• Service: Tax, Corporate Tax, Superannuation & Pension Funds
  • Industry: Financial Services, Superannuation
  • Type: Regulatory update
  • Date: 4/09/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Dana Fleming

Dana Fleming
Partner, Tax

+61 3 9288 5871

Superannuation's Pandora's Box – Tax in Unit Pricing 

by Dana Fleming, Financial Services Specialist

Member’s returns are generated after tax and fees. Easy, right? The impact of rising and falling markets and costs on returns is easy to understand but what about tax? Boards willingly spend time on governance over investments and costs, with many questions put to management. However, for what is the often the biggest expense in a superannuation fund’s Profit and Loss, tax is the poor cousin. Although unsurprising given its complexity, this is no excuse.

The Australian Taxation Office (ATO) and Australian Prudential Regulation Authority (APRA) have made clear their views. Boards should understand the broad impact of tax throughout operations and be able to ask questions to manage and monitor tax risk.


Questions relating to tax compliance and after-tax performance management are intuitive and readily get an airing. However, what are relevant questions to ask regarding tax risk in unit pricing? To ask questions, Boards need an understanding of the tax risk trigger points.


A good place to start is to understand why:


  • in a rising market tax negatively impacts on returns (except for pensioners)
  • in a falling market tax positively impacts on returns (except for pensioners)
  • tax always contributes to returns for pensioners and is not directly related to falling or rising markets
  • in a falling market a deferred tax asset capping policy is critical.


The next step is to broadly understand the process for accruing tax in returns.


A lack of understanding of tax in unit pricing at a strategic level often contributes to underestimating the time and effort required to manage the associated risks in major projects such as a merger, custody or unit pricing transition. As in the Greek myth, pain may follow opening the Pandora’s Box of tax in unit pricing! There is, however, also hope - a future of better governance of the associated tax risk.


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