Emerging industry issue for super funds: FITO claims

Issue for super funds: FITO claims

Damian Ryan and Bernard Finnegan explain why the ATO has recently been focusing on FITO claims for super funds.

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It is never dull in the world of the taxation of superannuation funds! One of the current focus areas for the Australian Taxation Office (ATO), in their client risk reviews of the six large superannuation funds for 2015, has been the treatment of gains and losses from foreign exchange (FX) forwards for the purposes of the fund’s claim for foreign income tax offsets (FITOs).

More recently, the ATO reissued taxation ruling TR 2014/7 in March 2016 and the Practical Compliance Guidelines PCG 2016/6 issued in April 2016 relating to FITOs.

Having observed what the six large superannuation funds have been doing with respect to:

  • when are gains from FX forwards treated as foreign vs domestic source
  • what losses have been treated as being reasonable related to disregarded income (i.e. 'assessable foreign income') for the purposes of the FITO cap calculation.

The ATO has decided to expand its review to a more general review of what superannuation funds are doing in relation to foreign tax paid and their FITO claim more generally; and extend this review beyond the six large superannuation funds.

In the last week, a number of superannuation funds have been asked to participate in a 'streamlined review' process where the ATO is asking specific questions regarding the treatment of FITOs by each fund. In particular, the ATO has focused on the foreign tax paid by funds, investments in limited partnerships, FITOs that flow through unit trust investments and what is included in disregarded income.

Further, the ATO has been exploring the funds' understanding of the limitations of the custodian’s reporting and when additional work or reporting is required.

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