Report on Superannuation Guarantee compliance

A report from the Australian National Audit Office on the effectiveness of the ATO's activities to promote employer compliance with Superannuation Guarantee (SG) obligations was tabled in Parliament on 3 June 2015. Whilst the report concludes that overall, the ATO’s administration of the Superannuation Guarantee Scheme has been generally effective, the report goes on to say that to better target its activities and more effectively promote employer compliance with SG obligations, the ATO should gain a greater understanding of the levels of non- compliance with SG obligations across industry sectors and types of employers. The report states that this is important given the potential impact of non-compliance on the retirement income of employees, and the role of the Scheme in reducing reliance on the age pension. The report includes three other recommendations and all recommendations have been agreed to by the ATO.

Foreign Income Tax Offset (FITO) and TR 2014/7 update

On 18 June 2015 PwC attended a conference call with the ATO and concerned industry participants on the guidance provided in TR 2014/7 relating to ‘source’ of foreign exchange (FX) gains and the impact on super funds claiming FITOs. In short, we are still a long way from certainty for superannuation funds on this issue. The principal messages from the call are:

  • While the ruling as it currently stands will apply for the year ended 30 June 2015, the content relating to ‘source’ is largely expected to be withdrawn (withdrawal occurred on 24 June 2015) and replaced with a revised proxy for determining source of FX gains. The revised proxy will be formed following further consultation with industry experts in the fields of foreign currency trading, contract law and taxation. The updated ruling will apply for years commencing after 30 June 2015.
  • The ruling (in both its current form and expected revised form) is not intended to change the tax principles on ‘source’, but rather provides a proxy that may be adopted for determining ‘source’ instead of carrying out a full analysis based on common law principles for each hedging contract. For this reason, the ATO deems it suitable for super funds to use the proxy in the current ruling, or revert to common law principles, for the year ended 30 June 2015.
  • The ATO made it clear that positions taken by super funds in the 2015 year will be open to ATO compliance scrutiny (including both pre and post lodgement reviews) notwithstanding the ruling is going to be amended. This is because the question of ‘source’ exists regardless of the ruling and is relevant for determining a super fund’s FITO claim.
  • The ATO emphasised the principles it would follow in determining the application of anti-avoidance provisions where super funds may change their hedging arrangements and achieve an alternate outcome using the proxy within the ruling. Hence, any proposed changes to the way super funds manage foreign currency needs to be considered carefully in light of the ATO’s comments.

Super funds need to carefully consider the ‘source’ of hedging gains under either the proxy within the original ruling or general principles to determine the FITOs that can be claimed in the 30 June 2015 year.

Meaning of the term ‘legally qualified medical practitioners’

In ATO Interpretative Decision 2015/11 (ATO ID 2015/11), the ATO provided its view on what is meant by the term ‘legally qualified medical practitioners’ within the definition of ‘disability superannuation benefit’ in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

The Commissioner relies on its ordinary meaning and takes the view that ‘legally qualified medical practitioners’ are persons who have general or specialist registration with the Medical Board of Australia (MBA).

The ATO’s view in ATOID 2015/11 needs to be taken into consideration by trustees in assessing claims made by members.

Superannuation alert on ‘disability lump sum’ calculation

The ATO has released an alert on how to work out the tax-free component of a superannuation disability lump sum. Under the ATO’s methodology (to work out the tax free components), multiple disability lump sum benefits paid from a superannuation fund will receive no less concessional treatment than a single benefit paid from the fund.

The updated commentary on the calculation of a superannuation disability lump sum benefit can be accessed here.

The practical approach taken by the ATO should provide certainty to administrators. Super funds should review how they are determining the tax free amounts, particularly where there are a number of payments made to the member.