Australia

Details

  • Service: Tax, Corporate Tax
  • Industry: Financial Services, Investment Management, Superannuation
  • Type: Regulatory update
  • Date: 14/02/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Matt Birrell

Matt Birrell
Partner, Corporate Tax

+61 3 9288 5367

mbirrell@kpmg.com.au

To block or not to block – super investor's dilemma 

by Matt Birrell, Financial Services Specialist

Uncertainty created by the government’s delayed Managed Investment Trust (MIT), and more particularly Division 6C, revisions is about to reach crunch time.

The previous government proposed to amend the definition of an 'exempt entity' to exclude superannuation funds as part of its response to the Board of Taxation review. A consequence will be that a trust will not be regarded as a 'public' trust merely because one of its investors is a superannuation fund with a 20 percent interest.

 

This provision has meant that many superannuation funds have invested into trading trusts through company structures or company ‘blockers’. The use of these blockers has meant that these investors pay tax at the company tax rate and then obtain a refund of part of the tax once a franked dividend has been received – thus giving rise to a cost to the investor.

 

The proposed amendments will ensure that a superannuation fund is free to invest into a trading trust through an entity of its choosing – most typically a trust.

 

Whilst the current government supports the amendments, no legislation has yet been released. As the intended start date (1 July 2014) of the amendment approaches, transaction structures are having to be designed to cater for the uncertainty. On one hand, a superannuation fund investor may generally prefer a pre-tax distribution; on the other hand, the existence of the superannuation fund investor without the amendment will impact the investment for all investors, thus impacting the transaction as a whole.

 

This dilemma is increasingly leading to the question – to block or not to block?

 

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