ATO Review Activity

There has been substantial review activity from the Australian Taxation Office (ATO) on superannuation funds in the last two years, largely concerning the determination of Foreign Income Tax Offset (FITO) caps, the question of the ‘source’ of foreign exchange hedging gains, and the concept of how expenses ‘reasonably relate’ to foreign income for inclusion in the FITO cap calculation. These reviews and the views expressed by the ATO review teams have brought to light several issues that concern superannuation funds with FITO claims.

A submission has been made to the ATO Tax Counsel Network on a number of these issues, including:

●whether capital gains can have a source, and whether foreign sourced capital gains can be included in the FITO cap calculation where they form part of net capital gains, regardless of whether they have been subject to foreign tax; and

●allocations of expenses (both investment and non-investment related expenses) to the FITO cap calculation.

An industry-wide phone hook-up was held with the ATO and a number of industry participants on 18 October 2017 where issues from the submission were discussed at length. There were important areas of disagreement between the ATO and the industry participants, such as:

●The ATO’s view that only capital gains that have been subject to a payment of foreign tax are able to be included in a FITO cap calculation, and not foreign sourced capital gains more broadly.

●The determination of a ‘reasonable’ approach for the allocation of non-investment related expenses to the FITO cap calculation.

The ATO has agreed to respond in writing to the matters raised in the submission.

In the short term, FITO caps will require very close attention as part of the tax return process for the 2017 income year.

SMSFs in a post-superannuation reform environment

ATO Assistant Commissioner Kasey Macfarlane delivered a speech at the 12th Annual SMSF (self-managed superfunds) Conference on SMSFs in the post superannuation reform environment. The issue of segregated and unsegregated assets and actuarial certificate requirements was discussed. It was also noted that from a practical compliance perspective, the ATO will not be seeking to apply compliance resources to review applicable exempt current pension income (ECPI) calculations for 2016-17 and prior years. The ATO will shortly publish information on its website to confirm this position.

Also discussed was the transfer balance cap and the total super balance, asset valuation for purposes of the total super balance, the use of reserves by SMSFs, transitional capital gains tax (CGT) relief, and events-based reporting for SMSFs.

Superannuation instruments

The following superannuation instruments have been made:

●. This instrument sets out the timeframe in which superannuation providers, in relation to superannuation plans, and life insurance companies, in respect of certain life insurance policies, are required to report transactions to enable the ATO to determine if an individual has exceeded their transfer balance cap. The instrument applies from 1 October 2017.

● and. These instruments set out the approved manner for a Retirement Savings Account provider, trustee of an eligible superannuation entity or of a regulated exempt public sector superannuation scheme (superannuation providers) to request that a person quote their tax file number (TFN), including when informing another superannuation provider of a TFN. The instruments are being remade without substantive change and apply from 1 October 2017.

ATO publishes updated LCGs for public comment

The Australian Taxation Office (ATO) has published the following updated Law Companion Guidelines (LCGs) for public comment to reflect changes made by Treasury Laws Amendment (2017 Measures No. 2) Act (Cth):

●. Superannuation reform: transfer balance cap and transition-to-retirement reforms: transitional CGT relief for superannuation funds, which has been updated to reflect changes that apply to transition to retirement income streams and pooled superannuation trusts.

●. Superannuation reform: transfer balance cap. Changes to this LGC reflect the new transfer balance credit arising from the repayment of a limited recourse borrowing arrangement and changes to the treatment of transition to retirement income streams.

●. Superannuation reform: total superannuation balance (a method for valuing an individual’s total superannuation interests). This LGC has been updated to reflect changes to the treatment of transition to retirement income streams.

Funds and administrators should take these guides into account in determining their reporting requirements to the ATO.

Applying for a DASP from a super fund or retirement savings account

The ATO has updated its website with respect to online applications for a Departing Australia superannuation payment (DASP). The ATO has also released a form (NAT 7204) for a DASP. Former temporary residents who accumulated superannuation while working in Australia can apply to claim a DASP via this form.

Super reform – an ongoing implementation

ATO Deputy Commissioner of Superannuation, James O’Halloran, delivered a speech to CPA National Congress on the ongoing implementation on super reforms. Topics discussed included:

●updated superannuation Law Companion Guidelines

●renewed visibility of ATO data

●changes to reporting arrangements for Australian Prudential Regulation Authority (APRA) funds, SMSFs and individuals that arise from the 2016 Federal Budget measures; and

●areas of concern in relation to transfer balance cap, total super balance and transitional CGT relief, the use of reserves, and collectables.

The ATO is expected to publish an update to its Super Scheme Smart campaign to highlight existing and emerging arrangements that are considered to be high risk from a regulatory and tax perspective, including contrived arrangements involving SMSF investment in property development ventures involving related parties; the granting of a legal life interest over a commercial property to an SMSF; and arrangements where an individual deliberately exceeds their non-concessional contributions cap to manipulate taxable and non-taxable components of their super interest upon refund of the excess.

SMSF transfer balance account report and instructions available

The new transfer balance account report (TBAR) and instructions for SMSFs are now available on the

ATO website. SMSFs can use the TBAR to report events that affect an individual member’s transfer balance account. While SMSFs will not be required to report anything until 1 July 2018, the option will be available from 1 October 2017.

Unclaimed super

The ATO has reported that as at 30 June 2017, there are over 6.3 million lost and ATO-held superannuation accounts with a total value of almost AUD18 billion.