrable superannuation entity must keep records for five years. financial and accounting records for seven years. Financial reporting The RSE licensee for a registrable Registrable superannuation entities are superannuation entity must lodge a financial required to provide APRA specified report, a directors' report and an auditor's information on the entity's business report for each financial year with ASIC. operations for each year of income and each Financial reports comprise of financial quarter, in accordance with superannuation statements, notes and a directors' reporting standards made under the declaration. FS(CD)Act. Appointment of auditors An RSE licensee must appoint an individual An RSE licensee must only appoint an auditor, audit firm or audit company to individual to conduct an audit of a registrable conduct an audit of a registrable superannuation entity under the SIS Act. superannuation entity. The auditor must comply with duties and obligations under both the Corporations Act and SIS Act. Auditor reporting obligations An individual auditor, an audit company, RSE auditors have an obligation to report members of an audit firm, or the lead suspected contraventions of the SIS Act, the auditor (for an audit conducted by an audit SIS Regulations, prudential standards and the firm or company) must report: FS(CD)Act to APRA. • suspected contraventions of the Corporations Act to ASIC; and • suspected contraventions of the SIS Act to APRA. 89

Financial reporting and auditing requirements for superannuation entities New law Current law Auditor independence requirements Individual auditors, audit companies, The auditor of a registrable superannuation members of an audit firm and directors of entity is subject to auditor independence an audit company are subject to auditor requirements in the prudential standards, independence requirements under the which are substantially consistent with the Corporations Act. auditor independence requirements in the Corporations Act. Auditor rotation requirements An individual must not play a significant The prudential standards provide that the role in the audit of a registrable individual auditor of registrable superannuation entity for more than five superannuation entity must not play a successive years. significant role in the audit of a registrable The directors of a registrable superannuation entity for more than five superannuation entity or ASIC may grant an successive years unless an exemption is approval to extend this period for up to an granted by APRA. additional two successive years. Before ASIC may grant an approval, it must consult with APRA. If approved, notification of this approval (by directors or ASIC) must be provided to APRA and be included in the directors' report for the registrable superannuation entity. Auditor transparency reporting The auditor of a registrable superannuation No equivalent. entity is required to prepare, lodge and publish an auditor transparency report if the auditor conducts ten or more audits of specified types of entities, including registrable superannuation entities, during the transparency reporting year. Detailed explanation of new law 6.15 Schedule 6 to the Bill amends the Corporations Act, the ASIC Act and the SIS Act to extend and adapt the financial reporting and auditing requirements in Chapter 2M of the Corporations Act to apply to registrable superannuation entities. 6.16 The purpose of these amendments is to: • improve the quality and transparency of financial reports prepared for registrable superannuation entities; 90

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • improve public access to, and facilitate industry analysis and scrutiny of, financial reports prepared for registrable superannuation entities; • increase the accountability of RSE licensees in the preparation of financial reports; • ensure registrable superannuation entities are subject to financial reporting and auditing requirements that are consistent with the requirements that currently apply to companies and registered schemes; and • strengthen enforcement and monitoring of an entity's compliance with their duties and obligations in relation to financial reporting. Key definitions 6.17 Schedule 6 to the Bill amends or inserts new definitions for the following terms in the Corporations Act: Table 6.2 Definitions in the Corporations Act Definition Meaning Audit company A company that consents to be appointed, or is appointed, as auditor of a company, registered scheme or registrable superannuation entity. Audit-critical employee In relation to a company, or the responsible entity for a registered scheme, or a registrable superannuation entity, that is the audited body for an audit, means a person who: • is an employee of the company, of the responsible entity for the registered scheme, or of the RSE licensee for the registrable superannuation entity; and • is able, because of the position in which the person is employed, to exercise significant influence over: - a material aspect of the contents of the financial report being audited; or - the conduct or efficacy of the audit. 91

Financial reporting and auditing requirements for superannuation entities Definition Meaning Audited body In relation to an audit of a company, registered scheme or registrable superannuation entity, means the company, registered scheme or registrable superannuation entity in relation to which the audit is, or is to be, conducted. Audit firm A firm that consents to be appointed, or is appointed, as auditor of a company, registered scheme or registrable superannuation entity. Auditor for the purposes of the RSE licensee An auditor appointed in fulfilment of a law requirement imposed by a provision of the RSE licensee law. Consolidated entity A company, registered scheme, registrable superannuation entity or disclosing entity together with all the entities it is required by the accounting standards to include in consolidated financial statements. Director For the purposes of Chapter 2M of the Corporations Act, director of a registrable superannuation entity means: • if the RSE licensee for the entity is a constitutional corporation or a body corporate--a director of the constitutional corporation or body corporate; or • if the RSE licensee for the entity is a group of individual trustees--each of those trustees. Constitutional corporation is defined as a body corporate that is: • a trading corporation formed within the limits of the Commonwealth (within the meaning of paragraph 51(xx) of the Constitution); or • a financial corporation formed within the limits of the Commonwealth (within the meaning of paragraph 51(xx) of the Constitution). Financial year The financial year for a registrable superannuation entity is the entity's year of income (within the meaning of the SIS Act). 92

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Definition Meaning Individual auditor An individual who consents to be appointed, or is appointed, as auditor of a company, registered scheme or registrable superannuation entity. Lead auditor If an audit firm or audit company conducts an audit of a company, registered scheme or registrable superannuation entity, the lead auditor for the audit is the registered company auditor who is primarily responsible to the audit firm or the audit company for the conduct of the audit. Officer of a registrable superannuation For the purposes of Chapter 2M of the entity Corporations Act, officer of a registrable superannuation entity means: • if the RSE licensee for the entity is a constitutional corporation or a body corporate--an officer of the constitutional corporation or body corporate; or • if the RSE licensee for the entity is a group of individual trustees: - each of those trustees; or - a person who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the entity; or - a person who has the capacity to affect significantly the entity's financial standing. Play a significant role A person plays a significant role in the audit of a company, a registered scheme or a registrable superannuation entity for a financial year if: • the person is appointed as an individual auditor of the company, scheme or entity for that financial year and: - acts as an auditor for the company, scheme or entity for that financial year; or - prepares an audit report for the company, scheme or entity in 93

Financial reporting and auditing requirements for superannuation entities Definition Meaning relation to a financial report of the company, scheme or entity for that financial year or for a half-year falling within that financial year; or • a firm or company is appointed as an auditor of the company, scheme or entity for that financial year and the person: - is a registered company auditor; and - acts, on behalf of the firm or company, as a lead auditor, or review auditor, in relation to an audit of the company, scheme or entity for that financial year or for a half-year falling within that financial year. Professional members of the audit team If an individual auditor, audit firm or audit company conducts an audit of a company, registered scheme or registrable superannuation entity, the professional members of the audit team are: • any registered company auditor who participates in the conduct of the audit; • any other person who participates in the conduct of the audit and, in the course of doing so, exercises professional judgment in relation to the application of or compliance with: - accounting standards; or - auditing standards; or - the provisions of the Corporations Act dealing with financial reporting and the conduct of audits; and • any other person who is in a position to directly influence the outcome of the audit because of the role they play in the design, planning, management, supervision or oversight of the audit; 94

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Definition Meaning • any person who recommends or decides what the lead auditor is to be paid in connection with the performance of the audit; and • any person who provides, or takes part in providing, quality control for the audit. Registrable superannuation entity • When used in a provision outside Chapter 2M of the Corporations Act or an associated definition--has the same meaning as in the SIS Act; and • When used in Chapter 2M of the Corporations Act or an associated definition--means a registrable superannuation entity (within the meaning of the SIS Act), but does not include the following: - an exempt public sector superannuation scheme (within the meaning of the SIS Act); - an excluded approved deposit fund (within the meaning of the SIS Act); or - a small APRA fund (within the meaning of section 1017BB of the Corporations Act). Section 10 of the SIS Act defines registrable superannuation entity as: • a regulated superannuation fund; or • an approved deposit fund; or • a pooled superannuation trust; but does not include a self managed superannuation fund. For the purposes of this definition, each of the following is an associated definition: • the definition of audit company; • the definition of audit critical employee; • the definition of audited body; 95

Financial reporting and auditing requirements for superannuation entities Definition Meaning • the definition of audit firm; • the definition of consolidated entity; • the definition of director; • the definition of financial year; • the definition of individual auditor; • the definition of officer of a registrable superannuation entity; • the definition of play a significant role; and • the definition of RSE remuneration report. Review auditor If an individual auditor, audit firm or audit company conducts an audit of a company, registered scheme or registrable superannuation entity, the review auditor for the audit is the registered company auditor (if any) who is primarily responsible to the individual auditor, the audit firm or the audit company for reviewing the conduct of the audit. RSE licensee law Has the same meaning as in the SIS Act. RSE licensee law is defined in section 10 of the SIS Act as: • the SIS Act and the SIS Regulations; • the prudential standards; • the FS(CD)Act; • the Financial Institutions Supervisory Levies Collection Act 1998; • the provisions of the Corporations Act listed in a subparagraph of paragraph (b) of the definition of regulatory provision in section 38A of the SIS Act or specified in the SIS Regulations; and • any other provisions of any other law of the Commonwealth specified in regulations made for the purposes of this paragraph. 96

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Definition Meaning RSE Remuneration report The section of the directors' report for a financial year for a registrable superannuation entity that is included under subsection 300C(1) of the Corporations Act. [Schedule 6, items 1 to 18, 77, 87, 88 and 174, sections 9, 323DAAA, 324AE, 324AF, 345AAC and 345AAD of the Corporations Act] 6.18 Schedule 6 to the Bill also amends or inserts new definitions for the following terms in the SIS Act: Table 6.3 Definitions in the SIS Act Definition Meaning Individual RSE auditor An individual who is appointed as auditor of a registrable superannuation entity. Lead auditor If an RSE audit firm or RSE audit company conducts an audit of a registrable superannuation entity, the lead auditor for the audit is the registered company auditor who is primarily responsible to the RSE audit firm or the RSE audit company for the conduct of the audit. Registered company auditor Has the same meaning as in the Corporations Act. Registered company auditor is defined in section 9 of the Corporations Act as: • a person registered as an auditor under Part 9.2; and • in relation to a body corporate that is not a company--includes a person qualified to act as the body's auditor under the law of the body's incorporation. RSE audit company A company that is appointed as auditor of a registrable superannuation entity. RSE audit firm A firm that is appointed as auditor of a registrable superannuation entity. RSE auditor RSE auditor means: • an individual RSE auditor; 97

Financial reporting and auditing requirements for superannuation entities Definition Meaning • an RSE audit firm; or • an RSE audit company. [Schedule 6, items 194 to 196, sections 10 and 11F of the SIS Act] Registrable superannuation entities 6.19 For the purposes of Chapter 2M of the Corporations Act, a registrable superannuation entity includes regulated superannuation funds, approved deposit funds and pooled superannuation trusts, but does not include self managed superannuation funds, exempt public sector superannuation schemes, excluded approved deposit funds or small APRA funds. 6.20 Exempt public sector superannuation schemes are explicitly excluded from the Chapter 2M definition of 'registrable superannuation entity', to avoid any ambiguity or uncertainty. 6.21 The definition of 'registrable superannuation entity' for the purposes of Chapter 2M of the Corporations Act is narrower than the definition of 'registrable superannuation entity' in the SIS Act. This means that some entities currently regulated under the SIS Act may not be required to comply with the financial reporting and auditing obligations in Chapter 2M of the Corporations Act. 6.22 For the purposes of Chapter 2M of the Corporations Act, an obligation imposed on a registrable superannuation entity is required to be discharged by the RSE licensee for the entity. [Schedule 6, items 26 and 174, subsection 285(3A) and section 345AAA of the Corporations Act] 6.23 Similarly, if a notice, direction or other document is given to an RSE licensee for a registrable superannuation entity under Chapter 2M of the Corporations Act, that notice, direction or document is taken to have been given to the registrable superannuation entity. [Schedule 6, item 174, section 345AAB of the Corporations Act] 6.24 'RSE licensee' is defined in section 10 of the SIS Act as a constitutional corporation, body corporate, or group of individual trustees, that holds a registrable superannuation entity licence granted under section 29D of the SIS Act. 6.25 Schedule 6 amends the requirements for a registrable superannuation entity licence by requiring RSE licensees to comply with the requirements of the RSE licensee law and Chapter 2M of the Corporations Act. In granting a licence: 98

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • APRA must have no reason to believe that the body corporate or group of individual trustees would fail to comply with the RSE licensee law or Chapter 2M of the Corporations Act if the licence were granted; • RSE licensees are required to comply with the RSE licensee law and Chapter 2M of the Corporations Act, as a condition imposed on all registrable superannuation entity licences granted by APRA; and - if the RSE licensee is a group of individual trustees, this obligation is imposed on each of those trustees; - if an RSE licensee breaches a licence condition, APRA may give the RSE licensee a direction under section 131D of the SIS Act; • an RSE licensee must notify APRA if the licensee becomes aware that it has breached, or will breach, a condition imposed on its licence and the breach is, or will be, significant; - in determining whether a breach is significant, the RSE licensee must have regard to the extent to which the breach indicates that the RSE licensee's arrangements to ensure compliance with the RSE licensee law and Chapter 2M of the Corporations Act are inadequate. [Schedule 6, items 197 to 199, sections 29D, 29E and 29JA of the SIS Act] 6.26 A director of a registrable superannuation entity commits an offence if he or she fails to take all reasonable steps to comply with, or secure compliance with, all of the following requirements: • Part 2M.2 of the Corporations Act (record-keeping); • Part 2M.3 of the Corporations Act (financial reporting); and • sections 324DAA, 324DAB and 324DAC of the Corporations Act (approval to extend auditor rotation requirements). [Schedule 6, item 173, section 344 of the Corporations Act] 6.27 This Schedule provides that the existing penalty provision in section 344 of the Corporations Act applies to a director of a registrable superannuation entity. If a director of a registrable superannuation entity fails to comply with these obligations and that contravention is dishonest, the penalty for this offence is 15 years imprisonment. 6.28 'Dishonest' is defined in section 9 of the Corporations Act to mean dishonest according to the standards of ordinary people. 6.29 As with directors of companies and registered schemes, a director of a registrable superannuation entity does not commit an offence under section 344 of the Corporations Act if he or she fails to comply with the requirement to 99

Financial reporting and auditing requirements for superannuation entities allow auditors access to the entity's books or give information, explanation or assistance under section 312 of the Corporations Act. Record-keeping requirements for registrable superannuation entities Corporations Act requirements 6.30 This Schedule requires financial records to be kept for all registrable superannuation entities. 6.31 'Financial records' are defined in section 9 of the Corporations Act as including: • invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; • documents of prime entry; and • working papers and other documents needed to explain the methods by which financial statements are made up and adjustments to be made in preparing financial statements. 6.32 The RSE licensee for a registrable superannuation entity must keep written financial records that correctly record and explain the entity's transactions, financial position and performance and would enable true and fair financial statements to be prepared and audited. [Schedule 6, items 20 and 27, sections 285 and 286 of the Corporations Act] 6.33 In accordance with the existing penalty provision in the Corporations Act, a failure to comply with the record-keeping requirement is an offence. The penalty for this offence is: • two years imprisonment for a fault-based offence; or • 60 penalty units for an offence of strict liability. 6.34 This Schedule does not create a new offence provision, instead, it extends the application of the existing penalty provision for failing to comply with the record-keeping requirements in section 286 of the Corporations Act to include registrable superannuation entities. 6.35 An RSE licensee must retain the financial records for a registrable superannuation entity for seven years after the transactions covered by the records are completed. A failure to comply with this requirement is an offence. The penalty is two years imprisonment for a fault-based offence, or 60 penalty units for an offence of strict liability. 6.36 This Schedule does not create a new offence provision, instead, it extends the application of the existing penalty provision for failing to retain financial 100

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 records in section 286 of the Corporations Act to include registrable superannuation entities. 6.37 In accordance with the existing requirements in Part 2M.2 of the Corporations Act, financial records for a registrable superannuation entity may: • be kept in any language -- but if the records are kept in a language other than English, an English translation of the financial records must be made available to inspect within a reasonable time to a person who is entitled to inspect the records and asks for the English translation; - this is an offence of strict liability - 60 penalty units; • be kept in electronic form -- but if so, the records must be convertible into hard copy and be made available within a reasonable time to a person who is entitled to inspect the records; and - this is an offence of strict liability - 60 penalty units; • be kept in a location outside Australia -- but if so, sufficient written information must be kept in Australia to enable the preparation of true and fair financial statements and ASIC must be given written notice, in the prescribed form, of the place where the information is kept; - this is an offence of strict liability - 60 penalty units. [Schedule 6, items 28 and 29, section 289 of the Corporations Act] 6.38 Consistent with the primary objective of the reform, to extend and adapt the financial reporting and auditing requirements in Chapter 2M of the Corporations Act to apply to registrable superannuation entities, this Schedule does not create new offence provisions. Instead, it extends the application of the existing penalty provisions for failing to comply with the record-keeping requirements in sections 287, 288 and 289 of the Corporations Act to include registrable superannuation entities. 6.39 If financial records are kept outside Australia, ASIC may direct a registrable superannuation entity to produce specified financial records. This direction must specify where and when the records are to be produced. An entity must be given at least 14 days after the direction is given to produce the specified records. [Schedule 6, item 30, section 289 of the Corporations Act] 6.40 A director of a registrable superannuation entity (or a person on behalf of the director who has been authorised by the court) has a right to access the financial records of the entity at all reasonable times. [Schedule 6, item 31, section 290 of the Corporations Act] SIS Act requirements 6.41 To ensure that the record-keeping requirements for registrable superannuation entities are consistent across the Corporations Act and the SIS Act, this 101

Financial reporting and auditing requirements for superannuation entities Schedule makes the following consequential amendments to the record- keeping requirements in the SIS Act: • increasing the length of time that accounting records must be retained, from five years after the end of the year of income to which the transactions relate, to seven years; - transitional provisions ensure that this amendment only applies to records required to be kept for a year of income beginning on or after 1 July 2023; • removing the fault element for the following offence provisions (i.e. these offence provisions will become exclusively strict liability offences): - to seek written approval from APRA to keep records outside Australia; - to keep records in English, or in a form that is readily accessible and convertible into English; - to notify APRA of the address where accounting records are kept; and - if the records are moved to a new location, to notify APRA of the new address within the specified timeframe; • increasing the penalty for strict liability offences from 50 penalty units to 60 penalty units; and • modifying the penalty for the remaining fault-based offences (to retain specified accounting records and to keep accounting records for seven years) from 100 penalty units to two years imprisonment. [Schedule 6, items 210 to 214 and 270, section 35A of the SIS Act] 6.42 These consequential amendments to the existing penalty provisions for failing to comply with record-keeping requirements in the SIS Act are intended to ensure alignment with the equivalent offence provisions in the Corporations Act. 6.43 The increased penalty (from 50 penalty units to 60 penalty units) for strict liability offences under the SIS Act ensures consistency with the penalties under the Corporations Act and remains within the maximum penalty amount recommended by the Guide to Framing Commonwealth Offences (60 penalty units for a natural person or 300 penalty units for a body corporate). 6.44 To further ensure alignment between the Corporations Act and the SIS Act, the accounting records kept by the RSE licensee must comply with the requirements under both the RSE licensee law and Chapter 2M of the Corporations Act by being kept in a way that enables: 102

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • the preparation of reporting documents referred to in section 13 of the FS(CD)Act, as well as any other documents required to be audited under the RSE licensee law or Chapter 2M of the Corporations Act; and • those documents to be conveniently and properly audited in accordance with the RSE licensee law and Chapter 2M of the Corporations Act. [Schedule 6, items 208 and 209, section 35A of the SIS Act] Financial reporting requirements for registrable superannuation entities 6.45 Schedule 6 to the Bill amends the financial reporting requirements for registrable superannuation entities by requiring the RSE licensee for a registrable superannuation entity to: • prepare a financial report and a directors' report for each financial year; • obtain an auditor's report for the audit of the entity's financial report for each financial year; • lodge the financial report, directors' report and auditor's report for each financial year with ASIC; • make a copy of the financial report, directors' report and auditor's report for a financial year publicly available on the entity's website; • include details of how to access the entity's financial report, directors' report and auditor's report on the entity's website with the notice of the annual members' meeting; and • provide a copy of the financial report, directors' report and auditor's report for a specified financial year to a member upon request. [Schedule 6, items 19, 21 to 25 and 175, section 285 and subsection 1017C(3AA) of the Corporations Act] Financial report - content, preparation and lodgement 6.46 Schedule 6 to the Bill requires an RSE licensee for a registrable superannuation entity to prepare and lodge (with ASIC) a financial report for each financial year. 6.47 These financial reporting requirements are in addition to existing financial reporting obligations, which require the trustees of a registrable superannuation entity to prepare and lodge (with APRA) financial information in accordance 103

