Labor's superannuation policy

On 22 April 2015, the Australian Labor Party released its superannuation policy which includes the following measures:

  • removal of the tax exemption on fund earnings during the pension phase for earnings over $75,000 (earnings above this amount would instead be taxed at 15 per cent), and 
  • lower the threshold for the 15 per cent additional tax on superannuation contributions of very high income earners from $300,000 to $250,000.

For further information contact Naree Brooks on (03) 8603 1200.

Investments in US - Is your entity classification on Form W8-BEN  E correct?

The Internal Revenue Service (IRS) issued new Form W8-BEN E in 2014 and many superannuation funds and/or their investment vehicles (eg trusts) have submitted the new Form

W8-BEN E to financial institutions and fund managers.

The entity classification on Form W8-BEN E is critical as this determines the withholding tax rates applicable on distributions made by the underlying investments. An incorrect entity classification on Form W8-BEN E may cause under-withholding or over-withholding of US federal tax.

For example, if the entity is classified as a ‘corporation’, withholding tax of up to 35 per cent may apply on Effectively Connected Income (ECI). If the entity is a ‘complex trust’ withholding tax of up to 39.6 per cent (and 20 per cent for long term capital gains) may apply on ECI.

Very broadly, an Australian superannuation fund may qualify as a ‘complex trust’ and an Australian unit trust may qualify as a ‘corporation’ under the US federal tax definition.

In completing the Form W8-BEN E, ensure the correct entity classification is selected. Also review Form 8805 and Form 1042-S to ensure US withholding performed at the correct tax rates.

Excess concessional contribution – decision on technical absurdity arising from poor drafting

In Ward and Commissioner of Taxation [2015] AATA 138, the Administrative Appeals Tribunal (AAT) dealt with a very technical point concerning ‘objecting’ to an ATO ‘determination’ relating to excess concessional contributions (ECCs). Broadly, under the existing rules, a taxpayer can ‘object’ against a determination if they are unsatisfied with an ATO determination to disregard or relocate an ECC. However, on a literal reading, where the ATO does not make a determination (as requested by the taxpayer), the taxpayer cannot object.

In this case, the AAT held that the literal interpretation of the section that facilitates the ability to object provided a manifestly absurd result. That is, a person would never be dissatisfied if the Commissioner made a determination that  the person asked for and where the Commissioner did not make a determination the person asked for, they would not have a right to object (which is the whole point of the objection provision).

Consequently, the AAT disagreed with the ATO and concluded that the taxpayer had the right to object and the AAT had jurisdiction to review that decision.

Taxation of Excess concessional contribution (ECC) - ATO System issues resolved

The ATO has indicated that the system issues which have delayed processing of ECC made in 2013-2014 have been resolved and, the ATO has indicated that it has started issuing income tax assessments to individuals that have ECCs.

Funds can expect to start receiving release authorities in April 2015.