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.