The SMSF Association has called on the government to ensure fixed trusts used by superannuation funds are not unintentionally included in the proposed new minimum 30 per cent tax on discretionary trusts.
In a submission to Treasury regarding the exposure draft legislation for a minimum tax on discretionary trusts, the professional body pointed out fixed trust structures used by superannuation funds, including SMSFs, to invest were markedly different from discretionary trust income-splitting arrangements as distributions under these structures are made according to economic interests and not upon trustee discretion.
As such, the association noted the relevant taxation treatment should also differ.
“The proposed legislation must ensure that superannuation fund investments in fixed entitlement trust structures are not indirectly subjected to a minimum 30 per cent tax merely because a trust does not satisfy a separate fixed trust definition adopted for the purposes of the minimum tax regime,” the submission stated.
Further the professional body argued the government should preserve a longstanding ATO interpretation as to what test should be applied for determining when trust income should receive concessional superannuation taxation treatment.
The submission noted the ATO viewed fixed trusts falling under the trust tax regime differently than those held by a super fund as the tax outcomes for the latter are determined from section 295-550 of the Income Tax Assessment Act 1997 and consider if the fund holds a ‘fixed entitlement’ to trust income for the purposes of the non-arm’s length income provisions.
“As recognised by existing ATO guidance, these are not necessarily the same tests. The Commissioner of Taxation’s Taxation Ruling (TR) 2006/7 has set out the guiding principles for the past 20 years on what constitutes a ‘fixed entitlement’ and as such has been heavily relied upon by the SMSF sector,” the SMSF Association added.
“Any departure from this longstanding interpretation could result in widespread and unintended changes to the taxation outcomes of established superannuation and SMSF investment structures.”
However, even excluding superannuation funds from the proposed measure would not preserve existing superannuation tax settings, according to the submission.
“A trustee-level tax imposed on a minimum tax trust may effectively become the minimum tax rate borne by a superannuation fund investor on its trust investment income, even where the fund would otherwise be taxed at 15 per cent or tax exempt on receipt of exempt current pension income.
“This outcome would be contrary to the longstanding policy underlying superannuation taxation. The concessional tax treatment afforded to complying superannuation funds reflects preservation restrictions and the long-term retirement savings purpose of the superannuation system.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason