The new black for superannuation trustees: greater income tax scrutiny

Greater income tax scrutiny for super trustees

Bernard Finnegan examines the ATO's current approach to tax risk management for superannuation fund trustees.

Director, Tax

KPMG Australia


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A typical engagement letter for review of an income tax return of a superannuation fund provides that “as the trustee of the fund must declare that the particulars in a return are true and correct, the ultimate responsibility for the content and accuracy of the return remains with the trustee.”

Superannuation funds operating an outsourced model can have very complex income tax returns. The trustee (and the tax agent) is reliant upon accurate information flowing from numerous parties: for example, the custodian of the assets for income tax reporting on investments. Such reliance comes with a potential lack of transparency regarding the underlying data. Notwithstanding the outsourcing of functions, ultimately it is the trustee that “owns” the data that flows to the tax return.   

We see the Australian Taxation Office's (ATO) expectations on this manifested strongly in recent developments.  

Firstly, in July 2015 the ATO issued new tax risk management and governance review guide, which elevated the ATO’s expectations of how a board should manage tax risk. The ATO has a clear expectation of such guidance being implemented by trustee boards. In the next phase of this new approach, we understand the ATO will next month issue a new detailed testing plan, including documented testing of controls to see how the guide is operationalised throughout the business. 

Secondly, recent experience of compliance reviews on large funds has revealed the ATO’s expectation that detailed underlying data be available to justify the accuracy and correctness of the income tax returns. Examples include:

  • Distributions from overseas limited partnerships, including evidence that the distributions are correctly characterised as income or returns of capital, and even to the extent of the nature of the transactions undertaken by the limited partnerships. 
  • Under the recently released Practical Compliance Guide PCG 2016/6, specific transactional level information from FX hedge managers to support the source of FX hedging gains in order to satisfy the ATO’s views on source under the recently amended Taxation Ruling TR 2014/7. 

In short, the days of placing reliance on the custodian data and on a limited-scope tax agent review to provide an accurate and correct tax return have passed. More data, deeper analysis and detailed scrutiny of controls is the ‘new black’ for superannuation fund income tax.

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