Legislative impacts for fund taxes

A leading superannuation and financial services lawyer, Noel Davis, says new legislation has significantly altered the way in which superannuation funds are taxed.

Davis, in a column to be published in the June edition of Super Review, argues that the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 (known as TOFA), which was passed earlier this year, has brought about the significant change.

He says its effect is that for some investments, instead of capital gains tax applying when they are sold, the gains that are determined to exist are required to be treated as assessable income each year and taxed as such and capital losses on such investments are deductible from assessable income.

Davis says an amount that is treated as income under the Act is not taxable as a capital gain and that is why the reduced CGT tax rate of 10 per cent will not apply to gains on some “financial arrangement” assets.

He says the broad aim of the Act is to align the calculation of profit with accounting standards, with the result that it treats gains and losses on “financial arrangements” as revenue rather than capital, with the consequence that gains on such arrangements are assessable income and losses are deductible.

“This Act, therefore, brings about a significant change in the way large super entities are taxed on some investment gains and the amount of tax that they will pay,” Davis says.

He says that the May Federal Budget had also had an impact on the position.