Financial reporting and auditing requirements for superannuation entities with the FS(CD)Act and the superannuation reporting standards, which are made under section 13 of that Act. 6.48 The RSE licensee for a registrable superannuation entity must prepare a financial report and a directors' report for each financial year. [Schedule 6, item 32, section 292 of the Corporations Act] 6.49 The financial report for a financial year must consist of: • the financial statements required by the accounting standards; • the notes to the financial statements required by the regulations and accounting standards; and • a declaration by the directors (directors' declaration) about the financial statement and notes. [Schedule 6, items 34 and 35, section 295 of the Corporations Act] 6.50 A registrable superannuation entity's financial report for a financial year must comply with the accounting standards and give a true and fair view of the financial position and performance of the entity. [Schedule 6, item 36, section 297 of the Corporations Act] 6.51 The accounting standards are made under section 334 of the Corporations Act, which provides that the Australian Accounting Standards Board may make accounting standards, by legislative instrument, for the purposes of the Corporations Act. An accounting standard applies to: • periods ending after the commencement of the standard, • periods ending after, or starting, on or after a later date specified in the standard; or • an earlier period, unless the standard says otherwise, in accordance with an election made in writing by the directors of a registrable superannuation entity. [Schedule 6, item 162, section 334 of the Corporations Act] 6.52 The RSE licensee for a registrable superannuation entity is also required to prepare a directors' report for each financial year. The directors' report must be made in accordance with a resolution of the directors and include: • the general information required by section 299 of the Corporations Act, which includes information about the operations and activities of the entity; • a copy of the auditor's independence declaration required under section 307C of the Corporations Act; • the date on which the report was made and the signature of a director of the entity; 104

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • details of the remuneration of each member of the key management personnel for the registrable superannuation entity and any other matters relating to remuneration prescribed in the Corporations Regulations - this information is required to be included in the directors' report under the heading 'Remuneration report'; • details of any payments made to the auditor for non-audit services provided by the auditor, by another person or firm on the auditor's behalf - this information is required to be included in the directors' report under the heading 'Non-audit services'. This section of the report must include: - the name of the auditor of the entity and the dollar amount paid by the registrable superannuation entity or the RSE licensee for the entity for each of those non-audit services; and - a statement as to whether the directors are satisfied, and their reasons for this view, that the provision of non-audit services was compatible with the general standard of auditor independence. This statement must be made in accordance with advice provided by the entity's audit committee; and • if approval has been granted by the directors of the registrable superannuation entity or a declaration has been made by ASIC for an extension of the auditor rotation requirements in Division 5 of Part 2M.4 of the Corporations Act - the details of the approval or declaration. [Schedule 6, items 37 to 41 and 44, sections 298, 299, 300 and 300C of the Corporations Act] 6.53 For the purposes of the RSE remuneration report, which is required to be included in the directors' report, 'key management personnel' is defined in accordance with the existing definition in the accounting standards (Australian Accounting Standard 124 - Related Party Disclosures). The standard defines 'key management personnel' as those persons that have authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. • Australian Accounting Standard 124 was made by the Australian Accounting Standards Board under section 334 of the Corporations Act. 6.54 Schedule 6 to the Bill provides for regulations to be made setting out other matters relating to remuneration that must be included in the directors' report. Without limiting the matters that the regulations may provide for, the regulations may prescribe: • the way in which the value of an element of remuneration is to be determined; and 105

Financial reporting and auditing requirements for superannuation entities • the details of remuneration that must relate to the financial year to which the directors' report relates and earlier financial years specified in regulations. [Schedule 6, item 44, section 300C of the Corporations Act] 6.55 This regulation-making power is necessary and appropriate to ensure that the types of information required to be included in the directors' report are able to be updated as required to support the policy objectives of ensuring that financial reports for registrable superannuation entities are transparent and accountable. In accordance with the Legislation Act, regulations are subject to disallowance and therefore subject to appropriate parliamentary scrutiny. 6.56 This Schedule also provides for regulations to be made prescribing the requirements for: • a financial report and directors' report prepared for a registrable superannuation entity; and • lodgement of a financial report or a director's report prepared for a registrable superannuation entity. [Schedule 6, items 33 and 69, sections 292 and 319 of the Corporations Act] 6.57 These regulation-making powers are necessary to enable regulations to be made prescribing alternative requirements for the form and lodgement of financial reports to ensure the long-term flexibility of the financial reporting requirements by keeping up with future technological changes. In accordance with the Legislation Act, regulations are subject to disallowance and therefore subject to appropriate parliamentary scrutiny. 6.58 An RSE licensee must have the financial report for a financial year audited and obtain a copy of the auditor's report. [Schedule 6, item 45, section 301 of the Corporations Act] 6.59 An RSE licensee for a registrable superannuation entity must lodge the financial report for a financial year with ASIC within three months after the end of the financial year for the registrable superannuation entity. [Schedule 6, items 66 and 68, section 319 of the Corporations Act] 106

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 6.60 The financial year for a registrable superannuation entity is the same as the entity's 'year of income', within the meaning of the SIS Act. In most cases, the entity's year of income is the 12-month period commencing on 1 July of any given year, except in the case of companies and taxpayers with substituted accounting periods. This means that if an entity's year of income is other than the 12-month period beginning on 1 July, the entity's year of income will be taken to be the financial year for that entity for the purposes of the financial reporting requirements in Chapter 2M of the Corporations Act. [Schedule 6, items 10 and 77, section 9 and subsection 323DAAA(1) of the Corporations Act] 6.61 For example, if a registrable superannuation entity's year of income commences on 1 April each year, the RSE licensee for that entity is required to prepare and lodge a financial report for a financial year for the period from 1 April to 31 March of the following year. 6.62 The timing for lodgement of financial reports is intended to align with the requirement to lodge financial information with APRA for a year of income under the reporting standards (Reporting Standard SRS 320.0 - Statement of Financial Position), which is made under paragraph 13(1)(a) of the FS(CD)Act. 6.63 A failure by an RSE licensee to lodge a financial report for a financial year with ASIC within three months after the end of the entity's financial year is an offence of strict liability. The penalty for this offence is 120 penalty units. Schedule 6 does not create a new strict liability offence provision, instead, it extends the application of the existing penalty provision for failing to lodge a financial report in section 319 of the Corporations Act to include registrable superannuation entities. 6.64 ASIC also has the power to give an RSE licensee for a registrable superannuation entity a direction to lodge with ASIC a copy of the financial report, directors' report and auditor's report for a financial year. [Schedule 6, item 70, section 321 of the Corporations Act] 6.65 A failure to comply with a direction given by ASIC is an offence of strict liability. The penalty for this offence is 30 penalty units. Again, this Schedule does not create a new offence provision, instead, it extends the application of the existing penalty provision for failing to comply with an ASIC direction under section 321 of the Corporations Act to include registrable superannuation entities. 6.66 If a financial report or directors' report for a financial year is amended after being lodged with ASIC, the RSE licensee for the registrable superannuation entity must: • lodge the amended report with ASIC within 14 days after the amendment is made; and 107

Financial reporting and auditing requirements for superannuation entities • make a copy of the amended report and a description of the amendment publicly available on the entity's website on and after the day the amended report is lodged with ASIC. [Schedule 6, item 71, section 322 of the Corporations Act] 6.67 A failure to re-lodge and publish an amended financial report or directors' report is an offence of strict liability. The penalty is 30 penalty units. [Schedule 6, items 72 and 181, section 322 and Schedule 3 of the Corporations Act] 6.68 Schedule 6 to the Bill creates a new strict liability offence provision. In this case, a new strict liability offence is necessary to deter non-compliance and promote the integrity of the regulatory regime administered by ASIC. The penalty for this offence is less than the maximum penalty amount for strict liability offences recommended in the Guide to Framing Commonwealth Offences. This strict liability offence is also required to ensure legislative consistency by imposing the same penalty for equivalent offences committed by all entities regulated under Chapter 2M of the Corporations Act. Financial report - reporting to members 6.69 This Schedule streamlines the public reporting requirements for registrable superannuation entities in the Corporations Act and the SIS Act. 6.70 An RSE licensee for a registrable superannuation entity must report to members for a financial year by making the following documents publicly available on the entity's website on and after the day the reports are lodged with ASIC (i.e. within three months after the end of the financial year): • the financial report for the financial year; • the directors' report for the financial year; and • the auditor's report on the financial report for the financial year. [Schedule 6, items 64 and 65, section 314AA and subsection 315(3AA) of the Corporations Act] 6.71 A failure to comply with this public reporting requirement is an offence of strict liability, the penalty is 30 penalty units. [Schedule 6, items 64 and 180, section 314AA and Schedule 3 of the Corporations Act] 6.72 Schedule 6 creates a new strict liability offence. A strict liability offence is necessary to strongly deter misconduct that can have serious detriment for members of registrable superannuation entities. It is important that financial reports are publicly available within a timely manner, to ensure members can make informed decisions based on accurate reporting of the financial position and performance of their superannuation fund. This offence provision is intended to reduce non-compliance and improve the integrity of the regulatory 108

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 regime enforced by ASIC and strengthen public confidence in the superannuation system. The penalty for this offence is less than the maximum penalty amount for strict liability offences recommended in the Guide to Framing Commonwealth Offences and ensures legislative consistency by imposing the same penalty for an equivalent offence for all of the entities regulated under Chapter 2M of the Corporations Act. 6.73 Unlike the public reporting requirements that apply to companies and registered schemes under section 314 of the Corporations Act, the RSE licensee for a registrable superannuation entity is not required to do any of the following: • provide copies of the reports directly to members (electronically or in hard copy); • notify members that the reports are available; • give members a choice as to how they receive reports; or • provide concise reports in lieu of full financial reports. [Schedule 6, item 67, section 319 of the Corporations Act] 6.74 The new reporting requirements for registrable superannuation entities are adapted from the existing public reporting requirements in section 29QB of the SIS Act and are intended to achieve a balance between ensuring that members are adequately informed and reducing regulatory burden for RSE licensees. 6.75 To avoid duplication, this Schedule repeals the public reporting requirement in section 29QB of the SIS Act, which requires certain information such as remuneration information of executive officers or individual trustees of an RSE licensee, to be made publicly available on the entity's website. [Schedule 6, item 207, section 29QB of the SIS Act] 6.76 To ensure a smooth transition and limit the changes for RSE licensees, it is intended that the existing requirements in regulations made under section 29QB of the SIS Act will be re-made in the Corporations Regulations. 6.77 An RSE licensee for a registrable superannuation entity is also required to provide a copy of the entity's financial report, directors' report and auditor's report for a specified financial year on request by a concerned person. [Schedule 6, item 175, subsection 1017C(3AA) of the Corporations Act] 6.78 In accordance with the existing requirements for giving documents to concerned persons, the RSE licensee must comply with a request to give a copy of a document, as soon as practicable, or in any event, make reasonable efforts to comply with the request within one month of receiving the request. 6.79 A 'concerned person' in relation to a superannuation product is defined in subsection 1017C(9) of the Corporations Act as a person who is, or was, within the preceding 12 months, a member of the registrable superannuation entity, or is a beneficiary of the entity. 109

Financial reporting and auditing requirements for superannuation entities 6.80 A failure by an RSE licensee to comply with a request under section 1017C of the Corporations Act is an offence. The penalty is two years imprisonment. [Schedule 6, items 175 and 185, subsection 1017C(3AA) and Schedule 3 of the Corporations Act] 6.81 Schedule 6 to the Bill creates a new offence provision. This offence provision is necessary as it is considered important that members, who may not be able to access documents from the entity's website, are able to access the entity's financial reports in a timely manner, to ensure members can make informed decisions based on accurate reporting of the financial position and performance of their superannuation fund. This offence provision is intended to reduce non- compliance and strengthen public confidence in the superannuation system. It also ensures legislative consistency by imposing the same penalty as the existing offence provision for the failure by an RSE licensee to provide other documents to members upon request. In accordance with the Guide to Framing Commonwealth Offences, strict liability is not available for an offence punishable by imprisonment. Annual members' meeting 6.82 In accordance with section 29P of the SIS Act, the RSE licensee for a registrable superannuation entity must hold an annual members' meeting for each year of income of the entity. 6.83 The annual members' meeting must be held within three months after the notice of the meeting is given. 6.84 A notice of the meeting is required to be given no later than six months after the end of the year of income of the entity. A notice of the annual members' meeting is required to be given to: • any individual, company or firm that has been an RSE auditor of the registrable superannuation entity for the year of income of the entity; and • if that individual, company or firm is no longer the RSE auditor of the registrable superannuation entity - the individual, company or firm that is the current RSE auditor. [Schedule 6, item 200, subsection 29P(2) of the SIS Act] 6.85 This ensures that all of the relevant persons in relation to an audit of a registrable superannuation entity are given notice of the annual members' meeting, in the event that the individual auditor, lead auditor or member of an audit team may be required to attend the meeting. 6.86 The notice of the annual members' meeting must include details of how to access each of the following documents on the entity's website: • the financial report for the financial year of the entity; 110

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • the directors' report; and • the auditor's report on the financial report. [Schedule 6, item 201, paragraph 29P(3)(aa) of the SIS Act] 6.87 Allowing RSE licensees to provide details of how these reports can be accessed, rather than being required to provide a copy of these documents with the notice of an annual members' meeting, is intended to ensure that RSE licensees have appropriate flexibility in providing information to members in a timely, efficient, user-friendly and cost-effective manner. 6.88 The following persons, in relation to an audit of a registrable superannuation entity, subject to being given a notice of the meeting, may be required to attend an annual members' meeting: • where an individual auditor has been the RSE auditor for the year of income of the entity - the individual auditor must attend the meeting; - if the individual RSE auditor is no longer practicing as an auditor (i.e. has left the profession), the individual RSE auditor (or the lead auditor for an audit that is being conducted by an audit firm or company) that is the current RSE auditor must attend the meeting; • where an audit firm or company has been the RSE auditor for the year of income of the entity - the person who was the lead auditor for the audit must attend the meeting; - if the lead auditor is no longer practicing as an auditor - another member of the audit team involved in the conduct of that audit must attend the meeting. If there is more than one other member of the audit team who would be required to attend the meeting, only one member is required to attend; and - if the firm or company no longer conducts audits - the individual auditor (or the lead auditor for an audit that is being conducted by an audit firm or company) that is the current RSE auditor must attend the meeting. [Schedule 6, item 202, section 29PA of the SIS Act] 6.89 To streamline requirements, the new requirements provide that only one person is required to attend an annual members' meeting for an audit of a registrable superannuation entity. The requirements are also intended to be flexible to take into account the relevant circumstances, such as where an individual ceases to practice as an auditor. 6.90 A failure by an individual auditor, a lead auditor or a member of an audit team to attend an annual members' meeting is an offence. The penalty is 50 penalty units. [Schedule 6, item 202, section 29PA of the SIS Act] 111

Financial reporting and auditing requirements for superannuation entities 6.91 Schedule 6 creates a new offence provision for a failure to attend an annual members' meeting. The penalty for this contravention is the same as the previous penalty that applied to individual auditors under the SIS Act. This new offence provision is necessary to ensure continuity and consistency, and takes into account the new auditing requirements, which allow audit firms and audit companies to be appointed as auditor of a registrable superannuation entity. 6.92 The requirement to attend an annual members' meeting does not apply to a person if the person has a reasonable excuse for not attending. [Schedule 6, item 203, subsection 29PA(5) of the SIS Act] 6.93 If a member of the entity asks a question at the annual members' meeting, the person (an individual auditor, lead auditor or member of an audit team) who is required to attend the annual members' meeting is required to answer the question. [Schedule 6, item 204, subsection 29PD(1) of the SIS Act] 6.94 The individual auditor, lead auditor or member of an audit team (as applicable) must answer the question at the meeting, or if it not reasonably practicable to do so, within one month after the meeting. [Schedule 6, item 205, subsection 29PD(2) of the SIS Act] 6.95 The obligation to answer questions at the annual members' meeting does not apply if the question is not relevant to: • the RSE licensee for the entity; • the registrable superannuation entity; • an audit conducted by the individual, firm or company; or • a matter that might reasonably be expected to be apparent to the auditor of the entity in relation to the entity. [Schedule 6, item 206, subsection 29PD(3) of the SIS Act] 6.96 A failure by a person to answer questions at, or after, the annual members' meeting is an offence. The penalty is 50 penalty units. [Schedule 6, item 205, subsection 29PD(2) of the SIS Act] 6.97 This Schedule does not create a new offence provision, instead, it extends the application of the existing penalty provision in section 29PD of the SIS Act to include lead auditors and members of an audit team (as applicable). 6.98 To avoid duplication of requirements, unlike for companies and registered schemes, the requirements relating to annual general meetings in section 317 of the Corporations Act do not apply to registrable superannuation entities. 112

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Consolidated financial statements 6.99 Schedule 6 to the Bill amends various provisions in the Corporations Act relating to the preparation of consolidated financial statements to include references to registrable superannuation entities. These provisions only apply where a consolidated financial statement is required to be prepared. 6.100 Consolidated financial statements are not currently required to be prepared for registrable superannuation entities because of the exemption in the Australian accounting standard AASB 10 - Consolidated Financial Statements. 6.101 There are no plans to amend this accounting standard to require registrable superannuation entities to prepare consolidated financial statements. Consequently, these amendments are not intended to require registrable superannuation entities to prepare consolidated financial statements. [Schedule 6, items 40, 42, 43, 73 to 77 and 182, sections 299, 300, 323, 323A, 323B, 323C, 323DAAA and Schedule 3 to the Corporations Act] 6.102 The purpose of these amendments is to future proof the legislation, to accommodate future events, such as AASB 10 - Consolidated Financial Statements being amended to require registrable superannuation entities to prepare consolidated financial statements. Auditing requirements for registrable superannuation entities 6.103 This Schedule amends the auditing requirements for registrable superannuation entities. Under the new arrangements, the RSE licensee for a registrable superannuation entity must appoint an individual auditor, audit firm or audit company to conduct an audit of the entity. 6.104 The auditor of a registrable superannuation entity is required to: • comply with eligible requirements to be the auditor of a registrable superannuation entity; • prepare an auditor's report for an audit of an entity's financial report for a financial year; • report certain matters (such as suspected contraventions) to the relevant Regulator (ASIC or APRA); • meet auditor independence and rotation requirements; and • prepare, lodge and publish auditor transparency reports, if required. 113

Financial reporting and auditing requirements for superannuation entities Appointing an auditor for a registrable superannuation entity 6.105 Schedule 6 to the Bill sets out the requirements for the eligibility, appointment, removal and fees for an auditor of a registrable superannuation entity. 6.106 An individual auditor, audit firm or audit company may be appointed as the auditor of a registrable superannuation entity. [Schedule 6, items 78 to 80 and 216, Division 1 of Part 2M.4, section 324AA of the Corporations Act and subsection 35AC(1A) of the SIS Act] 6.107 However, unlike a company or registered scheme, a registrable superannuation entity may only have one auditor at any given time. This ensures that the requirement for a single individual to be responsible for an audit of a registrable superannuation entity continues, despite the changes that permit the appointment of an individual auditor, an audit firm or audit company. Where an audit firm or audit company is appointed as an RSE auditor, the individual responsibility, as set out in the prudential standard, will fall to the lead auditor of the audit firm or audit company. [Schedule 6, items 80 and 216, subsection 324AA(2) of the Corporations Act and subsection 35AC(1A) of the SIS Act] 6.108 An auditor of a registrable superannuation entity has obligations under both Chapter 2M of the Corporations Act and the RSE licensee law. The RSE licensee for a registrable superannuation entity must ensure that the auditor of the entity for the purposes of the RSE licensee law is also the individual, firm or company that is the auditor of the entity for the purposes of Chapter 2M of the Corporations Act (and vice versa). [Schedule 6, items 80, 216, 221, 222 and 226, section 324AA of the Corporations Act and section 35AC of the SIS Act] 6.109 An RSE licensee for a registrable superannuation entity is responsible for appointing the auditor of the entity. 6.110 In regard to the initial appointment of an auditor for a registrable superannuation entity: • if the registrable superannuation entity becomes registered under section 29M of the SIS Act, on or after 1 July 2023 - the RSE licensee must appoint an auditor within one month after the day the entity is registered by APRA; or • if the registrable superannuation entity is registered under section 29M of the SIS Act immediately before 1 July 2023 and the RSE licensee for the entity has already appointed an auditor of the entity under the SIS Act, then the existing auditor is taken to have been appointed as auditor of the entity for the purposes of the Corporations Act from 1 July 2023. [Schedule 6, item 160, section 331AF of the Corporations Act] 114

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 6.111 From 1 July 2023, these requirements relating to the timing for the appointment of an auditor of a registrable superannuation entity override the requirement in the prudential standards (Prudential Standard SPS 310 - Audit and Related Matters), which provide that an RSE licensee for an entity must appoint an auditor no later than the last day of each year of income to which the appointment relates. 6.112 If an RSE licensee fails to appoint an auditor of the registrable superannuation entity in accordance with these requirements, the RSE licensee commits an offence. If a director of a registrable superannuation entity fails to take all reasonable steps to secure compliance with this requirement, the director also commits an offence. The penalty for each of these offences is six months imprisonment. [Schedule 6, items 160 and 184, section 331AF and Schedule 3 of the Corporations Act] 6.113 This Schedule creates new offence provisions for failing to comply with the requirements for appointing an auditor of a registrable superannuation entity. These offence provisions are necessary to strongly deter non-compliance of a key obligation and strengthen the regulatory regime administered by ASIC. The penalty for these offences is considered appropriate to ensure legislative consistency by imposing the same penalty for an equivalent offence for all entities regulated under Chapter 2M of the Corporations Act. In accordance with the Guide to Framing Commonwealth Offences, strict liability does not apply to an offence punishable by imprisonment. 6.114 The auditor of a registrable superannuation entity holds office until the auditor: • dies; • is removed or resigns from office; • ceases to be capable of acting as auditor as a result of not being able to meet any of the following requirements: - Division 2 of Part 2M.4 of the Corporations Act (registration requirements); - Division 2A of Part 2M.4 of the Corporations Act (eligibility requirements); or - Division 5 of Part 2M.4 of the Corporations Act (auditor rotation requirements); • ceases to be the auditor for the purposes of the RSE licensee law; or • does not remedy a conflict of interest situation and fails to notify ASIC that the conflict of interest situation has been resolved within the specified period (21 days, or further period approved by ASIC). [Schedule 6, item 160, section 331AH of the Corporations Act] 115

Financial reporting and auditing requirements for superannuation entities 6.115 The requirements relating to the duration of an auditor's appointment override the requirement in the prudential standards (Prudential Standard SPS 310 Audit and Related Matters), which provide that an RSE licensee for a registrable superannuation entity must appoint an RSE auditor annually. 6.116 If there is a vacancy in the office of the auditor of a registrable superannuation entity, the RSE licensee must, within one month after the vacancy occurs, appoint an auditor to fill the vacancy. [Schedule 6, item 160, section 331AG of the Corporations Act] 6.117 An RSE licensee that fails to comply with this obligation commits an offence. If a director of a registrable superannuation entity fails to take all reasonable steps to secure compliance with this requirement, the director also commits an offence. The penalty for each of these offences is six months imprisonment. [Schedule 6, items 160 and 184, section 331AG and Schedule 3 of the Corporations Act] 6.118 Schedule 6 creates new offence provisions for failing to fill a vacancy in the office of auditor of a registrable superannuation entity. These offence provisions are considered necessary to strongly deter non-compliance and strengthen the regulatory regime administered by ASIC. The penalty for these offences is considered appropriate to ensure legislative consistency by imposing the same penalty for an equivalent offence for all entities regulated under Chapter 2M of the Corporations Act. In accordance with the Guide to Framing Commonwealth Offences, strict liability does not apply to an offence punishable by imprisonment. 6.119 If the RSE licensee for a registrable superannuation entity does not appoint an auditor in compliance with the licensee's obligations, or upon application by a member of the entity, ASIC may appoint an individual, firm or company as auditor of the entity. ASIC may only do this if the individual, firm or company consents to be appointed. If ASIC exercises this power to appoint an auditor of the entity, ASIC must notify APRA of the appointment as soon as practicable after making the appointment. [Schedule 6, item 160, section 331AJ of the Corporations Act] 6.120 The reasonable fees and expenses incurred by the auditor of a registrable superannuation entity are payable by the RSE licensee for the entity. [Schedule 6, item 160, section 331AL of the Corporations Act] Appointment of an individual auditor 6.121 An individual commits an offence if the person consents to be appointed as auditor, acts as auditor, or prepares a report required to be prepared by an auditor of a registrable superannuation entity and the person is not a registered company auditor. The penalty is six months imprisonment. [Schedule 6, item 89, section 324BA of the Corporations Act] 116

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 6.122 Schedule 6 to the Bill does not create a new offence provision, instead, it extends the application of the existing penalty provision in section 324BA of the Corporations Act to include registrable superannuation entities. 6.123 An individual also commits an offence if the individual consents to be appointed as, acts as, or prepares a report required to be prepared by, an auditor of a registrable superannuation entity, if the individual: • does not meet the eligibility criteria to be the auditor of a registrable superannuation entity set out in the prudential standards, made under the SIS Act; • has been disqualified from being, or acting as, the auditor of a registrable superannuation entity under section 130D of the SIS Act; or • is a member or employee of a firm that is disqualified under section 130EA of the SIS Act; or • is a director or employee of a company that is disqualified under section 130EA of the SIS Act. [Schedule 6, items 95 and 217 to 219, subsection 324BF(1) of the Corporations Act and subsection 35AC(2) of the SIS Act] 6.124 The eligibility criteria for being, or performing the functions of, the auditor of a registrable superannuation entity are designed to ensure that an individual is able to comply with the requirements under both the Corporations Act and the SIS Act. An individual who fails to comply with the eligible requirements for being an auditor of a registrable superannuation entity commits an offence. The penalty is six months imprisonment. [Schedule 6, items 95 and 183, subsection 324BF(1) and Schedule 3 to the Corporations Act] 6.125 This Schedule creates a new offence provision for failing to satisfy the eligibility criteria for being an auditor of a registrable superannuation entity. This new offence provision is necessary to ensure the integrity of the audit and is consistent with the equivalent penalty for failing to comply with the eligibility requirements to be appointed as auditor of a registered scheme under the Corporations Act. In accordance with the Guide to Framing Commonwealth Offences, strict liability is not applicable for offences punishable by imprisonment. 117

Financial reporting and auditing requirements for superannuation entities Appointment of an audit firm 6.126 The appointment of an audit firm as the auditor of a registrable superannuation entity is taken to be an appointment of all persons, who at the time of the appointment, are members of the audit firm and are registered company auditors. This is not affected by the dissolution of the firm. [Schedule 6, items 81 and 82, subsections 324AB(1) and (2) of the Corporations Act] 6.127 If an audit firm appointed as the auditor of a registrable superannuation entity is reconstituted as a result of the death, retirement, withdrawal of a member or members, or the admission of a new member(s): • a new member who is a registered company auditor is taken to have been appointed as the auditor of a registrable superannuation entity from the day of the person's admission to the firm; and • the reconstitution of the firm does not affect the appointment of continuing members of the firm who are registered company auditors as the auditors of the registrable superannuation entity. [Schedule 6, items 84 and 85, section 324AC of the Corporations Act] 6.128 For the purposes of criminal proceedings under the Corporations Act, an act or omission by a member, employee or agent of the audit firm acting within the actual or apparent scope of the person's employment, or apparent authority, is also to be attributed to the audit firm. 6.129 However, in the case of criminal proceedings, a member of a firm does not commit an offence, if the person: • does not know of the circumstances that constitute the contravention; or • knows of those circumstances but takes all reasonable steps to correct the contravention as soon as possible after becoming aware of those circumstances. [Schedule 6, items 59, 231, 233, 239, 241, 262, 263 and 265, subsection 311(2G) of the Corporations Act and subsections 129A(3), 130AA(3), 130BAA(3), 130CA(3), 131B(2A), 131BA(1) and 131CC(3) of the SIS Act] 6.130 These offence-specific defences reverse the evidential burden of proof as the evidence needed to prove the defence is peculiarly within the knowledge of the defendant (i.e. the member of an audit firm), who is in the best position to have specific knowledge to raise evidence regarding their knowledge of the circumstances, or what steps they took (if any) to correct the contravention. It would be significantly more difficult and costly for the prosecution to disprove this, than for the defendant to establish the matter. 118

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 6.131 In accordance with subsection 13.3(3) of the Criminal Code Act 1995, a defendant who wishes to rely on these defences, bears an evidential burden in relation to that matter. Once the defendant discharges this evidential burden, the onus is on the prosecution to disprove the matters beyond reasonable doubt. 6.132 Reversing the evidential burden of proof in these circumstances is considered appropriate, because: • this burden is limited to the codified exceptions and does not require the defendant to positively prove their innocence of the offence; and • it is consistent with the existing defence available to members of an audit firm that applies in relation to offences that would otherwise by committed by the audit firm under section 332G of the Corporations Act. 6.133 A member of an audit firm commits an offence if, at the time a firm consents to be, or performs the functions of, an auditor of a registrable superannuation entity: • strict liability offence - the firm does not satisfy the following requirements: - at least one member of the firm must be a registered company auditor ordinarily resident in Australia; - the firm's business name is registered; or - a form has been lodged showing the full name and address of each member of the firm. • fault-based offence - a member of the firm is aware that the firm does not satisfy the relevant requirements to be, or perform the functions of, the auditor of a registrable superannuation entity. [Schedule 6, items 90 and 91, section 324BB of the Corporations Act] 6.134 However, a member of an audit firm does not commit an offence in these circumstances if the member either: • does not know of the circumstances that constitute the contravention; or • does know of the circumstances but takes all reasonable steps to correct the contravention as soon as possible after becoming aware of those circumstances. 6.135 The penalty for a fault-based offence is six months imprisonment. The penalty for a strict liability offence is 30 penalty units. This Schedule does not create these new offence provisions, instead, it extends the application of the existing penalty provisions in section 324BB of the Corporations Act to include registrable superannuation entities. 119

Financial reporting and auditing requirements for superannuation entities 6.136 An audit firm commits an offence if the firm consents to be appointed as, acts as, or prepares a report required to be prepared by, an auditor of a registrable superannuation entity if: • the firm is disqualified under section 130EA of the SIS Act; or • the lead auditor for an audit of a registrable superannuation entity conducted by the firm: - does not meet the eligibility criteria in the prudential standards made under the SIS Act; or - has been disqualified from being, or acting as, an auditor (or lead auditor) of a registrable superannuation entity under section 130D of the SIS Act. [Schedule 6, items 95 and 220, subsections 324BF(3) and (5) of the Corporations Act and subsection 35AC(2A) of the SIS Act] 6.137 The eligibility criteria for being, or performing the functions of, the auditor of a registrable superannuation entity are specifically designed to enable a firm to be able to perform the functions and duties of an auditor under both the Corporations Act and the SIS Act. 6.138 A member of an audit firm that fails to comply with the eligibility requirements for being the auditor of a registrable superannuation entity commits an offence. The penalty is six months imprisonment. This Schedule creates new offence provisions, which are necessary to ensure the integrity of the audit and impose the same penalty as applicable to the members of an audit firm appointed as an auditor of a registered scheme under the Corporations Act. In accordance with the Guide to Framing Commonwealth Offences, strict liability is not applicable for offences punishable by imprisonment. [Schedule 6, items 95 and 183, subsections 324BF(3) and (5) and Schedule 3 to the Corporations Act] 6.139 A report or notice is not taken to have been made by a firm appointed as the auditor of a registrable superannuation entity unless the report or notice is signed by a member of the firm who is a registered company auditor, both in the firm's name and in their own name. A notice is taken to have been given to the firm by giving the notice to a member of the firm. [Schedule 6, item 83, subsection 324AB(3) of the Corporations Act] Appointment of an audit company 6.140 For the purposes of criminal proceedings under the Corporations Act against a director of an audit company, an act or omission by an officer, employee or agent of the audit company acting within the actual or apparent scope of the person's employment, or apparent authority, is also to be attributed to the audit company. 120

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 6.141 A company commits an offence if, at the time the company is or acts as the auditor, or performs the functions of, the auditor of a registrable superannuation entity, the company is not an authorised audit company. 6.142 Section 9 of the Corporations Act defines 'authorised audit company' as a company registered under Part 9.2A of the Corporations Act. 6.143 The penalty for this offence is six months imprisonment. Schedule 6 does not create a new offence provision, instead, it extends the application of the existing penalty provision in section 324BC of the Corporations Act to include registrable superannuation entities. [Schedule 6, items 92, subsection 324BC(1) of the Corporations Act] 6.144 Similarly, a director of an audit company commits an offence if the company is the auditor, or performs the functions of the auditor, of a registrable superannuation entity if: • at the time, the company is not an authorised audit company (strict liability offence); or • at the time, the person is aware that the company is not an authorised audit company (fault-based offence). [Schedule 6, items 93 and 94, subsections 324BC(2) and (3) of the Corporations Act] 6.145 However, a director of an audit company does not commit an offence if the director either: • does not know of the circumstances that constitute the contravention; or • knows of the circumstances but takes all reasonable steps to correct the contravention as soon as possible after becoming aware of those circumstances. 6.146 The penalty for a fault-based offence is six months imprisonment. The penalty for a strict liability offence is 30 penalty units. This Schedule does not create new offence provisions, instead, it extends the application of the existing penalty provisions in section 324BC of the Corporations Act to include registrable superannuation entities. 6.147 As for an audit firm, a company commits an offence if the company consents to be appointed as the auditor, acts as the auditor, or prepares a report required to be prepared by an auditor of a registrable superannuation entity if: • the company is disqualified under section 130EA of the SIS Act; or • the lead auditor for an audit of a registrable superannuation entity conducted by the company: - does not meet the eligibility criteria in the prudential standards made under the SIS Act; or 121

Financial reporting and auditing requirements for superannuation entities - has been disqualified from being, or acting as, an auditor (or lead auditor) of a registrable superannuation entity under section 130D of the SIS Act. [Schedule 6, items 95 and 220, subsections 324BF(2) and (4) of the Corporations Act and subsection 35AC(2A) of the SIS Act] 6.148 In each case, the penalty applicable to an audit company for failing to comply with these requirements is 300 penalty units. This penalty amount is calculated as follows: • the 'individual fine formula' in section 1311B of the Corporations Act provides that the term of imprisonment (in months) is to be multiplied by ten; and • the 'multiplier rule' in the Guide to Framing Commonwealth Offences provides that the penalty for a body corporate is five times higher than for a natural person. [Schedule 6, items 95 and 183, section 324BF and Schedule 3 of the Corporations Act] 6.149 This Schedule creates these new offence provisions to ensure the integrity of the audit and to impose the same penalty as is applicable to an audit company appointed as an auditor of a registered scheme under the Corporations Act. The method for determining the penalty for audit companies is consistent with the Corporations Act and the Guide to Framing Commonwealth Offences. 6.150 A report or notice that is taken to have been made by an audit company appointed as auditor of a registrable superannuation entity must be signed by a director of the audit company (or the lead auditor or review auditor for the audit) both in the audit company's name and in the person's own name. [Schedule 6, item 86, section 324AD of the Corporations Act] Ending the appointment of an auditor of a registrable superannuation entity 6.151 In accordance with the existing requirements for ending the appointment of an auditor of a company or registered scheme under the Corporations Act, the auditor of a registrable superannuation entity may be removed from office in the following ways: • the RSE licensee may, with ASIC's consent, remove the auditor from office; or 122

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • the auditor may, by written notice given to the RSE licensee, resign as auditor if ASIC consents - the resignation takes effect on the day specified in the notice of resignation, the day ASIC consents, or on another day fixed by ASIC. [Schedule 6, item 160, subsections 331AK(1), (2), (3) and (5) of the Corporations Act] 6.152 A statement made by an auditor in an application to ASIC or in response to an inquiry by ASIC relating to the reasons for the application is not admissible in evidence in any civil or criminal proceedings against the auditor and must not be made the ground of a prosecution, action or suit against the auditor. However, a certificate by ASIC that the statement was made in the application, or in answer to the inquiry by ASIC, is prima facie evidence that the statement was so made. [Schedule 6, item 160, subsection 331AK(4) of the Corporations Act] 6.153 Evidentiary certificates are generally only used to settle formal or technical matters of fact that would be difficult to prove by adducing admissible evidence. In this case, the use of evidentiary certificates are primarily intended to settle formal matters of fact (i.e. as evidence that a statement was made, rather than proof of the content of the statement). Where ASIC makes an evidentiary certificate, to ensure procedural fairness, an auditor has the opportunity to adduce evidence of contrary matters, as required. 6.154 If, on the retirement or withdrawal of a member of an audit firm, the firm is no longer capable of acting as the auditor of a registrable superannuation entity because the firm no longer meets the registration requirements in section 324BB of the Corporations Act, the member is (if not disqualified from acting as auditor of the entity) taken to be the auditor of the entity until the member obtains the consent of ASIC to the member's retirement or withdrawal. [Schedule 6, item 160, subsection 331AK(6) of the Corporations Act] 6.155 Within 14 days after the RSE licensee removes an auditor from office, or receives a notice of resignation from the auditor, the RSE licensee must lodge a notice with ASIC of the removal or resignation in the prescribed form. [Schedule 6, item 160, subsection 331AK(7) of the Corporations Act] 6.156 If ASIC consents to the resignation or removal of the auditor of a registrable superannuation entity, ASIC must notify APRA as soon as practicable after giving consent. [Schedule 6, item 160, subsection 331AK(8) of the Corporations Act] 6.157 Under the SIS Act, an RSE licensee must end the appointment of the auditor of a registrable superannuation entity if the licensee becomes aware that: • the individual auditor: 123

Financial reporting and auditing requirements for superannuation entities - no longer meets the eligibility criteria for an auditor of a registrable superannuation entity set out in the prudential standards made under the SIS Act; - has been disqualified from being the auditor, or acting as the auditor of a registrable superannuation entity under section 130D of the SIS Act; or - is a member or employee or director of an audit firm or audit company that is disqualified by the court under section 130EA of the SIS Act; • the audit firm or audit company: - has been disqualified from being an auditor, or acting as an auditor of a registrable superannuation entity under section 130EA of the SIS Act; or - the lead auditor for an audit conducted by the firm or company no longer meets the eligibility criteria to be a lead auditor under the prudential standards, or has been disqualified from being, or acting as an auditor (or lead auditor) of a registrable superannuation entity under section 130D of the SIS Act. [Schedule 6, items 223 to 226, subsections 35AC(6) and (7) of the SIS Act] 6.158 APRA may give a written direction to end the appointment of an auditor of a registrable superannuation entity if the: • individual auditor: - has been disqualified from being an auditor, or acting as an auditor of a registrable superannuation entity under section 130D of the SIS Act; - is not a fit and proper person to hold the appointment; - has been, or acted as, the auditor of the entity, knowing that he or she did not meet the relevant eligibility criteria set out in the prudential standards; or - has failed to perform adequately and properly the duties or functions of the appointment under the SIS Act, the SIS Regulations, the prudential standards or the FS(CD)Act; • firm or company: - has been disqualified from being an auditor, or acting as an auditor of a registrable superannuation entity under section 130EA of the SIS Act; or - the lead auditor for an audit conducted by the firm or company has been disqualified under section 130D of the SIS Act, does 124

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 not meet the eligibility criteria in the prudential standards or is not a fit and proper person to be a lead auditor. [Schedule 6, items 251 to 254 and 256, subsections 131AA(1), (2) and (11) of the SIS Act] 6.159 If APRA makes a direction to end the appointment of an auditor of a registrable superannuation entity, APRA must notify ASIC as soon as practicable after giving the direction. [Schedule 6, item 255, subsection 131AA(6A) of the SIS Act] 6.160 In accordance with the existing offence provision in subsection 131AA(9) of the SIS Act, a trustee of a registrable superannuation entity that fails to comply with a direction given by APRA commits an offence of strict liability. The penalty for this existing offence provision is 60 penalty units. This Schedule does not create a new offence provision. 6.161 APRA also has the power to make directions for contraventions of Chapter 2M of the Corporations Act by an RSE licensee. This power is generally intended to be used to address repeated or systemic contraventions of the requirements in Chapter 2M of the Corporations Act. In these situations, APRA may give the RSE licensee a direction, which could include (but is not limited to), removing a responsible officer of the RSE licensee from office, ordering an audit of a registrable superannuation entity or removing an auditor of a registrable superannuation entity from office etc. [Schedule 6, item 266, subsection 131D(1) of the SIS Act] 6.162 If APRA makes a direction to remove an auditor of a registrable superannuation entity and appoint another auditor, APRA must notify ASIC as soon as practicable after making the direction. [Schedule 6, item 267, subsection 131D(6) of the SIS Act] 6.163 The appointment of an RSE auditor under the SIS Act is also taken to have ceased if the registrable superannuation entity is regulated under Chapter 2M of the Corporations Act and the individual, company or firm ceases to be the auditor of the entity for the purposes of Chapter 2M of the Corporations Act. [Schedule 6, item 226, subsection 35AC(9) of the SIS Act] 6.164 APRA may refer matters to the professional association of an individual or lead auditor if APRA forms the opinion that the person: • has failed, whether within or outside Australia, to carry out or perform adequately and properly: - the duties of an auditor (or lead auditor) under the SIS Act, the SIS Regulations, the prudential standards or Chapter 2M of the Corporations Act; or - any duties required by a law of the Commonwealth, a State or a Territory to be carried out or performed by an auditor; or 125

Financial reporting and auditing requirements for superannuation entities - any functions that an auditor is entitled to perform in relation to the SIS Act, the SIS Regulations, the prudential standards or the FS(CD)Act; or • has been, or has acted as, the individual auditor or lead auditor for the audit of a registrable superannuation entity, knowing that he or she did not meet the relevant eligibility criteria set out in the prudential standards; or • is otherwise not a fit and proper person to be the individual auditor or lead auditor for an audit of a registrable superannuation entity. [Schedule 6, items 257 to 261, section 131A of the SIS Act] Disqualifying an auditor of a registrable superannuation entity 6.165 The court may, upon application by APRA or ASIC, make an order disqualifying an individual from being, or acting as, an auditor (or lead auditor) of a registrable superannuation entity. Such an order may be made against an individual auditor or the lead auditor (for an audit conducted by an audit firm or company). [Schedule 6, items 192, 193 and 242 to 244, sections 6 and 130D of the SIS Act] 6.166 The court may make an order disqualifying a person from being, or acting as, the auditor (or the lead auditor) of a particular entity or a specified class of entities. [Schedule 6, item 245, subsection 130D(3) of the SIS Act] 6.167 A court may disqualify a person if it is satisfied that: • the person has failed to carry out or perform adequately and properly: - the duties of an auditor (or lead auditor) under the SIS Act, the SIS Regulations, the prudential standards or Chapter 2M of the Corporations Act; or - any duties required by a law of the Commonwealth, a State or a Territory to be carried out or performed by an auditor; or - any functions that an auditor is entitled to perform under the SIS Act, the SIS Regulations, the prudential standards or the FS(CD)Act; or • the person has been, or acted as, the auditor (or lead auditor) for the audit of a registrable superannuation entity, knowing that he or she did not meet the relevant eligibility criteria set out in the prudential standards; or 126

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • the person is otherwise not a fit and proper person to be the auditor (or lead auditor) of a registrable superannuation entity. [Schedule 6, items 246 to 248, section 130D of the SIS Act] 6.168 APRA, ASIC or the disqualified person may apply to the Federal Court of Australia to vary or revoke a disqualification order. [Schedule 6, item 249, section 130E of the SIS Act] 6.169 The court may also, upon application by ASIC, make an order disqualifying a firm or company from being or acting as the auditor of a registrable superannuation entity if the court is satisfied that the firm or company has: • failed to put in place appropriate processes and systems to enable it to carry out or perform adequately and properly: - its duties as an RSE auditor, RSE audit firm or RSE audit company under the SIS Act, the SIS Regulations, or Chapter 2M of the Corporations Act; or - any duties required by a law of the Commonwealth, a State or a Territory to be carried out, or performed, by an RSE audit firm or RSE audit company; or - any functions that an RSE audit firm or RSE audit company is entitled to perform in relation to the SIS Act, the SIS Regulations, the prudential standards or the FS(CD)Act; or • failed to take reasonable steps to ensure that the lead auditor for an audit of a registrable superannuation entity conducted by the firm or company meets the relevant eligibility criteria set out in the prudential standards or is a fit and proper person to be a lead auditor. [Schedule 6, item 250, section 130EA of the SIS Act] 6.170 ASIC or the disqualified firm or company may apply to the Federal Court of Australia to vary or revoke the disqualification order. [Schedule 6, item 250, subsection 130EB(1) of the SIS Act] 6.171 At least 21 days before commencing proceedings, the applicant (either ASIC or the disqualified firm or company) must give written notice of the proceedings to the other party. [Schedule 6, item 250, subsection 130EB(2) of SIS Act] 6.172 If the court disqualifies a firm or company, that firm or company is not eligible to be appointed as auditor of a registrable superannuation entity. However, it also means that the members, employees or directors of that firm or company are also no longer eligible to be appointed as the auditor of a registrable superannuation entity. [Schedule 6, items 219 and 220, subsections 35AC(2) and (2A) of the SIS Act] 6.173 The following offences apply to disqualified individuals, firms and companies: 127

Financial reporting and auditing requirements for superannuation entities • a disqualified firm or company commits an offence if the firm or company makes a representation that a member, employee or director of the firm or company is eligible to be an RSE auditor; - this is an offence of strict liability; - the penalty for a member of a firm is 50 penalty units; - the penalty for a company is 250 penalty units. This is in accordance with the multiplier rule in the Guide to Framing Commonwealth Offences; • a disqualified firm or company commits an offence if it is, or acts as, the auditor of an entity and a member of the firm or the company knows that the firm or company is disqualified; - the penalty for a member of a firm is imprisonment for two years; - the penalty for a company is 600 penalty units. This is in accordance with the fine/imprisonment ratio and the multiplier rule in the Guide to Framing Commonwealth Offences; - the imprisonment/fine ratio requires the imprisonment term (in months) to be multiplied by five; - the multiplier rule provides that the penalty for a body corporate may be five times higher than for a natural person; • a disqualified firm or company commits an offence if despite being disqualified, the firm or company is, or acts as, the auditor of an entity (no knowledge requirement); - this is an offence of strict liability; - the penalty for a member of a firm is 60 penalty units; - the penalty for a company is 300 penalty units. This is in accordance with the multiplier rule in the Guide to Framing Commonwealth Offences; • a person commits an offence if they act as the individual RSE auditor of an entity knowing that they are a member, employee or director of a disqualified firm or company; - the penalty for a member or employee of a firm is imprisonment for two years; - the penalty for a director or employee of a company is imprisonment for two years; 128

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • a person commits an offence if they act as the individual RSE auditor of an entity and they are a member, employee or director of a disqualified firm or company (no knowledge requirement); - this is an offence of strict liability; - the penalty for a member or employee of a firm is 60 penalty units; and - the penalty for a director or employee of a company is 60 penalty units. [Schedule 6, items 263 and 264, sections 131BA, 131CA and 131CB of the SIS Act] 6.174 The purpose of these offence provisions is to extend and adapt the existing penalty framework in the SIS Act to provide for take into account the role of audit firms and audit companies in an audit of a registrable superannuation entity. Each of the new offence provisions impose the same penalty as the equivalent existing offence in the SIS Act. These new offence provisions are required to ensure that the obligations and penalties for disqualified persons, firms and companies are consistent across the SIS Act. 6.175 The new strict liability offences created by Schedule 6 are necessary in these circumstances to deter misleading conduct, reduce non-compliance and bolster the integrity of, and confidence in, the regulatory regime for auditors of registrable superannuation entities. These new strict liability offences are within the maximum limit recommended by the Guide to Framing Commonwealth Offences and ensure that the obligations and penalties for disqualified persons, firms and companies are consistent across the SIS Act. 6.176 The following offences committed by a firm apply as if the firm is a person and are taken to have been committed by each member of the firm: • representing that a member of a disqualified firm is eligible to be an auditor of a registrable superannuation entity; or • holding itself out as an RSE auditor if it is not eligible to be an RSE auditor. [Schedule 6, item 265, subsections 131CC(1) and (2) of the SIS Act] 6.177 However, a member of a firm does not commit an offence in these circumstances, if the person: • does not know of the circumstances that constitute the contravention; or • knows of those circumstances but takes all reasonable steps to correct the contravention as soon as possible after becoming aware of those circumstances. [Schedule 6, item 265, subsection 131CC(3) of the SIS Act] 129

Financial reporting and auditing requirements for superannuation entities 6.178 As previously mentioned (see paragraphs 6.130 to 6.132), reversing the evidential burden of proof in this case is considered appropriate, because: • this burden is limited to the codified exception and does not require the defendant to positively prove their innocence of the offence; and • it is consistent with the existing defence available to members of an audit firm that applies to offences that would otherwise be committed by the audit firm under section 332G of the Corporations Act. 6.179 Also, for the purposes of criminal proceedings under these circumstances, an act or omission by an individual who is a member, employee or agent of the firm, or an officer, employee or agent of the company, who is acting within the actual or apparent scope of the individual's employment or authority, is also to be attributed to the firm or company. [Schedule 6, item 265, section 131CD of the SIS Act] 6.180 An individual is not excused from complying with an auditor reporting requirement on the ground that doing so would tend to incriminate the individual or make the individual liable to a penalty. However, this information is not admissible in evidence against the individual in a criminal proceeding or a proceeding for the imposition of a penalty, other than a proceeding in respect of the falsity of the information, if: • before giving the information, the individual claims that giving the information may incriminate them or make them liable to a penalty; and • giving the information may in fact tend to incriminate the individual or make the individual liable to a penalty. [Schedule 6, items 236, 268 and 269, sections 130B and 336F of the SIS Act] 6.181 A person is also not entitled to refuse or fail to comply with a requirement to answer a question, give information, produce books or do any other act on the ground that this may make the person liable to a penalty by way of a disqualification under section 130D or 130EA of the SIS Act. [Schedule 6, items 227 to 229, section 126L of the SIS Act] Auditor's report 6.182 Schedule 6 to the Bill requires the auditor of a registrable superannuation entity to comply with the requirements for audits and auditor's reports in Chapter 2M of the Corporations Act. 6.183 The auditor of a registrable superannuation entity who conducts an audit of a financial report must form an opinion about whether: • the financial report is in accordance with the Corporations Act, including whether it complies with the accounting standards and gives a true and fair view of the entity's financial position and performance; 130

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • the auditor has been given all information, explanation and assistance necessary for the conduct of the audit; • the RSE licensee for the entity has kept financial records sufficient to enable a financial report to be prepared and audited; and • the RSE licensee has kept other records and registers, as required by the Corporations Act. [Schedule 6, item 47, section 307 of the Corporations Act] 6.184 The auditor's report for the audit of a registrable superannuation entity must include: • the matters about which the auditor is required to form an opinion under section 307 of the Corporations Act; • if the auditor is of the opinion that the financial report does not comply with the accounting standards, the auditor's report must quantify the effect of the non-compliance, if it is practical to do so; • any defect or irregularity in the financial report; and • if the directors' report for the financial year includes an RSE remuneration report - the auditor's opinion on whether the RSE remuneration report complies with the requirements under the Corporations Act, and if not, why. [Schedule 6, item 51, section 308 of the Corporations Act] 6.185 An auditor commits an offence of strict liability if the auditor's report for an audit of a registrable superannuation entity does not comply with these requirements. The penalty is 50 penalty units. [Schedule 6, items 52 and 177, section 308 and Schedule 3 of the Corporations Act] 6.186 The new strict liability offence requires the auditor's report for the audit of a registrable superannuation entity to include the auditor's opinion about whether the RSE remuneration report complies with the requirements in section 300C of the Corporations Act. Extending the existing strict liability offence provision to include this requirement is appropriate to deter misconduct that could affect the transparency and accountability of RSE licensees. The penalty amount is less than the maximum penalty amount recommended by the Guide to Framing Commonwealth Offences and ensures consistency by imposing the same penalty as for other breaches of the existing auditor's report requirements in section 308 of the Corporations Act. 6.187 The auditor of a registrable superannuation entity must also comply with the requirements for conducting an audit under the prudential standards (Prudential Standard SPS 310 - Audit and Related Matters). 6.188 To ensure flexibility, the auditor of a registrable superannuation entity may comply with their obligations under Chapter 2M of the Corporations Act and 131

Financial reporting and auditing requirements for superannuation entities the RSE licensee law by preparing a single report for the audit of a registrable superannuation entity. [Schedule 6, item 46, section 301 of the Corporations Act] 6.189 In accordance with existing requirements in section 307A of the Corporations Act, an audit of a registrable superannuation entity must be conducted in accordance with the auditing standards. • Section 336 of the Corporations Act provides that the Auditing and Assurance Standards Board may, by legislative instrument, make auditing standards for the purposes of the Corporations Act. 6.190 The individual or lead auditor of a registrable superannuation entity must also give the directors of the registrable superannuation entity a written declaration (auditor independence declaration), which states that to the best of their knowledge and belief: • there have been no contraventions of the auditor independence requirements, as prescribed in the Corporations Act or applicable code of professional conduct; or • the only contraventions of the auditor independence requirements are those contraventions detailed in the declaration - this does not need to include a declaration about a conflicted relationship if the relationship does not constitute an offence. [Schedule 6, items 48 and 50, subsections 307C(1), (3) and (5A) of the Corporations Act] 6.191 The auditor independence declaration must be signed by the person making the declaration (i.e. the individual auditor or lead auditor for the audit). [Schedule 6, item 49, subsection 307C(5) of the Corporations Act] 6.192 An individual auditor or lead auditor who fails to comply with the requirements of the auditor independence declaration commits an offence of strict liability. The penalty is 20 penalty units. 6.193 This Schedule does not create a new offence provision, instead it extends the application of the existing penalty provision for failing to provide an auditor independence declaration in section 307C of the Corporations Act to include registrable superannuation entities. 6.194 The requirements relating to the retention of audit working papers in section 307B of the Corporations Act also apply to auditors of registrable superannuation entities. Auditor access to documents 6.195 Schedule 6 to the Bill requires relevant personnel connected with the registrable superannuation entity to provide reasonable support for the conduct of an audit of a registrable superannuation entity by providing auditors and 132

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 relevant audit personnel with access to information, books, explanation and assistance. 6.196 At all reasonable times, the auditor of a registrable superannuation entity has a right to access the books of the entity. [Schedule 6, items 53 to 55, section 310 of the Corporations Act] 6.197 The auditor of a registrable superannuation entity may also, by written notice, require an officer of a registrable superannuation entity to give the auditor information, explanation or other assistance for the purposes of the audit within 14 days after the notice is given. An officer of a registrable superannuation entity is only required to comply with such a notice if it is reasonable. [Schedule 6, item 55, subsection 310(2) of the Corporations Act] 6.198 An officer of a registrable superannuation entity must allow the auditor access to the books of the entity and give the auditor any information, explanation or assistance required to be given. A failure to comply is an offence of strict liability. The penalty for this offence is 60 penalty units. [Schedule 6, items 62, 63 and 179, section 312 and Schedule 3 of the Corporations Act] 6.199 Schedule 6 creates a new strict liability offence for failing to provide an auditor access to the entity's books or information. This new strict liability offence is required for the proper performance of an auditor's function. This new strict liability offence is within the maximum penalty amount recommended in the Guide to Framing Commonwealth Offences and ensures legislative consistency by imposing the same penalty for an equivalent offence under section 312 of the Corporations Act. 6.200 Under the SIS Act, the existing requirements continue to apply, which provide that, if the auditor of a registrable superannuation entity requests a document relevant to the conduct of the audit, each trustee of the entity is under an obligation to ensure that the document is given to the auditor within 14 days of the request being made. A failure to comply with this requirement is an offence. The penalty is two years imprisonment for a fault-based offence and 60 penalty units for a strict liability offence. 6.201 This Schedule does not create new offence provisions in the SIS Act. However, it increases the penalty for a strict liability offence from 50 penalty units to 60 penalty units to ensure consistency with the penalty for the equivalent offence provision under section 312 of the Corporations Act. [Schedule 6, item 215, section 35AB of the SIS Act] 6.202 This increase is justified on the basis that it does not exceed the recommended penalty amount for strict liability offences in the Guide to Framing Commonwealth Offences and ensures legislative consistency. 133

Financial reporting and auditing requirements for superannuation entities Auditor reporting requirements 6.203 Schedule 6 to the Bill imposes obligations on an individual auditor, a lead auditor (for an audit conducted by an audit firm or company), an audit company or a member of an audit firm to report matters identified during the course of performing audit functions to ASIC or APRA. 6.204 Under the Corporations Act, an individual auditor, an audit company, a member of an audit firm or the lead auditor (for an audit conducted by an audit firm or audit company) of a registrable superannuation entity commits an offence if the individual auditor or lead auditor suspects on reasonable grounds that there are circumstances that amount to a contravention of the Corporations Act and the person does not notify ASIC in writing of those circumstances as soon as practicable (or before 28 days) after forming that suspicion. 6.205 A failure to comply with this reporting obligation is an offence. The penalty for this offence is as follows: • Fault-based offence: - individual auditor, member of an audit firm or lead auditor - 50 penalty units; - audit company - 250 penalty units in accordance with the multiplier rule in the Guide to Framing Commonwealth Offences. • Strict liability offence: - individual auditor, member of an audit firm or lead auditor - 25 penalty units; or - audit company - 125 penalty units in accordance with the multiplier rule in the Guide to Framing Commonwealth Offences. [Schedule 6, items 56 to 61 and 178, section 311 and Schedule 3 of the Corporations Act] 6.206 This Schedule creates new fault-based and strict liability offence provisions for failing to report suspected contraventions of the Corporations Act. 6.207 Strict liability offences are appropriate in these circumstances to improve compliance with the financial reporting requirements and strengthen the integrity of the regulatory regime and promote public confidence in the system. The new offence provisions extend and adapt the existing penalty provisions in section 311 of the Corporations Act to apply to the auditor of a registrable superannuation entity. These new penalties are below the recommended maximum penalty amount in the Guide to Framing Commonwealth Offences and ensure legislative consistency, not only within Chapter 2M of the 134

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Corporations Act, but also with the equivalent offence provisions in sections 129 and 129A of the SIS Act. 6.208 Under the SIS Act, an individual auditor, an audit company, a member of an audit of firm or the lead auditor (for an audit conducted by an audit firm or company) commit an offence if: • the individual auditor or lead auditor forms the opinion in the course of, or in connection with, the performance of their audit functions that a contravention of any of the following may have occurred, may be occurring, or may occur in relation to the entity - the SIS Act, the SIS Regulations, the prudential standards, the FS(CD)Act or a 'regulatory provision' of the Corporations Act; - the penalty for an individual auditor, member of an audit firm or lead auditor is 50 penalty units for a fault-based offence, or 25 penalty units for a strict liability offence; - the penalty for an audit company is 250 penalty units for a fault-based offence, or 125 penalty units for a strict liability offence in accordance with the multiplier rule in the Guide to Framing Commonwealth Offences; • the individual auditor or lead auditor forms the opinion that the financial position of the entity is, or may be about to become, unsatisfactory; - the penalty for an individual auditor, member of an audit firm or lead auditor is 50 penalty units for a fault-based offence, or 25 penalty units for a strict liability offence; - the penalty for an audit company is 250 penalty units for a fault-based offence, or 125 penalty units for a strict liability offence in accordance with the multiplier rule in the Guide to Framing Commonwealth Offences; • the individual auditor or lead auditor becomes aware of circumstances that amount to an attempt, in relation to an audit of the superannuation entity, by any person to unduly influence, coerce, manipulate or mislead the auditor or a member of the audit team or otherwise interfere with the proper conduct of the audit; or - the penalty for an individual auditor, member of an audit firm or lead auditor is 12 months imprisonment, 50 penalty units, or both; - the penalty for an audit company is 300 penalty units in accordance with the fine/imprisonment ratio and multiplier rule in the Guide to Framing Commonwealth Offences; • the individual auditor or lead auditor forms the opinion, in or in connection with, the performance of audit functions that there has been 135

Financial reporting and auditing requirements for superannuation entities a failure to implement an actuarial recommendation that the registrable superannuation entity was required to implement; - the penalty for an individual auditor, member of an audit firm or a lead auditor is 50 penalty units for a fault-based offence, or 25 penalty units for an offence of strict liability; - the penalty for an audit company is 250 penalty units for a fault-based offence or 125 penalty units for a strict liability offence in accordance with the multiplier rule in the Guide to Framing Commonwealth Offences. [Schedule 6, items 230 to 233, 237 and 239 to 241, sections 129, 129A, 130, 130AA, 130BA, 130BAA, 130C, 130CA of the SIS Act] 6.209 Where an auditor notifies APRA of attempts to unduly influence, coerce, manipulate or mislead the conduct of an audit, APRA must notify ASIC as soon as practicable after receiving the notification if the notification relates partly or entirely to an audit conducted for the purposes of Chapter 2M of the Corporations Act. This amendment is not intended to apply to an auditor of a self managed superannuation fund. [Schedule 6, items 238 and 239, sections 130BA and 130BAA of the SIS Act] 6.210 This is intended to reduce regulatory burden for auditors by providing that the auditor is only required to report the matter once (to APRA). It is then APRA's responsibility to notify ASIC of matters relevant to the conduct of an audit for the purposes of Chapter 2M of the Corporations Act. 6.211 The new offence provisions in Schedule 6 to the Bill are required to promote compliance with the new financial reporting and auditing requirements and strengthen public confidence in the regulatory regime. The new offence provisions ensure that the penalties for contraventions in respect of audits conducted by audit firms and companies are equivalent to the penalties that currently apply to individual auditors under the SIS Act. In accordance with the Guide to Framing Commonwealth Offences, any offences punishable by imprisonment are not subject to strict liability. 6.212 In the case of the new strict liability offences created by Schedule 6, these are appropriate to deter misconduct and reduce non-compliance. The penalties for the new strict liability offences are less than the maximum penalty amount recommended in the Guide to Framing Commonwealth Offences and ensure legislative consistency by imposing the same penalty as for equivalent offences applicable to audits conducted by individual auditors under the SIS Act. 6.213 In addition to these mandatory reporting obligations, an individual auditor, audit firm or audit company may give APRA information about the RSE licensee or the registrable superannuation entity obtained in the course of, or in connection with, the performance of their audit functions, if the person, firm or company considers that giving this information will assist the Regulator in performing its functions under the SIS Act, the SIS Regulations, the prudential 136

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 standards or the FS(CD)Act. [Schedule 6, items 234 and 235, section 130A of the SIS Act] Auditor independence requirements 6.214 Schedule 6 to the Bill extends the existing general and specific auditor independence requirements in Division 3 of Part 2M.4 of the Corporations Act to apply to the auditor of a registrable superannuation entity. The auditor independence requirements require individual auditors, audit companies, members of an audit firm or directors of an audit company to identify, resolve and disclose conflicts of interest situations. 6.215 Auditor independence is a fundamental aspect of the financial reporting laws under the Corporations Act, and requires an auditor to be, and be seen to be, independent of the audited body. 6.216 The auditor independence requirements include the requirement for an auditor to give a written declaration of independence to the directors of the registrable superannuation entity under section 307C of the Corporations Act. 6.217 It is noted that auditor independence requirements already apply to an individual auditor of a registrable superannuation entity under the prudential standards made under the SIS Act (Prudential Standard SPS 510 - Governance). 6.218 This Schedule amends the Corporations Act to provide that the general auditor independence requirements in sections 324CA, 324CB and 324CC of the Corporations Act apply to: • if an individual auditor is appointed as the auditor of a registrable superannuation entity - the individual auditor; • if an audit firm is appointed as the auditor of a registrable superannuation entity - the members of the audit firm; • if an audit company is appointed as the auditor of a registrable superannuation entity - the audit company and the directors of an audit company. [Schedule 6, items 96 to 101, sections 324CA, 324CB and 324CC of the Corporations Act] 6.219 In accordance with the existing requirements in sections 324CA, 324CB and 324CB of the Corporations Act, the general auditor independence requirements provide that an individual auditor, audit company, member of an audit firm or director of an audit company commit an offence if: • the person engages in audit activity for a registrable superannuation entity and fails to take all reasonable steps as soon as possible to cease the conflict of interest situation after becoming aware that a conflict of interest situation exists; 137

Financial reporting and auditing requirements for superannuation entities - the penalty for an individual auditor, member of an audit firm or director of an audit company is six months imprisonment; - the penalty for an audit company is 600 penalty units in accordance the calculation methods in sections 1311B and 1311C of the Corporations Act; • the person is the auditor of a registrable superannuation entity and fails to inform ASIC within seven days in writing that the conflict of interest situation exists; - the penalty for an individual auditor, member of an audit firm or director of an audit company is 30 penalty units; - the penalty for an audit company is 300 penalty units in accordance with the calculation method in section 1311C of the Corporations Act; • the person engages in audit activity in relation to the registrable superannuation entity and would have been aware that the conflict exists had a quality control system been in place - strict liability offence; - the penalty for an individual auditor, member of an audit firm or director of an audit company is 30 penalty units; - the penalty for an audit company is 300 penalty units in accordance with the calculation method in section 1311C of the Corporations Act. 6.220 Consistent with the primary objective of the reform to extend and adapt the auditing requirements in Chapter 2M of the Corporations Act to apply to registrable superannuation entities, this Schedule does not create new offence provisions. Instead, it extends the application of the existing penalty provisions for failing to comply with general auditor independence requirements in sections 324CA, 324CB and 324CC of the Corporations Act to include registrable superannuation entities. 6.221 A conflict of interest situation exists at a particular time if, because of circumstances that exist at that time: • the auditor, or a professional member of the audit team, is not capable of exercising objective and impartial judgment in relation to the conduct of the audit of the entity; or • a reasonable person, with full knowledge of all relevant facts and circumstances, would conclude that the auditor, or a professional member of the audit team, is not capable of exercising objective and impartial judgment in relation to the conduct of the audit of the entity. 138

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 6.222 In determining whether a conflict of interest situation exists, regard must be had to circumstances arising from any relationship that exists, has existed or is likely to exist between the following parties: • the individual auditor, audit firm (any current or former member of the firm) or the audit company (any current or former director of the company or any person currently or formerly involved in the management of the company); and • the audited body (the registrable superannuation entity) - which could include: - the RSE licensee for the registrable superannuation entity (if the RSE licensee is a body corporate or a constitutional corporation); - a current or former director of the registrable superannuation entity; - a person currently or formerly involved in the management of the entity; - a person currently or formerly involved in the management of the RSE licensee for the entity; or - a connected entity of the RSE licensee (as defined in section 10 of the SIS Act). [Schedule 6, item 102, section 324CD of the Corporations Act] 6.223 Schedule 6 also amends the Corporations Act to provide that the specific auditor independence requirements in sections 324CE, 324CF and 324CG of the Corporations Act apply to: • if an individual auditor is appointed as the auditor of a registrable superannuation entity - the individual auditor; • if an audit firm is appointed as the auditor of a registrable superannuation entity - the members of the audit firm; • if an audit company is appointed as the auditor of a registrable superannuation entity - the audit company and the directors of the audit company. [Schedule 6, items 103, 104, 106, 107 and 109 to 112, sections 324CE, 324CF and 324CG of the Corporations Act] 6.224 The specific auditor independence requirements in the Corporations Act impose restrictions on specific relationships between the auditor and the audited body. These specific restrictions are considered "core" circumstances which, if they exist, necessarily mean that the auditor is not independent. The relationships in subsection 324CH(1) of the Corporations Act can be categorised in two discrete types of relationships: 139

Financial reporting and auditing requirements for superannuation entities • employment relationships (items 1-9); and • financial relationships (items 10-19). 6.225 If an audited body is a registrable superannuation entity: • the references to the audited body in items 1 to 9, and items 15 and 19 in subsection 324CH(1) of the Corporations Act were references to the RSE licensee for the entity; • the references to an interest in the audited body in items 10 and 12 in subsection 324CH(1) of the Corporations Act were references to an interest in either the entity or the RSE licensee for the entity; and • the references to an investment in an entity that has a controlling interest in the audited body in items 13 and 14 in subsection 324CH(1) of the Corporations Act were references to an investment in an entity that has a controlling interest in the RSE licensee for the entity. [Schedule 6, item 114, section 324CH of the Corporations Act] 6.226 In accordance with the existing requirements in sections 324CE, 324CF and 324CG of the Corporations Act, the specific auditor independence requirements provide that an individual auditor, audit company, member of an audit firm or director of an audit company commits an offence if: • the person engages in audit activity in relation to a registrable superannuation entity and fails to take all reasonable steps to cease the conflict as soon as possible after becoming aware that a conflicted relationship exists; - the penalty for an individual auditor, member of an audit firm or director of an audit company is six months imprisonment; - the penalty for an audit company is 600 penalty units in accordance with the calculation methods in sections 1311B and 1311C of the Corporations Act; • the person is the auditor of a registrable superannuation entity and fails to inform ASIC within seven days in writing that a conflicted relationship exists; or - the penalty for an individual auditor, member of an audit firm or director of an audit company is 30 penalty units; - the penalty for an audit company is 300 penalty units in accordance with the calculation method in section 1311C of the Corporations Act; • the person engages in audit activity in relation to a registrable superannuation entity at a time when a conflicted relationship exists - strict liability offence; 140

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 - the penalty for an individual auditor, member of an audit firm or director of an audit company is 30 penalty units; - the penalty for an audit company is 300 penalty units in accordance with the calculation method in section 1311C of the Corporations Act. 6.227 This Schedule does not create new offence provisions, instead, it extends the application of the existing penalty provisions for failing to comply with specific auditor independence requirements in sections 324CE, 324CF and 324CG of the Corporations Act to include registrable superannuation entities. 6.228 However, this Schedule makes one change to the specific auditor independence requirements in sections 324CE, 324CF and 324CG of the Corporations Act for auditors of a registrable superannuation entity. The maximum hours test for the provision of non-audit services (set out in subsections 324CE(6), 324CF(6) and 324CG(10) of the Corporations Act) does not apply in relation to the audit of a registrable superannuation entity if the services are required or permitted to be provided under the prudential standards made under the SIS Act. [Schedule 6, items 105, 108 and 113, subsections 324CE(6A), 324CF(6A) and 324CG(10A) of the Corporations Act] 6.229 This means that there is no limit on the number of hours of non-audit services provided, where those non-audit services are required or permitted under the prudential standards. Examples of non-audit services required or permitted under the prudential standards include, but are not limited to, comprehensive reviews of prudential frameworks, the internal audit function or ad hoc engagements on specific topics (e.g. unit pricing or merger due diligence). However, the change to the maximum hours test does not apply in relation to audits of entities (such as companies or registered schemes) other than registrable superannuation entities. 6.230 The independence rules in sections 324CI, 324CJ and 324CK of the Corporations Act apply to registrable superannuation entities. In accordance with existing requirements, these rules apply to: • retiring partners of audit firms; • retiring directors of authorised audit companies; • retiring professional members of audit companies; • former partners of audit firms; and • former directors of audit companies. 6.231 This Schedule also amends the Corporations Act to apply the provisions relating to deliberately disqualifying an auditor in section 324CM of the Corporations Act to auditors of registrable superannuation entities. 6.232 In accordance with the existing requirements for an auditor of a company or registered scheme under section 324CM of the Corporations Act, the following 141

Financial reporting and auditing requirements for superannuation entities persons commit an offence if they bring about a state of affairs, which if it continued, would prevent the individual auditor, audit firm or audit company from continuing to be the auditor of the registrable superannuation entity without contravening the registration or auditor independence requirements in Divisions 2 or 3 of Part 2M.4 of the Corporations Act: • an individual auditor; • a member of an audit firm; and • a member, director or lead auditor of an audit company. [Schedule 6, items 116 to 121, section 324CM of the Corporations Act] 6.233 This Schedule does not create new offence provisions, instead, it extends the application of the existing penalty provisions for failing to comply with the requirements in section 324CM of the Corporations Act to include registrable superannuation entities. 6.234 For the purposes of the auditor independence requirements in the Corporations Act, the definition of an 'officer' of a registrable superannuation entity in section 345AAD of the Corporations Act is extended to include the following people, unless ASIC makes a direction otherwise: • a person who is an officer of a related body corporate of the RSE licensee or an entity controlled by the RSE licensee; or • a person who has at any time within the previous 12 months been an officer or promoter of a related body corporate of the RSE licensee or an entity controlled by the RSE licensee. [Schedule 6, item 115, section 324CLA of the Corporations Act] Auditor rotation requirements 6.235 Schedule 6 to the Bill amends the Corporations Act to provide that the auditor rotation requirements in Division 5 of Part 2M.4 of the Corporations Act apply to auditors of registrable superannuation entities. 6.236 Auditor rotation builds on the auditor independence requirements to safeguard the quality of audits. The limitation on the number of years that an individual can play a significant role in the audit of a registrable superannuation entity is intended to ensure the impartiality of auditors, and thus the quality of audits, which otherwise may be compromised as a result of excessive familiarity and close relations between an auditor and the audited entity. 6.237 An individual is not eligible to play a significant role in the audit of a registrable superannuation entity for a financial year if this would result in the individual playing a significant role in the audit of the entity for more than five successive years unless ASIC makes a declaration otherwise, or the directors of 142

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 the entity grant an approval to do so. [Schedule 6, items 122 to 128, section 324DA of the Corporations Act] 6.238 In accordance with the existing requirements in section 324A of the Corporations Act, ASIC may make a declaration permitting an individual to play a significant role in the audit of a registrable superannuation entity for more than five successive years if ASIC receives an application from the registered company auditor, or a firm or company on whose behalf the registered company auditor acts, or would act, in relation to the audit. 6.239 To avoid the need for separate applications to be made to both ASIC and APRA, before making such a declaration, ASIC must consult with APRA in deciding whether to make such a declaration. This is intended to reduce regulatory burden for auditors by creating a single application process. [Schedule 6, item 168, subsection 342A(5A) of the Corporations Act] 6.240 If ASIC makes a declaration granting an extension of the auditor rotation requirements: • ASIC must notify APRA of the declaration as soon as practicable after making the declaration; and • the auditor must, as soon as practical after the declaration is made, give notice of the declaration by ASIC to the registrable superannuation entity. [Schedule 6, items 169 to 172, sections 342A and 342B of the Corporations Act] 6.241 The directors of a registrable superannuation entity may, by resolution, grant approval for an individual to play a significant role in the audit of a registrable superannuation entity for up to an additional two years. Before the end of the permitted five successive years, the directors of the entity may: • grant approval for one additional successive year, and may, by the end of that year, grant an approval for an additional successive year; or • grant an approval for two successive years. [Schedule 6, items 129 to 132, section 324DAA of the Corporations Act] 6.242 The directors of a registrable superannuation entity must not grant approval to extend the auditor rotation requirements unless the approval is in accordance with a recommendation endorsed by the Board Audit Committee and the individual to whom the approval relates agrees, in writing, to the approval being granted. [Schedule 6, items 133 to 137, section 324DAB of the Corporations Act] 6.243 If the directors of a registrable superannuation entity grant approval, the directors must, within 14 days of granting approval give a copy of the approval to: • ASIC and APRA; 143

Financial reporting and auditing requirements for superannuation entities • if the individual to whom the approval relates does not act on behalf of a firm or company - the individual; and • if the individual to whom the approval relates acts on behalf of a firm or company - the firm or company. [Schedule 6, items 138 and 139, section 324DAC of the Corporations Act] 6.244 Details of an approval granted by the directors of a registrable superannuation entity must be included in the directors' report for that financial year. [Schedule 6, items 44 and 140, sections 300C and 324DAC of the Corporations Act] 6.245 In accordance with sections 324DB, 324DC and 324DD of the Corporations Act, an individual auditor, the members of an audit firm, an audit company or the directors of an audit company commit an offence if they play a significant role in the audit of a registrable superannuation entity in contravention of the auditor rotation requirements in Division 5 of Part 2M.4 of the Corporations Act. [Schedule 6, items 141 to 159, sections 324DB, 324DC and 324DD of the Corporations Act] 6.246 The penalty for each fault-based offence is six months imprisonment. The penalty for each strict liability offence is 30 penalty units. Schedule 6 does not create new offence provisions, instead, it extends the application of the existing penalty provisions in sections 324DB, 324DC and 324DD of the Corporations Act to include auditors of registrable superannuation entities. 6.247 Currently, APRA also has the power, under the prudential standards, to grant an exemption from the auditor rotation requirements. However, an approval granted by APRA to extend the auditor rotation requirements in accordance with the prudential standards is not sufficient to satisfy the requirements under the Corporations Act and would require the person to also obtain a declaration from ASIC or an approval from the directors of the entity. For this reason, a separate application to APRA for an extension to the auditor rotation requirements is not required. Auditor transparency reporting 6.248 Schedule 6 to the Bill amends the Corporations Act to apply the auditor transparency reporting requirements in Part 2M.4A of the Corporations Act to auditors of registrable superannuation entities. 6.249 In accordance with existing requirements, individual auditors, audit firms and audit companies must prepare and publish an audit transparency report for a transparency reporting period (the 12-month period starting on 1 July of each year) if during that transparency reporting period, the person, firm or company conducted audits of ten or more bodies of the kind listed in subsection 332A(1) of the Corporations Act. 144

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 6.250 The list of bodies in subsection 332A(1) of the Corporations Act is amended to include registrable superannuation entities. This list sets out the types of entities that count for the purposes of determining whether an audit transparency report is required. [Schedule 6, item 161, section 332A of the Corporations Act] 6.251 The content of the annual transparency report is required to be in accordance with the requirements in Schedule 7A of the Corporations Regulations, which is made under section 332B of the Corporations Act. 6.252 In accordance with the existing requirements, if an individual, firm or company is required to prepare an audit transparency report, the report must be published on the auditor's website within four months after the end of the transparency reporting year, or in accordance with an order made by ASIC. 6.253 Subsection 332A(4) of the Corporations Act specifies that a failure to publish a transparency report on the auditor's website within four months after the end of the year, or to lodge a copy of the report with ASIC before it is published on the auditor's website, are offences of strict liability. 6.254 In accordance with section 332G of the Corporations Act, an offence that would be committed by a firm is taken to have been committed by each member of the firm. However, a member of an audit firm is not taken to have committed an offence if the member: • does not know of the circumstances that constitute the offence; or • knows of those circumstances but takes all reasonable steps to correct the contravention as soon as possible after becoming aware of those circumstances. 6.255 The requirements for obtaining an exemption from the requirement to prepare and publish a transparency report or an extension of the period within which a transparency report must be published are in accordance with the existing requirements in sections 332C, 332D, 332E and 332F of the Corporations Act. Relief from the requirements in Chapter 2M of the Corporations Act 6.256 Schedule 6 to the Bill amends the Corporations Act to apply ASIC's existing powers to grant exemptions from the requirements in Part 2M.6 of the Corporations Act to registrable superannuation entities. 6.257 ASIC may take one of the following actions, in respect of: • a registrable superannuation entity - make an order to grant relief to the directors, the entity or the auditor from any or all of the requirements in Part 2M.2, 2M.3 and 2M.4 of the Corporations Act, other than Division 4 of Part 2M.4 of the Corporations Act (deliberately disqualifying auditor); 145

Financial reporting and auditing requirements for superannuation entities • a specified class of registrable superannuation entities - make a legislative instrument granting relief to the directors, the entity or the auditors of the entity from any or all the requirements in Part 2M.2, 2M.3 and 2M.4 of the Corporations Act, other than Division 4 of Part 2M.4 of the Corporations Act (deliberately disqualifying auditor); • non-auditor members of an audit firm, former members of an audit firm, or former directors or professional employees of an audit company - make an order granting relief from any or all the auditor independence requirements in Division 3 of Part 2M.4 of the Corporations Act; or • a specified class of non-auditor members of audit firms or former members, directors or professional employees of audit firms or companies - make a legislative instrument granting relief from any or all the auditor independence requirements in Division 3 of Part 2M.4 of the Corporations Act. [Schedule 6, items 163 to 167, sections 340, 341 and 342 of the Corporations Act] 6.258 In accordance with the existing requirements in Part 2M.6 of the Corporations Act: • ASIC may make an order or legislative instrument subject to conditions; • an order or legislative instrument may apply indefinitely or for a specified period of time; and • ASIC may make an order or legislative instrument only if ASIC is satisfied that compliance with the specified requirements in Parts 2M.2, 2M.3 and 2M.4 of the Corporations Act would make the financial or other reports misleading, be inappropriate in the circumstances or would impose an unreasonable burden. 6.259 The limited expansion of ASIC's existing exemption and modification powers in Part 2M.6 of the Corporations Act is intended to allow ASIC to provide limited administrative relief in circumstances where the strict operation of Chapter 2M of the Corporations Act is inappropriate or unreasonable. These changes ensure legislative consistency, by applying ASIC's powers equally to all of the entities regulated under Chapter 2M of the Corporations Act. 6.260 The power for ASIC to make orders or instruments granting relief is appropriate as the issues to be addressed by such orders are too individual and specific to justify addressing them in the Corporations Act. • ASIC orders are subject to administrative review by the AAT, judicial review and consideration in appropriate circumstances by the Commonwealth Ombudsman. 146

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • In accordance with sections 9 and 11 of the Legislation (Exemptions and Other Matters) Regulation 2015, legislative instruments (other than regulations) relating to superannuation are not subject to disallowance or sunsetting under the Legislation Act. Disclosure of information 6.261 Schedule 6 to the Bill amends the ASIC Act to provide that information obtained by ASIC under Chapter 2M of the Corporations Act about the audit of a registrable superannuation entity conducted by an Australian auditor is an authorised use and disclosure of information if it is disclosed: • by a person authorised by the Chair of ASIC; and • to the directors, audit committee or senior manager of an RSE licensee for a registrable superannuation entity in order to assist the RSE licensee to properly manage its affairs. [Schedule 6, items 186 to 191, section 127 of the ASIC Act] 6.262 The person authorised by the ASIC Chair must not disclose this information unless the authorised person notifies the relevant auditor at least seven days before of the proposed disclosure. 6.263 If the disclosure is made only to a senior manager of an RSE licensee, the authorised person must as soon as possible after making the disclosure, also provide a copy of the disclosure to the directors and audit committee of the RSE licensee for the entity. 6.264 For the purposes of the ASIC Act, 'registrable superannuation entity' is defined to have the same meaning as in the Corporations Act, while 'RSE licensee' is defined to have the same meaning as in the SIS Act. Commencement, application, and transitional provisions 6.265 The amendments to the Corporations Act made by Division 1 of Part 1 of Schedule 6 to the Bill commence on 1 July 2023. [Schedule 6, item 176, section 1684 of the Corporations Act] 6.266 The amendments apply in relation to the report or audit of a registrable superannuation entity for the financial year beginning on, or after, 1 July 2023. The new financial reporting and auditing obligations and requirements do not apply before 1 July 2023. 6.267 For example, if a registrable superannuation entity's year of income commences on 1 April 2023, the new requirements apply in relation to the first 147

Financial reporting and auditing requirements for superannuation entities year of income commencing on or after 1 July 2023 (i.e. the year of income commencing on 1 April 2024). 6.268 The timing of the amendments is intended to ensure that RSE licensees and auditors have adequate time to put in place systems and processes to implement the new requirements before the commencement of the reporting period to which the new requirements apply. 6.269 The amendments made in Division 2 of Part 1 of Schedule 6 to the Bill commence on the later of: • immediately after the commencement of the provisions covered in Division 1 of Part 1 of Schedule 6 - 1 July 2023; and • the commencement of item 609 of Schedule 1 to the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020. 6.270 To ensure alignment with the changes to the Corporations Act, the amendments to the SIS Act and the ASIC Act made by Part 2 of Schedule 6 to the Bill also commence on 1 July 2023. 6.271 This Schedule amends the SIS Act to require an RSE licensee for a registrable superannuation entity to retain accounting records for a period of seven years, rather than five years. This amendment is not intended to have retrospective effect, and therefore first applies to accounting records relating to a year of income beginning on, or after, 1 July 2023. [Schedule 6, item 270, SIS Act] 6.272 This means that the former requirement to retain accounting records for a period of five years in subsection 35A(2) of the SIS Act, which is repealed by this Schedule, continues to apply in relation to accounting records that are required to be kept for a year of income beginning before 1 July 2023. 148

Deductible gift recipients Table of Contents: Outline of chapter .............................................................................. 149 Context of amendments ..................................................................... 149 Summary of new law.......................................................................... 151 Detailed explanation of new law ........................................................ 151 Consequential amendments .............................................................. 153 Commencement, application, and transitional provisions .................. 153 Commencement .......................................................................... 153 Application................................................................................... 153 Outline of chapter 7.1 Schedule 7 to the Bill amends the ITAA 1997 to: • list Melbourne Business School Limited, Leaders Institute of South Australia Incorporated, St Patrick's Cathedral Melbourne Restoration Fund, Jewish Education Foundation (Vic) Ltd, Australian Education Research Organisation Limited, and Australians for Indigenous Constitutional Recognition Ltd as deductible gift recipients; • extend the deductible gift recipient listings of Sydney Chevra Kadisha and Australian Women Donors Network; and • remove the deductible gift recipient listing of the Mt Eliza Graduate School of Business and Government Limited. Context of amendments 7.2 The income tax law allows income tax deductions for taxpayers who make gifts of $2 or more to deductible gift recipients. To be a deductible gift 149

