Australia

Details

  • Service: Tax, Superannuation & Pension Funds
  • Industry: Financial Services, Superannuation
  • Type: Business and industry issue
  • Date: 18/06/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Bernard Finnegan

Bernard Finnegan
Director, Tax

+61 2 9335 7016

bfinnegan@kpmg.com.au

After-tax investment returns: challenges for superannuation funds 

by Bernard Finnegan, Financial Services Specialist

As Australian superannuation funds are taxed savings vehicles, their members' benefits are ultimately measured in after-tax terms. Fund investment decisions which do not have regard to tax attributes (such as franking credits, CGT discounting and foreign tax leakage) risk less-than-optimal returns to members.

Focus on after-tax investment returns has intensified with the Stronger Super reforms. The Superannuation Industry (Supervision) Act now expressly requires a fund's investment strategy to have regard to the expected tax consequences from investments. This is a 'tax risk' which needs to be managed, not least because there are now two regulators with a tax focus (ATO and APRA), although with different perspectives. The ATO is already focusing on the shift toward after-tax returns by superannuation funds as a potential risk issue.

 

There are many challenges for superannuation funds, their investment managers and custodians to address if members are to successfully reap optimal benefits from after-tax investing, such as:

  • tax risk management policies/processes to address investment tax issues, including consideration of tax risk appetite
  • tax due diligence activities for new investments / new investment managers, including suitable advice as to the tax efficiency and appropriateness of the investment structure
  • after-tax benchmarks and reporting systems for performance measurement of investment managers
  • linking the tax benefits from after-tax investment returns appropriately into members' accounts via unit prices or crediting rates.

 

Funds and their providers need to address these challenges.

 

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KPMG’s Superannuation & Pension Funds provides tax, advisory and compliance services to public sector, public offer, industry and corporate funds.

Superannuation

KPMG's Superannuation practice offers a range of services to superannuation funds, life offices, employers and fund trustees.