Included in the Exposure Draft legislation was a proposed exemption applicable to complying superannuation entities (and certain assets of life insurance companies) from including an amount of CFC attributable income in their assessable income. As stated by the Assistant Treasurer at the time, as such entities are generally subject to tax at 15 percent, any tax deferral benefits would be minimal.
The current CFC rules result in significant administration and compliance costs for superannuation entities and act as an impediment to offshore investment. It was for these reasons that a similar exemption in the former Foreign Investment Fund rules was introduced.
Given the current Government’s disappointing announcement on 14 December 2013 that the modernisation of the CFC rules including the proposed exemption for complying superannuation entities would not be proceeding, it seems that the current CFC rules are here to stay, at least in the medium term.
As such, there is an urgent need for the Government to amend the law to exempt complying superannuation entities from the current CFC rules.
In the meantime, taxpayers should continue to monitor the CFC status of their foreign investments. If CFC calculations are currently being performed, now is also the time to consider the impact of the proposed changes to the dividend rules (sections 23AJ and 404) as these have the potential to affect CFC attributable income. Accordingly, current investment structures should be reviewed.