Deductible gift recipients recipient, an organisation must fall within one of the general categories set out in Division 30 of the ITAA 1997 or be listed by name in that Division. 7.3 Deductible gift recipient status helps eligible organisations attract public financial support for their activities. 7.4 Melbourne Business School Limited (ABN 80 007 268 233) is a charity that operates as a graduate business school to provide degrees and short courses and conduct research and consulting activities relevant for the Australian and international business community. 7.5 Leaders Institute of South Australia Incorporated (ABN 93 093 281 641) is a charity which seeks to develop impactful leaders in South Australia by encouraging self-awareness and providing opportunities to experience alternative perspectives. 7.6 St Patrick's Cathedral Melbourne Restoration Fund (ABN 83 460 705 615) is a charity operating as a discretionary investment trust to maintain, preserve and restore the building and facilities of St Patrick's Cathedral Melbourne. The entity also promotes St Patrick's Cathedral Melbourne as a place of historic and cultural significance, place of worship and religious instruction, and as a venue for culture, artistry, and community. 7.7 Jewish Education Foundation (Vic) Ltd (ABN 91 654 198 375) is a charity that represents a cross section of the Victorian Jewish Community and supports Jewish schools and education, including through the provision of scholarships. 7.8 Australian Education Research Organisation Limited (ABN 83 644 853 369) supports Australian education by generating, presenting, and encouraging the adoption of evidence-based education. 7.9 Australians for Indigenous Constitutional Recognition Ltd (ABN 70 636 542 204) is a charity which seeks to empower Indigenous Australians to fully participate in Australian economic and social life including through developing educational material and promotion of the Uluru Statement and Indigenous constitutional recognition. 7.10 Sydney Chevra Kadisha (ABN 65 000 029 541) is a charity which attends to Jewish burials to ensure they are undertaken in accordance with rites and ceremonies of the Jewish faith. 7.11 Australian Women Donors Network (ABN 28 141 197 471) is a charity which promotes the funding of projects and charities which specifically address the needs of women and girls and advocate for the contribution of women to philanthropic causes. 7.12 The Mt Eliza Graduate School of Business and Government Limited has ceased operation and its activities are being carried out by the Melbourne Business School Limited which is its parent company. 150

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Summary of new law 7.13 Schedule 7 to the Bill amends the ITAA 1997 to allow the following entities to be listed as deductible gift recipients under the income tax law: • Melbourne Business School Limited; • Leaders Institute of South Australia Incorporated; • St Patrick's Cathedral Melbourne Restoration Fund; • Jewish Education Foundation (Vic) Ltd; • Australian Education Research Organisation Limited; and • Australians for Indigenous Constitutional Recognition Ltd. 7.14 Schedule 7 to the Bill amends the ITAA 1997 to extend the period in which Sydney Chevra Kadisha is a deductible gift recipient under the income tax law. 7.15 Schedule 7 to the Bill amends the ITAA 1997 to extend the period in which Women Donors Network is a deductible gift recipient under the income tax law. 7.16 Schedule 7 to the Bill amends the ITAA 1997 to remove the Mt Eliza Graduate School of Business and Government Limited as a specifically listed deductible gift recipient under the income tax law. Detailed explanation of new law 7.17 Taxpayers may claim an income tax deduction for gifts made to the Melbourne Business School Limited (ABN 80 007 268 233) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Melbourne Business School Limited receives public financial support for their activities. [Schedule 7, item 2, table item 2.2.58 in subsection 30-25(2)] 7.18 Taxpayers may claim an income tax deduction for gifts made to the Leaders Institute of South Australia Incorporated (ABN 93 093 281 641) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Leaders Institute of South Australia Incorporated receives public financial support for their activities. [Schedule 7, item 5, table item 13.2.35 in section 30-105] 7.19 Taxpayers may claim an income tax deduction for gifts made to the St Patrick's Cathedral Melbourne Restoration Fund (ABN 83 460 705 615) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the St Patrick's Cathedral Melbourne 151

Deductible gift recipients Restoration Fund receives public financial support for their activities. [Schedule 7, item 5, table item 13.2.36 in section 30-105] 7.20 Taxpayers may claim an income tax deduction for gifts made to the Jewish Education Foundation (Vic) Ltd (ABN 91 654 198 375) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Jewish Education Foundation (Vic) Ltd receives public financial support for their activities. [Schedule 7, item 2, table item 2.2.57 in subsection 30-25(2)] 7.21 Taxpayers may claim an income tax deduction for gifts made to the Australian Education Research Organisation Limited (ABN 83 644 853 369) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Australian Education Research Organisation Limited receives public financial support for their activities. [Schedule 7, item 2, table item 2.2.56 in subsection 30-25(2)] 7.22 Taxpayers may claim an income tax deduction for gifts made to Australians for Indigenous Constitutional Recognition Ltd (ABN 70 636 542 204) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Australians for Indigenous Constitutional Recognition Ltd receives public financial support for their activities. [Schedule 7, item 5, table item 13.2.34 in section 30-105] 7.23 Taxpayers may claim an income tax deduction for gifts made to Sydney Chevra Kadisha (ABN 65 000 029 541) for a longer period than initially provided when it was first listed as a deductible gift recipient, provided the gift complies with the existing requirements of the income tax law. This amendment ensures that Sydney Chevra Kadisha continues to receive public financial support for their activities. [Schedule 7, item 4, table item 12.2.5 in subsection 30-100(2)] 7.24 Taxpayers may claim an income tax deduction for gifts made to Sydney Australian Women Donors Network (ABN 28 141 197 471) for a longer period than initially provided when it was first listed as a deductible gift recipient, provided the gift complies with the existing requirements of the income tax law. This amendment ensures that Australian Women Donors Network continues to receive public financial support for their activities. [Schedule 7, item 3, table item 11.2.11 in section 30-95] 7.25 Mt Eliza Graduate School of Business and Government Limited (ABN 27 008 394 732) has ceased to operate as a provider of business administration programs. [Schedule 7, item 1, table item 2.2.24 in subsection 30-25(2)] 152

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Consequential amendments 7.26 Schedule 7 to the Bill also amends the index for Division 30 of the ITAA 1997 to reflect the amendments. [Schedule 7, items 6 - 11, table items 21AAA, 26A, 63C, 65AB, 72AAAA and 112AB in section 30-315] Commencement, application, and transitional provisions Commencement 7.27 The amendments commence on the first day of the quarter following Royal Assent. [Clause 2] Application 7.28 The amendments apply to gifts made on or after 1 July 2022 to the Melbourne Business School Limited. [Schedule 7, item 2, table item 2.2.58 in subsection 30-25(2)] 7.29 The amendments apply to gifts made on or after 1 July 2022 and on or before 30 June 2027 to the Leaders Institute of South Australia Incorporated. [Schedule 7, item 5, table item 13.2.35 in section 30-105] 7.30 The amendments apply to gifts made on or after 1 July 2022 and on or before 30 June 2027 to the St Patrick's Cathedral Melbourne Restoration Fund. [Schedule 7, item 5, table item 13.2.36 in section 30-105] 7.31 The amendments apply to gifts made on or after 1 July 2021 and on or before 30 June 2026 to the Jewish Education Foundation (Vic) Ltd. [Schedule 7, item 2, table item 2.2.57 in subsection 30-25(2)] 7.32 The amendments apply to gifts made on or after 1 July 2021 to the Australian Education Research Organisation Limited. [Schedule 7, item 2, table item 2.2.56 in subsection 30-25(2)] 7.33 The amendments apply to gifts made on or after 1 July 2022 and on or before 30 June 2025 to Australians for Indigenous Constitutional Recognition Ltd. [Schedule 7, item 5, table item 13.2.34 in section 30-105] 7.34 The amendments apply retrospectively. This ensures that if gifts were made prior to the commencement of this Schedule they may be tax deductible for income tax purposes, provided they comply with other requirements of the 153

Deductible gift recipients income tax law. Accordingly, despite the retrospective application of deductible gift recipient status there is no adverse impact on affected parties or the entities as they amendments assist entities to obtain support from the public and allow parties that provide gifts to obtain an income tax deduction if eligibility requirements are met. The removal of deductible gift recipient status for the Mt Eliza Graduate School of Business and Government Limited applies prospectively. 154

Amendment of the Clean Energy Finance Corporation Act 2012 This Schedule was prepared by the Department of Climate Change, Energy, the Environment and Water Outline of Chapter 8.1 Schedule 8 to the Bill enables the CEFC to receive additional funds to implement Rewiring the Nation, establish the Powering Australia Technology Fund and to streamline the ability of the government to provide the CEFC with additional funds in future. This Schedule also clarifies the CEFC's governance arrangements in specifying its nominated Minister. Context of amendments 8.2 The CEFC was established to facilitate increased flows of finance into the clean energy sector, and (from 14 September 2022 onward) to facilitate the achievement of Australia's greenhouse gas emissions reduction targets legislated by the Climate Change Act 2022. The CEFC invests in accordance with its legislation, the CEFC Act and the relevant investment mandate directions. 8.3 The CEFC is an independent statutory authority, defined as a corporate Commonwealth entity under the PGPA Act and is governed by an independent Board. The Board reports to Parliament through its responsible Ministers. 8.4 The CEFC's investment objectives are to catalyse and leverage an increased flow of funds for the commercialisation and deployment of renewable energy, energy efficiency and low emissions technologies and to facilitate the achievement of Australia's greenhouse gas emissions reduction targets. 8.5 The CEFC has ten years of investment experience in the sector and has executed its mission with a high degree of success, including investment into electricity generation, transmission, distribution and storage. The CEFC will play a key role in delivering Rewiring the Nation in partnership with the Department of Climate Change, Energy, the Environment and Water. 8.6 The Government's $20 billion Rewiring the Nation election commitment will modernise Australia's electricity grids, lower the cost of electricity bills for consumers, help manage the transition of the electricity system, and increase renewables in the grid. 155

Amendment of the Clean Energy Finance Corporation Act 2012 8.7 This measure is a significant step in the Government's plan to reduce Australia's emissions by 43% on 2005 levels by 2030 and keeping us on track for net zero by 2050. 8.8 Major projects under the Rewiring the Nation measure were announced by the Prime Minister and the Minister for Climate Change and Energy on 19 October 2022. This includes the critical Marinus Link transmission project, delivering renewable energy generation and storage for the mainland through Tasmania's Battery of the Nation projects, and unlocking the next wave of renewable energy development in Tasmania, attracting investment and jobs in the state. The project comprises two under-sea transmission cables connecting Tasmania and Victoria. It will create 1,400 jobs in Tasmania during peak construction, 1,400 jobs in Victoria, and deliver up to $4.5 billion in positive net market benefits, including to electricity users. This Partnership will catalyse investment in Battery of the Nation, which is expected to deliver up to 670 direct jobs across Tasmania. 8.9 The agreement with Victoria announced on 19 October 2022 also covers $1.5 billion of concessional financing from Rewiring the Nation available for Renewable Energy Zone projects in Victoria, including offshore wind projects and providing a concessional loan of $750 million for Victoria-NSW Interconnector (VNI) West to ensure it is completed by 2028. VNI-West is expected to unlock 4,000 MW of new power generation, supporting more than 2,000 direct jobs during construction and generating $1.8 billion in net market benefits - including for electricity users. 8.10 Funding for these and other Rewiring the Nation projects across Australia is to be delivered through a partnership between a new Rewiring the Nation Office in the Department of Climate Change, Energy, the Environment and Water, and the CEFC. The CEFC will be the finance arm and the Australian Energy Market Operator will, where appropriate, assist as a technical adviser. 8.11 This Schedule will not change the CEFC's responsibility for individual investment decisions. The CEFC will continue to make investment decisions independently of the government. 8.12 Specific investment directions relating to Rewiring the Nation and Powering Australia Technology Fund investments will be set out in an updated Investment Mandate, to be issued by the responsible Ministers. Detailed explanation of new law Clarifying definitions 8.13 Schedule 8 to the Bill amends the definition of responsible Ministers to replace the Treasurer with 'the Minister administering the CEFC Act' as one of the 156

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 responsible Ministers, along with the Finance Minister. This reflects the current arrangements, as established by the Acts Interpretation Substituted Reference Order 2017. This amendment is administrative in nature only and makes it clearer in the CEFC Act who the responsible Ministers are. [Schedule 8, item 1, section 4 of the CEFC Act] 8.14 The CEFC Act requires that one of the responsible Ministers also be the 'nominated Minister', to fulfil certain functions under the Act. Existing subsection 76(1) of the CEFC Act requires the responsible Ministers to determine which Minister is the 'nominated Minister' for the purposes of the CEFC Act. 8.15 This Schedule implements a new arrangement, whereby the Minister administering the CEFC Act as specified in the Administrative Arrangements Order automatically becomes the nominated Minister. This can be reversed if the responsible Ministers determine in writing that the Finance Minister is the nominated Minister. [Schedule 8, items 5 and 6, section 76 of the CEFC Act] Additional funds 8.16 Existing section 45 of the CEFC Act establishes the CEFC Special Account to provide the CEFC with funds to carry out its activities and functions. Existing section 46 of the CEFC Act requires that specific amounts be credited to the CEFC Special Account, and if specified, on certain dates. 8.17 This Schedule amends section 46 to require the CEFC Special Account be credited with $11.5 billion as soon as practicable after the amendments commence. [Schedule 8, item 3, section 46 of the CEFC Act] 8.18 The total amount of $11.5 billion to the CEFC would allow for $11.0 billion to implement Rewiring the Nation and $0.5 billion to establish the Powering Australia Technology Fund. 8.19 The Powering Australia Technology Fund, which was part of the 2020-21 MYEFO, will provide funding for investments to support the growth or expansion of clean energy technology projects, businesses and entities, including via venture capital and growth capital. It will leverage at least another $0.5 billion from the private sector. The credit of the $0.5 billion has no impact on the underlying cash balance. 8.20 In addition to but separate from the $11.0 billion allocation for Rewiring the Nation, the new Rewiring the Nation Office in the Department of Climate Change, Energy, the Environment and Water will administer a further $1 billion to be used for government investments in major Rewiring the Nation-eligible projects where this is required to support their timely delivery. The remaining $8.0 billion (to make up the total $20.0 billion election 157

Amendment of the Clean Energy Finance Corporation Act 2012 commitment) is intended to be credited to the CEFC Special Account in the future. Ability to provide funding in the future 8.21 The Government intends to provide further funding to the CEFC in the future. The Schedule enables additional amounts to be credited to the CEFC Special Account through additional appropriations of the Parliament. This approach provides flexibility in implementing Rewiring the Nation and enables the provision of additional funding if required to support the energy transformation. The appropriations would be expected to be part of relevant budget bills when the money is needed. [Schedule 8, items 2 and 4, section 46 of the CEFC Act] 8.22 The amendment removes the need to amend the CEFC Act for any future funding increases from Government. This allows more flexibility to increase funding to the CEFC in an efficient way and demonstrates the importance of the CEFC's ongoing role in supporting the government's commitment to its Paris climate targets. 8.23 Any credits added to the CEFC Special Account could only be invested or spent consistently with the CEFC Act. Commencement, application, and transitional provisions 8.24 The amendments commence on the day after Royal Assent. 158

Taxation of military superannuation benefits: Reversing the Douglas decision Table of Contents: Outline of chapter .............................................................................. 159 Context of amendments ..................................................................... 159 Comparison of key features of new law and current law .................... 161 Detailed explanation of new law ........................................................ 164 Superannuation income stream benefits ..................................... 164 Veterans' superannuation (invalidity pension) tax offset ............. 165 Calculating the amount of the tax offset ...................................... 166 Administering the tax offset ......................................................... 167 Consequential amendments .............................................................. 170 Commencement, application, and transitional provisions .................. 170 Outline of chapter 9.1 Schedule 9 to the Bill amends various taxation laws to confirm the tax treatment of certain defined benefit pensions following the Full Federal Court decision in Douglas. 9.2 This Schedule also provides a non-refundable tax offset for recipients of invalidity benefits paid in accordance with the MSBS and DFRDBS to ensure they do not pay additional income tax or Medicare levy because of the Douglas decision. Context of amendments 9.3 On 4 December 2020, the Full Federal Court found in Douglas that invalidity pensions paid under the MSBS and invalidity pay under the DFRDBS that 159

Taxation of military superannuation benefits: Reversing the Douglas decision commenced on or after 20 September 2007 were not superannuation income streams within the meaning of the ITAA 1997. 9.4 Payments from these invalidity benefits were therefore 'superannuation lump sum payments' rather than 'superannuation income stream benefits' within the meaning of the ITAA 1997. 9.5 This is contrary to the original policy intent. Before 1 July 2007, defined benefit pensions of the type considered in the Douglas decision were taxed as 'superannuation pensions' under the ITAA 1936. The Simple Super amendments moved the taxation of benefits paid on or after 1 July 2007 to the ITAA 1997 and inserted the definition of 'superannuation income streams' - the intended equivalent terminology for 'superannuation pensions'. It was the policy intent under these changes that defined benefit pensions would be treated as superannuation income streams. 9.6 The Douglas decision identified a discrepancy in the statutory definition of a superannuation income stream that meant, contrary to the policy intent, these types of pensions do not meet the definition of a superannuation income stream. As a result, payments from these pensions defaulted to being taxed as superannuation lump sums. 9.7 With the exception of the invalidity benefits, and spouse and child pensions payable on the death of a member receiving an invalidity benefit paid under the two schemes considered in the Douglas decision, this Schedule amends the definition of a superannuation income stream applicable to defined benefits pensions that commenced on or after 20 September 2007. The amendment confirms the original policy intent that all other similar defined benefit pensions are superannuation income streams. 9.8 The Douglas decision has potentially adverse income tax outcomes for some veterans receiving an invalidity pension under the MSBS and invalidity pay under the DFRDBS. To counterbalance any adverse impact by the change in tax treatment of their superannuation benefit as a result of the Douglas decision, this Schedule creates a non-refundable tax offset to ensure these veterans pay no more income tax or Medicare levy on their superannuation lump sums than they would pay if those benefits were still treated as superannuation income stream benefits for income tax purposes. 9.9 In response to feedback received during consultation, including from affected veterans, technical amendments were made to the Schedule to clarify its operation. Consultation also identified that there are some non-military superannuation schemes that have defined benefits paid on the permanent incapacity of their members that the trustees had identified do not meet the current pension standards in the SIS Regulations. Where these pensions commenced to be paid on or after 20 September 2007, the pension payments have been treated as superannuation lump sums for income tax purposes. 9.10 Where this lump sum tax treatment was already in place prior to the Douglas decision, this Schedule preserves the prior tax treatment for this cohort for 160

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 income tax assessments made for the 2021-22 income year or earlier income years. This is necessary to avoid retrospectively imposing a different, and possibly disadvantageous, tax treatment on these individuals. However, this Schedule does not prevent the Commissioner from amending past income tax assessments for other unrelated reasons authorised by an Australian law, including fraud or evasion. 9.11 This Schedule provides the Minister with a power to make a legislative instrument to prescribe rules for transitional arrangements for the 2022-23 and 2023-24 income years. Comparison of key features of new law and current law Table 9.1 Comparison of new law and current law New law Current law Specifies income streams for income tax purposes A 'superannuation income stream' for the As a result of the Douglas decision certain purposes of subsection 307-70(2) of the income streams that commenced on or after ITAA 1997 includes pensions (within the 20 September 2007 do not meet the meaning of the SIS Act) that commence on requirements of subregulation 1.06(1) of the or after 20 September 2007 that are: SIS Regulations because they can be • a defined benefit pension; and cancelled, suspended, or reduced to nil in certain circumstances and therefore do not • provided by a defined benefit satisfy the definition of 'superannuation fund, or an exempt public sector income stream' in regulation 307-70.02 of superannuation scheme; and the ITAR 2021. • is not invalidity pay within the A superannuation benefit that is not paid meaning of the Defence Force from a 'superannuation income stream' Retirement and Death Benefits cannot be a 'superannuation income stream Act 1973, and benefit' as defined in section 307-70(1) of • is not an invalidity pension the ITAA 1997 and is instead a established under the Military 'superannuation lump sum' as defined in Superannuation and Benefits 307-65(1) of the ITAA 1997. Act 1991. Where the defined benefit fund (within the meaning of regulation 1.03 of the SIS Regulations) is a regulated fund but not a public sector superannuation scheme, that fund or scheme must have more than six members at any time before the pension commenced. Public sector superannuation schemes and exempt public sector superannuation schemes are not captured by 161

Taxation of military superannuation benefits: Reversing the Douglas decision New law Current law the requirement to have more than six members. The above amendments to Subdivision 307-B of the ITAR 2021 do not apply to the pension a spouse or child is receiving on the death of a person who was receiving invalidity pay within the meaning of the Defence Force Retirement and Death Benefits Act 1973 or an invalidity pension within the meaning of the Military Superannuation and Benefits Act 1991 and the invalidity benefit commenced on or after 20 September 2007. Preserves historical income tax assessments for certain permanent incapacity defined benefit payments Prohibits the Commissioner from amending No comparison. past income tax assessments for recipients of defined benefit pensions paid to a person due to permanent incapacity, if they were paid to the person in the 2020-21 income year or an earlier year and were assessed as superannuation lump sums before 4 December 2020 (the date of the Douglas decision). The amendments do not prevent the Commissioner from amending assessments for prior years for unrelated reasons authorised by an Australian law, including fraud or evasion. Transitional arrangement and Rules Provides the Minister with a legislative No comparison. instrument-making power to make rules to prescribe matters of a transitional nature that relate to the amendments or repeals made by Schedule 9 to the Bill for the 2022-23 and 2023-24 income years. These transitional rules may, if made before the end of 12 months from the commencement of the Schedule, modify provisions in the Schedule or another Act or instrument. The transitional rules will assist in implementing and administering amendments made by the Schedule. There are specific restrictions on matters that cannot be prescribed, for example, the 162

