Australia

Details

  • Service: Tax, Corporate Tax
  • Industry: Financial Services, Superannuation
  • Type: Regulatory update
  • Date: 5/07/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Ross Stephens

Ross Stephens
Director, Tax

+61 3 9288 6619

rdstephens@kpmg.com.au

Superannuation — cash flow management is critical 

by Ross Stephens, Corporate Tax Specialist

The Government has now legislated the 2013 Budget announcement that the monthly pay as you go (PAYG) income tax instalment arrangements for companies would be extended to superannuation funds and pooled super trusts (PSTs), with effect from:
  • 1 January 2016 where base assessment instalment income (BAII) is $1 billion or more as measured at 1 October 2015
  • 1 July 2016 where BAII is $1 billion or more as measured at 1 April 2016
  • 1 January 2017 where BAII is $20 million or more as measured at 1 October 2016 (with exceptions where BAII is less than $100 million and goods and services tax (GST) reporting is quarterly or annually.
     

BAII is broadly calculated as the assessable income (prior to deductions) on the fund’s most recent income tax return lodged as at these dates, with some modifications for income under the Taxation of Financial Arrangements (TOFA) rules.

 

Given that income tax is usually a fund’s largest single expense (significantly larger than administration fees or investment management fees), cash flow management in respect of this expense is vital.

 

Based on a cash rate of 5 percent per annum, the new measures represent a long-term cash flow disadvantage of more than $80,000 per annum for every $10 million of present tax payable, compared to present arrangements.

 

This disadvantage may be significantly higher if funds do not then take the earliest available opportunity to vary the instalment rate wherever circumstances arise such that actual tax is expected to be less than that payable through the standard instalment arrangements.

 

These timing disadvantages are borne by all fund members as lost earnings.

 

Accordingly, it will be critical under the new arrangements for funds to work closely with their administrators, custodians and tax advisers to obtain timely information to enable the best possible cash flow management procedures to be adopted.

 

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