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 New law Current law rules cannot create an offence, provide powers of arrest or detention, or impose a tax. Non-refundable tax offset Provides for a new non-refundable tax No comparison. offset (the veterans' superannuation (invalidity pension) tax offset) to individuals who meet certain criteria, including that they receive: • invalidity pay within the meaning of the Defence Force Retirement and Death Benefits Act 1973; or • an invalidity pension within the meaning of the Military Superannuation and Benefits Act 1991; or • a pension mentioned in a paragraph in subsection 307-70.02(1A) of the ITAR 2021. Veterans who would face a higher tax liability as a result of the Douglas decision will have their income tax liability reduced to the amount it would be if the benefits were treated as a superannuation income stream benefit. This tax treatment also applies to an eligible spouse or child beneficiary receiving a pension mentioned in subsection 307-70.02(1A) of the ITAR 2021. The offset applies retrospectively to income years starting on or after 1 July 2007, to prevent adverse income tax outcomes arising the Douglas decision. The Commissioner retains the ability to amend income tax assessments to give effect to the offset. 163

Taxation of military superannuation benefits: Reversing the Douglas decision Detailed explanation of new law Superannuation income stream benefits 9.12 A superannuation benefit that is not paid from a 'superannuation income stream' cannot be a 'superannuation income stream benefit' as defined in subsection 307-70(1) of the ITAA 1997 and is instead a 'superannuation lump sum' for the purposes of section 307-65(1) of the ITAA 1997. 9.13 Subdivision 307-B of the ITAR 2021 defines superannuation income stream. Schedule 9 to the Bill amends the definition in subregulation 307-70.02(1) to provide that defined benefit pensions (within the meaning of the SIS Regulations) that commenced on or after 20 September 2007 are a superannuation income stream if, they are: • provided by: - a defined benefit fund (within the meaning of regulation 1.03 of the SIS Regulations), or - an exempt public sector superannuation scheme (within the meaning of the SIS Act), and • are not invalidity pay under the DFRDBS or an invalidity pension under the MSBS, and • where the defined benefit fund (within the meaning of regulation 1.03 of the SIS Regulations) is a regulated fund but not a public sector superannuation scheme, that fund or scheme must have had more than six members at any time before the pension commenced. 9.14 For context, the superannuation income stream definition in subregulation 307-70.02(1) of the ITAR 2021 includes an income stream that is a pension for the purposes of the SIS Act. Section 10 of the SIS Act provides an inclusive definition for 'pension'. It is inclusive of pensions that meet the definitions in the SIS Regulations, but not limited to those pensions, and is inclusive of common law pensions. This was confirmed in Douglas where the Full Federal Court also determined that the MSBS and the DFRDBS invalidity benefits were pensions in accordance with the ordinary meaning of the word, and so meet the section 10 definition of a pension in the SIS Act. 9.15 The amendments to Subdivision 307-B of the ITAR 2021 ensure that payments of defined benefit pensions from schemes not considered in Douglas continue to be taxed as superannuation income stream benefits. [Schedule 9, item 1, section 307-70.02 of the ITAR 2021] 9.16 A defined benefit pension paid from a defined benefit fund may include a pension paid from an APRA-regulated fund where all the defined benefit members are receiving pensions from the fund. 164

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 9.17 The amendments do not make defined benefit pensions paid due to temporary incapacity a superannuation income stream benefit. Section 307-10(a) of the ITAA 1997 specifies that these income streams are not superannuation benefits which is key criteria of the definition of a superannuation income stream benefit (subsection 307-70(1) of the ITAA 1997) or superannuation lump sum (subsection 307-65(1)) of the ITAA 1997. 9.18 The amendments to Subdivision 307-B of the ITAR 2021 do not apply to the pension a spouse or child receives on the death of a recipient member where the member's invalidity pay within the meaning of the Defence Force Retirement and Death Benefits Act 1973 or invalidity pension established under the Military Superannuation and Benefits Act 1991 commenced on or after 20 September 2007. [Schedule 9, item 2, section 307-70.02 of the ITAR 2021] 9.19 Invalidity pay is an invalidity benefit where the contributing member is retired on the grounds of invalidity or of physical or mental incapacity to perform their duties (see sections 3 and 26 of the Defence Force Retirement and Death Benefits Act 1973). An invalidity pension means a pension benefit payable in accordance with rule 27(1) or rule 28(1) of the Military Superannuation and Benefits Rules set out in the Schedule to the Trust Deed as referred to in section 4 of the Military Superannuation and Benefits Act 1991. 9.20 The amendments to section 307-70.02 of the ITAR 2021 apply in relation to income years starting on or after 1 July 2007. [Schedule 9, item 3, provision 1000-3.01 of the ITAR 2021] Veterans' superannuation (invalidity pension) tax offset 9.21 Tax offsets reduce the amount of income tax a person pays in an income year. They are subtracted from a person's basic income tax liability for the income year in accordance with the method statement in section 4-10 of the ITAA 1997. 9.22 Schedule 9 to the Bill provides the eligibility criteria and framework for the veterans' superannuation (invalidity pension) tax offset. [Schedule 9, item 7, subdivision 301-F of the ITAA 1997] 9.23 An individual may only be entitled to the veterans' superannuation (invalidity pension) tax offset for an income year if they received invalidity pay within the meaning of the Defence Force Retirement and Death Benefits Act 1973 or an invalidity pension within the meaning of the Military Superannuation and Benefits Act 1991, and that invalidity pay or invalidity pension commenced on or after 20 September 2007. [Schedule 9, item 7, subsection 301-275(1) of ITAA 1997] 165

Taxation of military superannuation benefits: Reversing the Douglas decision 9.24 Spouse or child pension recipients where entitlement arises because of the death of a member in receipt of an invalidity pension under the Military Superannuation and Benefits Act 1991 or invalidity pay under the Defence Force Retirement and Death Benefits Act 1973 scheme are eligible for the new non-refundable tax-offset where the member's invalidity pension or invalidity pay commenced on or after 20 September 2007. [Schedule 9, item 7, subsection 301-275(1) of ITAA 1997] 9.25 In circumstances where an individual is eligible for one or more tax offsets, the items tabled in subsection 63-10(1) of the ITAA 1997 prioritise the order an offset is applied, to the extent that a tax liability remains. The table also explains what happens to any excess offset amount. 9.26 Schedule 9 to the Bill amends the table in subsection 63-10(1) to insert item 21 to add the new veterans' superannuation (invalidity pension) tax offset. To the extent that any offset remains after applying it to the person's income tax liability, any excess is first applied against the liability to pay Medicare levy, then to any liability to pay Medicare levy (fringe benefits) surcharge. In circumstances where any further excess remains, the excess is not available to be refunded or to be transferred or carried forward to later income years. [Schedule 9, item 6, subsection 63-10(1) of ITAA 1997] Calculating the amount of the tax offset 9.27 To calculate the amount of the veterans' superannuation (invalidity pension) tax offset, the first step is to work out the individual's basic income tax liability and the amount by which it exceeds the total amount of the individual's tax offsets (if any) for the income year as provided for under Division 301 (other than Subdivision 301-F) and Subdivision AB of Division 17 of Part III of the ITAA 1936 with the invalidity pension treated as a superannuation lump sum. [Schedule 9, item 7, paragraph 301-275(2)(a) of ITAA 1997] 9.28 For the purposes of working out an individual's basic income tax liability, taxable income includes all non-superannuation income sources (including passive income). 9.29 The second step is to work out the total of the amounts worked out in the first step and the amounts of the individual's liability to pay the Medicare levy and Medicare levy (fringe benefit) surcharge (if any) for the income year with the invalidity pension treated as a superannuation lump sum. [Schedule 9, item 7, paragraph 301-275(2)(b) of the ITAA 1997] 9.30 The third step is to work out the total of the amount worked out under the first step and the amounts (if any) of Medicare levy and Medicare levy (fringe benefits) surcharge the individual is liable to pay for the income year on the assumption the invalidity pension was instead treated as a superannuation income stream benefit. [Schedule 9, item 7, paragraph 301-275(2)(c) of ITAA 1997] 166

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 9.31 In calculating the taxation outcome if the invalidity pension was treated as a superannuation income stream benefit, it is assessed according to the rules applicable to superannuation income stream benefits subject to the assumptions contained in subsection 301-275(3) that are outlined in paragraph 9.36. 9.32 The final step involves working out the amount (if any) by which the amount in step 2 exceeds the amount in step 3. This is the amount of the veterans' superannuation (invalidity pension) tax offset. [Schedule 9, item 7, paragraph 301-275(2)(d) of the ITAA 1997] 9.33 In effect, the process involves subtracting the liability worked out in step 3 where the invalidity pension is assessed as a superannuation income stream benefit, from the total liability worked out in step 2 where the invalidity pension is assessed as a superannuation lump sum. 9.34 Where the liability worked out in step 2 is less than the liability worked out in step 3 (that is, where the tax payable if the invalidity pension is treated as superannuation lump sum is less than the tax payable if the invalidity pension is treated as a superannuation income stream benefit), the tax offset is zero. 9.35 Regarding the offset calculation, the tax payable cannot be less than zero. 9.36 For the purposes of calculating the tax offset, the assumptions in paragraph 301-275(2)(c) are: • that each superannuation lump sum is instead a superannuation income stream; and • for the purposes of applying the proportioning rule in section 307-125 of the ITAA 1997, the invalidity pay, invalidity pension or pension is a superannuation income stream. [Schedule 9, item 7, subsection 301-275(3) of the ITAA 1997] Administering the tax offset 9.37 The ATO is the responsible entity for administering the non-refundable tax offset, including the calculation of that offset. Example 9.1 - Affected veteran receives disability superannuation benefits resulting in a non-refundable tax offset of $0 A veteran receives invalidity pay under the DFRDBS, that commenced to be paid on or after 20 September 2007. The invalidity benefits meet the definition of a disability superannuation benefit in subsection 995-1(1) of the ITAA 1997. The Douglas decision means that the invalidity benefits are treated as superannuation lump sums for income tax purposes. As the invalidity benefits are superannuation lump sums that are disability superannuation benefits, the tax free component of each 167

Taxation of military superannuation benefits: Reversing the Douglas decision payment is increased under section 307-145 of the ITAA 1997 (and the taxable component is decreased by an equivalent amount). As a result, the veteran receives more favourable taxation treatment because the invalidity benefits are treated as superannuation lump sums, and their taxable income is also decreased due to the operation of section 307-145 of the ITAA 1997. Whilst eligible for the tax offset, the amount of the offset is $0 because the veteran is already better off from an income tax perspective from the Douglas decision. Example 9.2 - Affected veteran is aged under 60 and is not receiving disability superannuation benefits resulting in a non-refundable tax offset of $0 A veteran receives an invalidity pension under the MSBS that commenced on or after 20 September 2007 but it does not meet the definition of disability superannuation benefit in subsections 995-1(1) of the ITAA 1997. The Douglas decision means the invalidity pension payments are superannuation lump sums for income tax purposes but because the payment is not a disability superannuation benefit there is no change to the veteran's tax free component or taxable component under section 307-145 of the ITAA 1997. In the individual circumstances of this veteran, the veteran receives a tax offset under Division 301 of the ITAA 1997 when the payments of their invalidity pension are taxed as superannuation lump sums. That tax offset results in the veteran paying less income tax than they would have paid had the payments of their invalidity pension been taxed as superannuation income stream benefits. As a result, the veteran receives more favourable taxation treatment because the pension payments are treated as superannuation lump sums but sees no change in their taxable income because there has been no modification to the components of the superannuation benefit. Whilst eligible for the tax offset, the amount of the offset is $0 because the veteran is already better off from an income tax perspective from the Douglas decision. Example 9.3 - Affected veteran is aged 60 or over, is not receiving disability superannuation benefits but may be entitled to a non-refundable tax offset exceeding $0 A veteran receives a modest invalidity pay from the DFRDBS that commenced on or after 20 September 2007 but does not meet the definition of disability superannuation benefit in subsection 995-1(1) of the ITAA 1997. The veteran is aged over 60 and as such was previously eligible for a 10% tax offset under section 301-100 of the ITAA 1997, on the untaxed element of the taxable 168

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 component of the benefit because it was considered to be a superannuation income stream and the individual had not exceeded their defined benefit income cap. However, because of the Douglas decision the invalidity benefit payments are now considered to be superannuation lump sums for income tax purposes. As such, the veteran is no longer eligible for the 10% tax offset under section 301-100 of the ITAA 1997 which is applicable to superannuation income streams. However, in the individual circumstances of this veteran, the veteran would now receive a tax offset under section 301-95 of the ITAA 1997 when the payments of their invalidity pension are taxed as superannuation lump sums. If this tax offset is less than the tax offset the veteran would have received under section 301-100 of the ITAA 1997, (when the payments of the invalidity pay were taxed as superannuation income stream benefits), the veteran may pay more income tax following the Douglas decision and their income tax position may be worse off as a result. As a result, the veteran is eligible for a non-refundable tax offset and this ensures that the veteran is in exactly the same income tax position as they would have been if the Douglas decision had not been handed down. Example 9.4 - Affected veteran commences pension before the 2007 superannuation reforms and then re-commences pension on or after 20 September 2007 A veteran receives an invalidity pension from the MSBS that commenced before 20 September 2007. The Douglas decision means the invalidity pension is still treated as a superannuation income stream for income tax purposes. As a result, there is no change in the income tax affairs of the veteran. However, the veteran's invalidity pension status is subsequently reviewed and reclassified as Class C and payments stop. A later review results in it being re-classified to Class B and effective on or after 20 September 2007. The veteran's subsequent Class B invalidity pension payments are taxed as superannuation lump sums for income tax purposes from when they commenced, and they will be eligible for the tax offset, although depending on the veteran's circumstances the amount of the offset may be $0. Example 9.5 - Future invalidity pensioner A veteran has been on a retirement pension from the DFRDBS since 2005, at which time the veteran also receives a commutation payment. As such, the veteran is not affected by the Douglas decision. However, the veteran is subsequently determined by the Commonwealth Superannuation Corporation to be eligible for 169

Taxation of military superannuation benefits: Reversing the Douglas decision invalidity pay or after 20 September 2007. The veteran's invalidity benefits will be superannuation lump sums for income tax purposes and the veteran will be eligible for a tax offset, although the amount of the offset may be $0. Consequential amendments 9.38 The new veterans' superannuation (invalidity pension) tax offset set out in Subdivision 301-F is added to the list of tax offsets in section 13-1 of the ITAA 1997. [Schedule 9, item 5, section 13-1 of ITAA 1997] Commencement, application, and transitional provisions 9.39 The amendments to the ITAA 1997 apply in relation to income years commencing on or after 1 July 2007. Accordingly, the amendments in this Schedule have retrospective application. [Schedule 9, item 8, section 301-90 of the IT(TP) Act ] 9.40 The purpose of Schedule 9 to the Bill is to ensure that no eligible veteran that was paid an invalidity benefit that commenced on or after 20 September 2007 is worse off because of the Full Federal Court's decision in Douglas. 9.41 Schedule 9 to the Bill also applies retrospectively to spouse and child beneficiaries receiving eligible pensions mentioned in a paragraph in 307-70.02(1A) of the ITAR 2021 to ensure that no one is adversely impacted or disadvantaged. 9.42 No veteran (or their spouse or child) is adversely affected by the retrospectivity of these amendments. 9.43 The amendments to the ITAR 2021 apply in relation to income years starting on or after 1 July 2007. The amendments have retrospective application to restore the understanding of the law as it was intended to operate before the decision in Douglas and applies to income tax assessments of these defined benefit pensions for income years from 1 July 2007. The amendments ensure a consistent tax outcome with similar types of superannuation income stream benefits. [Schedule 9, item 3, Part 1000-3 of the ITAR 2021] 9.44 Part 1000-3 of the ITAR 2021, as inserted by this Schedule, has effect despite subsection 12(2) of the Legislation Act. [Schedule 9, item 4, Part 1000-3 of the ITAR 2021] 170

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 9.45 The amendments made to the ITAA 1997 and ITAR 2021 ensure that the Commissioner is not prevented, under section 170 of the ITAA 1936 from amending an assessment for an income year that commenced on or before 1 July 2021 to give effect to the amendments made by this Schedule. 9.46 Section 170 of the ITAA 1936 sets out the period within which assessments may be amended and the discretionary powers available to the Commissioner for the purpose of amending assessments. Item 8 ensures that the Commissioner is not prevented from amending an income tax assessment to give effect to the amendments made by this Schedule. This amendment applies to income years on or before 1 July 2021. [Schedule 9, item 8, section 301-95 of the IT(TP) Act] 9.47 The amendments insert new section 301-100 into the IT(TP) Act to prevent the Commissioner from amending a person's income tax assessment for the 2021-22 income year or an earlier year, because of the amendments made by this Schedule, if: • the person has been paid a superannuation benefit in the form of a defined benefit pension for the permanent incapacity of the person in the 2020-21 income year or an earlier year; and • the Commissioner had made an assessment for the income year for the person before 4 December 2020 (the date of the Douglas decision) on the basis that the superannuation benefit paid to the person was a lump sum; and • the superannuation benefit was paid to the person because the person satisfied the condition of release specified in item 103 (permanent incapacity) of Schedule 1 to the SIS Regulations. 9.48 The amendments are aimed at preserving the income tax treatment applied to permanent incapacity defined benefit pension payments, commencing on or after 20 September 2007, that have historically been taxed as superannuation lump sums because the trustee identified that they did not satisfy the current pension standards in the SIS Regulations. 9.49 The amendments do not prevent the Commissioner from amending the income tax assessments of persons who lodged after the Douglas decision, who are not entitled to superannuation lump sum income tax treatment. The Commissioner will also retain the right to amend assessments for other non-related reasons provided for in the law, including fraud or evasion. [Schedule 9, item 8, section 301-100 of the IT(TP) Act] 9.50 The amendments insert new section 301-105 into the IT(TP) Act to allow the Minister to make, by legislative instrument, rules that prescribe a matter of a transitional nature (including prescribing any saving or application provisions) that relates to the amendments or repeals made by this Schedule for the 2022-23 and 2023-24 income years. 171

Taxation of military superannuation benefits: Reversing the Douglas decision 9.51 The rules may modify provisions in this Schedule or another Act or instrument. The prescribed rules, if made, will support implementation and administration of the amendments made by this Schedule. This delegation of legislative power is necessary and appropriate to give effect to the Government's broad policy objective that no veteran is worse off because of the Full Federal Court decision in Douglas and given the complex interactions between the superannuation and taxation laws which this Schedule amends to give effect to the Government's policy. 9.52 The ability to make transitional rules by way of legislative instrument will enable the Government to respond efficiently and effectively to any unforeseen issues as the affected cohorts transition to the new arrangements. The Government's policy objective may be undermined if the Minister cannot make minor and technical amendments to update laws amended by the Schedule. 9.53 The Minister's power to make a legislative instrument prescribing rules is limited to transitional arrangements for two specified income years, to allow time to address any potential issues with administering the law. If the power is exercised to modify existing provisions, any such rules must be made before the end of 12 months from the commencement of this Schedule. This ensures that any modification is appropriately targeted to transitional matters and made promptly. There are also specific restrictions on matters that cannot be prescribed by the rules. For example, the rules cannot create an offence, provide powers of arrest or detention, or impose a tax. [Schedule 9, item 8, section 301-105 of the IT(TP) Act] 9.54 The Legislation Act requires that legislative instruments are subject to disallowance unless exempt. This legislative instrument is not exempt from disallowance. 172

Statement of Compatibility with Human Rights Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Table of Contents: Schedule 1 - Digital games tax offset ................................................ 174 Overview ..................................................................................... 174 Human rights implications ........................................................... 175 Conclusion .................................................................................. 175 Schedule 2 - Taxation treatment of digital currency .......................... 175 Overview ..................................................................................... 175 Human rights implications ........................................................... 175 Conclusion .................................................................................. 175 Schedule 3 - Reducing the compliance burden of record keeping for fringe benefits tax .............................................................................. 176 Overview ..................................................................................... 176 Human rights implications ........................................................... 176 Conclusion .................................................................................. 176 Schedule 4 - Skills and Training boost .............................................. 177 Overview ..................................................................................... 177 Human rights implications ........................................................... 177 Conclusion .................................................................................. 177 Schedule 5 - Technology investment boost ...................................... 177 Overview ..................................................................................... 177 Human rights implications ........................................................... 178 Conclusion .................................................................................. 178 173

Statement of Compatibility with Human Rights Schedule 6 - Financial reporting and auditing requirements for superannuation entities ...................................................................... 178 Overview ..................................................................................... 178 Human rights implications ........................................................... 179 Strict liability offences .................................................................. 179 Reversing the evidential burden of proof ..................................... 181 Right to privacy ........................................................................... 183 Right to work ............................................................................... 184 Conclusion ......................................................................................... 185 Schedule 7 - Deductible gift recipients .............................................. 185 Overview ..................................................................................... 185 Schedule 8 - Amendment of the Clean Energy Finance Corporation Act 2012 ................................................................................................... 186 Overview ..................................................................................... 186 Human rights implications ........................................................... 186 Conclusion .................................................................................. 187 Schedule 9 - Taxation of military superannuation benefits: Reversing the Douglas decision ............................................................................... 187 Overview ..................................................................................... 187 Human rights implications .................................................................. 189 Conclusion ......................................................................................... 189 Schedule 1 - Digital games tax offset Overview 10.1 Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 10.2 This Schedule introduces a refundable tax offset for companies in relation to eligible expenditure incurred in the development of digital games. 174

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Human rights implications 10.3 This Schedule does not engage any of the applicable rights or freedoms. Conclusion 10.4 This Schedule is compatible with human rights as it does not raise any human rights issues. Schedule 2 - Taxation treatment of digital currency Overview 10.5 Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 10.6 This Schedule amends the ITAA 1997 to clarify that digital currencies (such as bitcoin) continue to be excluded from the income tax treatment of foreign currency. For the purpose of these amendments, the term digital currency does not include digital currencies issued by, or under the authority of, a government agency ('government-issued digital currency') which continue to be taxed as foreign currency. Human rights implications 10.7 This Schedule does not engage any of the applicable rights or freedoms. Conclusion 10.8 This Schedule is compatible with human rights as it does not raise any human rights issues. 175

Statement of Compatibility with Human Rights Schedule 3 - Reducing the compliance burden of record keeping for fringe benefits tax Overview 10.9 Schedule 3 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 10.10 This Schedule amends the FBTAA by: • giving the Commissioner the power to make legislative instruments determining the kinds of adequate alternative records which may be kept and retained by employers in lieu of statutory evidentiary documents for specified fringe benefits, for FBT record keeping purposes; and • providing that employers are taken to have kept and retained a statutory evidentiary document for a specified fringe benefit for FBT record keeping purposes if they keep and retain those adequate alternative records determined by the Commissioner, for the specified fringe benefit. 10.11 The purpose of the amendments is to reduce and simplify FBT record keeping requirements for employers while producing similar compliance outcomes with lower compliance costs, consistent with the Government's commitment to remove 'red tape' for business. 10.12 The amendments do not change or reduce what information employers need to hold to support their FBT return under the FBTAA but alters the prescriptive format and process for obtaining and holding that information. Human rights implications 10.13 This Schedule does not engage any of the applicable rights or freedoms. Conclusion 10.14 This Schedule is compatible with human rights as it does not raise any human rights issues. 176

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Schedule 4 - Skills and Training boost Overview 10.15 Schedule 4 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 10.16 This Schedule amends the IT(TP) Act to provide small businesses (with aggregated annual turnover of less than $50 million) access to a bonus deduction equal to 20% of eligible expenditure for external training provided to their employees. This is a temporary measure to incentivise small businesses to train and upskill their employees, helping to build a more productive workforce. Human rights implications 10.17 This Schedule does not engage any of the applicable rights or freedoms. Conclusion 10.18 This Schedule is compatible with human rights as it does not raise any human rights issues. Schedule 5 - Technology investment boost Overview 10.19 Schedule 5 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 10.20 This Schedule amends the IT(TP) Act to provide small businesses (with aggregated annual turnover of less than $50 million) with a bonus deduction equal to 20% of their eligible expenditure on expenses and depreciating assets for the purposes of their digital operations or digitising their operations. 10.21 This is a temporary measure to support small businesses to operate digitally. The bonus deduction applies to the total of eligible expenditure of up to $100,000 per income year or specified time period, up to a maximum bonus deduction of $20,000 per income year or specified time period. 177

Statement of Compatibility with Human Rights Human rights implications 10.22 This Schedule does not engage any of the applicable rights or freedoms. Conclusion 10.23 This Schedule is compatible with human rights as it does not raise any human rights issues. Schedule 6 - Financial reporting and auditing requirements for superannuation entities Overview 10.24 Schedule 6 to the Bill amends the Corporations Act, ASIC Act and the SIS Act to extend and adapt the financial reporting and auditing requirements in Chapter 2M of the Corporations Act to apply to registrable superannuation entities. 10.25 The financial reporting requirements require the RSE licensee for a registrable superannuation entity to: • prepare and lodge financial reports for each financial year with ASIC; • make the financial report, directors' report and auditor's report for each financial year publicly available on the entity's website; • include details on how to access the financial report, directors' report and auditor's report for a financial year with the notice of the annual members' meeting; and • provide the entity's financial reports for a specified financial year to a member upon request. 10.26 The auditing requirements require the RSE licensee for a registrable superannuation entity to appoint an individual auditor, audit firm or audit company to conduct an audit of the entity and for the auditor to: • prepare an auditor's report for an audit of an entity's financial report; • report specified matters to the relevant Regulator; • meet auditor independence and rotation requirements; and • prepare, lodge and publish auditor transparency reports, if required. 178

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 10.27 The purpose of these amendments is to impose financial reporting obligations on registrable superannuation entities that are consistent with those that currently apply to public companies and registered schemes. This builds on other measures in recent years, including the Your Future, Your Super package, to improve the compliance and transparency of the superannuation sector. Human rights implications 10.28 Schedule 6 to the Bill engages the following rights: • Article 14 of the ICCPR - right to a fair trial and presumption of innocence; • Article 17 of the ICCPR - right to privacy; and • Article 6 of the ICESR - right to work. Strict liability offences 10.29 The strict liability offences in Schedule 6 may engage the right to a fair trial, as well as the presumption of innocence in Article 14 of the ICCPR. Article 14 of the ICCPR provides that everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law. 10.30 This Schedule amends the Corporation Act to introduce the following new strict liability offences for individuals: • failure to include in the auditor's report whether the remuneration report complies with section 300C of the Corporations Act - 30 penalty units (subsection 308(3D) of the Corporations Act); • a failure by an individual auditor, member of an audit firm or a lead auditor to report a suspected contravention of the Corporations Act - 25 penalty units (subsections 311(1C), 311(2F) and 311(3C) of the Corporations Act); and • a failure by an officer of a registrable superannuation entity to allow the auditor access to the entity's books or to give information, explanation or assistance - 60 penalty units (subsection 312(3) of the Corporations Act). 10.31 This Schedule amends the SIS Act to introduce the following new strict liability offences: • a failure by a member of an audit firm or a lead auditor to report a suspected contravention of the SIS Act and associated legislation - 25 penalty units (subsection 129A(11) of the SIS Act); 179

Statement of Compatibility with Human Rights • a failure by a member of an audit firm or a lead auditor to report the unsatisfactory financial position of a registrable superannuation entity - 25 penalty units (subsection 130AA(10) of the SIS Act); • a failure by a member of an audit firm or a lead auditor to report an entity's failure to implement actuarial recommendations - 25 penalty units (subsection 130CA(10) of the SIS Act); • for a member of a disqualified firm to be, or act as, the auditor of a registrable superannuation entity - 60 penalty units (subsection 131CA(3) of the SIS Act). 10.32 This Schedule also introduces strict liability offences that are applicable to RSE licensees for registrable superannuation entities and to RSE audit companies. In each case, the penalties for a body corporate are calculated in accordance with the requirements in the Guide to Framing Commonwealth Offences or sections 1311B and 1311C of the Corporations Act. 10.33 This Schedule also provides for a number of existing strict liability offences in Chapter 2M of the Corporations Act, which currently apply to companies and registered schemes, to also apply to registrable superannuation entities. It does this by extending the application of existing obligations under the Corporations Act to include registrable superannuation entities. This is consistent with the key objective of Schedule 6 to the Bill to extend and adapt the financial reporting and auditing requirements in Chapter 2M of the Corporations Act to apply to registrable superannuation entities. 10.34 Strict liability offences engage with this right as they involve the imposition of criminal liability without a mental fault element. However, strict liability offences are compatible with the presumption of innocence if they are reasonable, necessary and proportionate in pursuit of a legitimate objective. 10.35 Strict liability offences are appropriate in these circumstances, as they are necessary to strongly deter misconduct that can result in financial detriment for members of superannuation funds resulting from non-compliance with the reporting and auditing requirements for registrable superannuation entities and reduce non-compliance by ensuring that the Regulator can efficiently and expeditiously deal with low-level offending. This in turn bolsters the integrity of the regulatory regime for registrable superannuation entities and helps to maintain and strengthen public confidence in the regime. 10.36 All of the new strict liability offences in the Corporations Act are created for the purpose of extending and adapting the application of the existing obligations and penalties in the Corporations Act to include registrable superannuation entities. 10.37 All of the new strict liability offences in the SIS Act are created for two key reasons: 180

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 • to ensure consistency with the obligations and penalties in Chapter 2M of the Corporations Act; and • to take into account the new financial reporting and auditing requirements, notably that audit companies and audit firms are able to be appointed as auditor of a registrable superannuation entity. 10.38 All of the new strict liability offences created in the Corporations Act and the SIS Act are consistent with the Guide to Framing Commonwealth Offences, which provides that: • fines for strict liability offences should not exceed 60 penalty units for individuals or 300 penalty units for a body corporate; and • strict liability should not apply to offences punishable by imprisonment. 10.39 The application of strict liability preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for persons who may be accused of such offences. 10.40 All of the new strict liability offences apply prospectively, therefore upholding article 15 of the ICCPR. The new strict liability offences only apply in relation to conduct (an act or omission) that occurs on or after 1 July 2023. This is consistent with Article 15 of the ICCPR, which provides that no one shall be held guilty of any criminal offence for any act or omission which did not constitute a criminal offence at the time when it was committed. 10.41 Given the need to deter misconduct, and the potential harm that could arise from non-compliance with these obligations, these new strict liability offences are considered a reasonable and proportionate means of achieving the legitimate objective of strengthening the regulation of the superannuation sector. Reversing the evidential burden of proof 10.42 Article 14(2) of the ICCPR protects the right to be presumed innocent until proven guilty according to law. Generally, consistency with the presumption of innocence requires the prosecution to prove each element of a criminal offence beyond reasonable doubt. 10.43 An offence provision which requires the defendant to carry an evidential or legal burden of proof, commonly referred to as 'a reverse burden', with regard to the existence of some fact engages and limits the presumption of innocence. This is because a defendant's failure to discharge the burden of proof may permit their conviction despite reasonable doubt as to their guilt. Where a statutory exception, defence or excuse to an offence is provided in proposed legislation, these defences or exceptions must be considered as part of a 181

Statement of Compatibility with Human Rights contextual and substantive assessment of potential limitations on the right to be presumed innocent in the context of an offence provision. 10.44 Reverse burden offences are considered to be compatible with the presumption of innocence where they are shown by legislation proponents to be reasonable, necessary and proportionate in pursuit of a legitimate objective. 10.45 This Schedule introduces a number of new provisions, for which an offence- specific defence applies that provides that the defendant (a member of an audit firm) bears an evidential burden of proof that the person: • does not know of the circumstances that constitute the contravention; or • knows of those circumstances but takes all reasonable steps to correct the contravention as soon as possible after becoming aware of those circumstances. 10.46 The provisions to which such an offence-specific defence is applicable are: • the requirement to report any of the following matters: - a suspected contravention of the Corporations Act (subsection 311(2G) of the Corporations Act); - a suspected contravention of the SIS Act, SIS Regulations, the prudential standards, or the FS(CD)Act (subsection 129A(3) of the SIS Act); - the unsatisfactory financial position of a registrable superannuation entity (subsection 130AA(3) of the SIS Act); - an attempt to unduly influence, coerce, manipulate or mislead the lead auditor or a member of the audit team or otherwise interfere with the proper conduct of the audit (subsection 130BAA(3) of the SIS Act); - a failure to implement an actuarial recommendation (subsection 130CA(3) of the SIS Act); and • where a disqualified firm represents that a member or employee of the firm is eligible to be an RSE auditor (subsection 131BA(1) of the SIS Act); and • where a firm holds itself out as an RSE auditor but is not an RSE auditor (subsection 131B(2A) of the SIS Act). 10.47 These offence-specific defences reverse the evidential burden of proof as the evidence needed to prove the defence is peculiarly within the knowledge of the defendant (i.e. the member of an audit firm), who is in the best position to have specific knowledge to raise evidence regarding their knowledge of the circumstances, or what steps they took (if any) to correct the contravention. It 182

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 would be significantly more difficult and costly for the prosecution to disprove this, than for the defendant to establish the matter. 10.48 In accordance with subsection 13.3(3) of the Criminal Code Act 1995, a defendant who wishes to rely on these defences, bears an evidential burden in relation to that matter. Once the defendant discharges this evidential burden, the onus is on the prosecution to disprove the matters beyond reasonable doubt. 10.49 Reversing the evidential burden of proof in these circumstances is considered appropriate, because: • this burden is limited to the codified exceptions and does not require the defendant to positively prove their innocence of the offence; and • it is consistent with the existing defence available to members of an audit firm that applies in relation to offences that would otherwise by committed by the audit firm under section 332G of the Corporations Act. Right to privacy 10.50 This Schedule engages the right to protection from unlawful or arbitrary interference with privacy under Article 17 of the ICCPR because it requires an RSE licensee for a registrable superannuation entity to prepare a directors' report for each financial year, which must include details of the remuneration paid to key management personnel. The directors' report is required to be published on the registrable superannuation entity's website. 10.51 The right in Article 17 may be subject to permissible limitations, where these limitations are authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. 10.52 The requirement to publish information on the remuneration of key personnel for a registrable superannuation entity is not a new requirement. Instead, this Schedule does this by transferring the existing obligation in section 29QB of the SIS Act to Chapter 2M of the Corporations Act to streamline the grouping of obligations for registrable superannuation entities. 10.53 In addition to being consistent with existing requirements, the requirement to publish remuneration details of key personnel is considered necessary and proportionate to achieve a legitimate objective by: • strengthening the transparency and accountability of registrable superannuation entities and RSE licensees; • ensuring that RSE licensees are subject to adequate oversight and scrutiny by ASIC and members of superannuation funds; and • helping to strengthen the integrity of, and public confidence in, the superannuation sector. 183

Statement of Compatibility with Human Rights Right to work 10.54 This Schedule may engage the right to freely choose and accept work under Article 6(1) of the ICESR, which provides that everyone must be able to freely accept or choose their work and not to be unfairly deprived of work. The right to work also requires that state parties provide a system of protection guaranteeing access to employment. This right must be made available in a non-discriminatory manner pursuant to article 2(1) of the ICESR. 10.55 This Schedule provides that: • an individual may not consent to be appointed, act as, or prepare a report required to be prepared by an auditor of a registrable superannuation entity if the individual: - does not meet the eligibility criteria set out in the prudential standards; - has been disqualified from being, or acting as, an auditor of a registrable superannuation entity; or - is an employee, member or director of a disqualified firm or company; • an individual may be removed from the office of auditor of a registrable superannuation entity if the person: - ceases to be eligible to auditor of a registrable superannuation entity; - fails to comply with auditor independence requirements in Division 3 of Part 2M.4 of the Corporations Act; - fails to comply with the auditor rotation requirements in Division 5 of Part 2M.4 of the Corporations Act; or - is disqualified (or is an employee, member or director of a disqualified firm or company) from being or acting as the auditor of a registrable superannuation entity. 10.56 In this way, this Schedule restricts the ability of individuals to work as auditors of a registrable superannuation entity unless the person satisfies these requirements. The restrictions are however justified as they create minimum requirements for the auditing of registrable superannuation entities. The purpose of these amendments is to integrate the existing requirements for appointment of the auditor of a registrable superannuation entity into Chapter 2M of the Corporations Act. These requirements are also consistent with the existing eligibility requirements for being, or acting as, the auditor of a registered scheme. 184

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 10.57 To be engaged as an auditor of a registrable superannuation entity, an individual or lead auditor is required to satisfy a fit and proper person test, which is prescribed by the prudential standards, made under the SIS Act. The use of a fit and proper person test in these circumstances is appropriate as it ensures that persons who audit the final reports of registrable superannuation entities in Australia are persons who are trustworthy and have the required integrity. Ensuring that only individuals who meet fitness and propriety requirements can be auditors of registrable superannuation entities is necessary to protect members of superannuation funds given the importance of superannuation to the economy and in ensuring that Australians have sufficient financial resources in their retirement. 10.58 Being an auditor of a registrable superannuation entity is not a right; participation is only possible if relevant standards are met and is only granted to suitable persons. A person seeking the benefit of participation in this industry will do so in the knowledge that the existence of certain circumstances may result in their not being deemed eligible to be the auditor of a registrable superannuation entity, or administrative action taken against them for failing to comply with the relevant requirements. This is appropriate as it remains necessary to protect consumers and the integrity of Australia's superannuation industry against misconduct. Conclusion 10.59 Accordingly, to the extent that this Schedule engages rights under Articles 14 and 17 of the ICCPR and Article 6 of the ICESR, it is compatible with human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 as the limitations are appropriate, proportionate and achieve a legitimate objective. Schedule 7 - Deductible gift recipients Overview 10.60 Schedule 7 to the Bill amends the ITAA 1997 to: • list the Melbourne Business School Limited, Leaders Institute of South Australia Incorporated, the St Patrick's Cathedral Melbourne Restoration Fund, Jewish Education Foundation (Vic) Ltd, Australian Education Research Organisation Limited, and Australians for Indigenous Constitutional Recognition Ltd as deductible gift recipients; 185

Statement of Compatibility with Human Rights • extend the deductible gift recipient listings of Sydney Chevra Kadisha and Australian Women Donors Network; and • remove the deductible gift recipient listing of the Mt Eliza Graduate School of Business and Government Limited. Human rights implications 10.61 This Schedule does not engage any of the applicable rights or freedoms. Conclusion 10.62 This Schedule is compatible with human rights as it does not raise any human rights issues. Schedule 8 - Amendment of the Clean Energy Finance Corporation Act 2012 This Schedule was prepared by the Department of Climate Change, Energy, the Environment and Water Overview 10.63 Schedule 8 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 10.64 The purpose of this Schedule is to expand the funding of the CEFC by amending the CEFC Act to deliver Rewiring the Nation and the Powering Australia Technology Fund. The Schedule also clarifies the governance arrangements for the agency and simplifies the process for making additional credits to the CEFC Special Account in the future. Human rights implications 10.65 This Schedule does not engage any of the applicable rights or freedoms. 186

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 Conclusion 10.66 This Schedule is compatible with human rights as it does not raise any human rights issues. Schedule 9 - Taxation of military superannuation benefits: Reversing the Douglas decision Overview 10.67 Schedule 9 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. 10.68 This Schedule amends various taxation laws to ensure that certain defined benefit pensions are treated for tax purposes as a superannuation income stream rather than a superannuation lump sum following the Full Federal Court decision in Douglas. 10.69 Subdivision 307-B of the ITAR 2021 provides for the definition of superannuation income stream. Schedule 9 to the Bill amends the superannuation income stream definition in regulation 307-70.02(1) to provide that defined benefit pensions (within the meaning of the SIS Regulations) that commenced on or after 20 September 2007 are a superannuation income stream if, they are: • provided by a defined benefit fund (within the meaning of regulation 1.03 of the SIS Regulations); or • provided by an exempt public sector superannuation scheme (within the meaning of the SIS Act); and • are not invalidity pensions paid under the MSBS and DFRDBS; and • where the defined benefit fund (within the meaning of regulations 1.03 of the SIS Regulations) is a regulated fund but not a public sector superannuation scheme, that fund or scheme must have had more than six members at any time before the pension commenced. 10.70 The amendment to certain defined benefit pensions does not include invalidity pensions paid from MSBS and Defence Force Retirement and Death Benefit Scheme, which were the subject of the Douglas decision. This ensures that invalidity benefits from either of the two schemes are treated for tax purposes as a superannuation lump sum. 187

Statement of Compatibility with Human Rights 10.71 The amendments to Subdivision 307-B of the ITAR 2021 ensures that payments of defined benefits pension from schemes not considered in Douglas continue to be taxed as superannuation income stream benefits and will not be taxed as a series of superannuation lump sums. 10.72 The amendments to Subdivision 307-B of the ITAR 2021 do not apply to the pension a spouse or child receives on the death of a recipient member where the member's invalidity pension within the meaning of the Defence Force Retirement and Death Benefits Act 1973 or invalidity pension paid under the Military Superannuation and Benefits Act 1991 commenced on or after 20 September 2007. 10.73 Schedule 9 to the Bill amends the ITAA 1997 to provide a new non-refundable tax offset, the veterans' superannuation (invalidity pension) tax offset, to individuals who receive invalidity pay within the meaning of the Defence Force Retirement and Death Benefits Act 1973 or an invalidity pension within the meaning of the Military Superannuation and Benefits Act 1991 during an income year, if the pension commenced on or after 20 September 2007, and to a spouse or child who receive a pension on the death of such individual. 10.74 The amount of the tax offset equals the amount an individual's basic income tax liability (less other superannuation tax offsets) and liability to pay the Medicare levy and Medicare levy surcharge (fringe benefits) (if any) for an income year exceeds what those amounts would have been if the superannuation benefit was treated as a superannuation income stream. 10.75 The amendments insert new section 301-100 into the IT(TP) Act to prevent the Commissioner from amending a person's income tax assessment for the 2021-22 income year or earlier income year, because of the amendments made by the Schedule, if: • the person has been paid a superannuation benefit in the form of a defined benefit pension for the permanent incapacity of the person in the 2020-21 income year or an earlier year; and • the Commissioner had made an assessment for the income year for the person before 4 December 2020 (the date of the Douglas decision) on the basis that the superannuation benefit paid to the person was a lump sum; and • the superannuation benefit was paid to the person because the person satisfied the condition of release specified in item 103 (permanent incapacity) of Schedule 1 to the SISR. 10.76 The amendments are aimed at preserving the income tax treatment applied to permanent incapacity defined benefit pension payments, commencing on or after 20 September 2007, that have historically been taxed as superannuation lump sums because the trustee identified that they did not satisfy the current pension standards in the SIS Regulations. 188

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 10.77 The amendments insert new section 301-105 into the IT(TP) Act to allow the Minister to make, by legislative instrument, rules that prescribe a matter of a transitional nature (including prescribing any saving or application provisions) that relates to the amendments or repeals made by Schedule 9 to the Bill for the 2022-23 and 2023-24 income years. Human rights implications 10.78 This Schedule does not engage any of the applicable rights or freedoms. Conclusion 10.79 This Schedule is compatible with human rights as it does not raise any human rights issues. 189

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