Super funds hamstrung within tax treaties

The tax treaties entered into by Australia are not always providing an adequate benefit to the nation's superannuation funds, according to the Association of Superannuation Funds of Australia (ASFA).

In a submission to the Treasury on Australia's tax treaty negotiation program, the ASFA submission said that for many of the organisation's large superannuation fund members, one of the more significant practical aspects of implementation of Australia's tax treaties was that a number of

jurisdictions were not willing to accept that Australian superannuation funds are beneficial owners of income entitled to treaty benefits.

It said that as a result of this stance, these countries would not accept a Certificate of Residency from the Australian Taxation Office (ATO) as sufficient documentation to enable a superannuation fund to claim the benefits of the treaty.

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In doing so, the ASFA submission cited Taiwan and Korea as having proved problematic.

The submission said that ASFA was also concerned that as superannuation funds expanded their direct offshore investment portfolios, many more examples would arise of "these practical difficulties which act as barriers to Australian superannuation funds obtaining benefits under Australia's treaties".

"In addition, Australian income tax legislation operates such that, strictly, the maximum foreign income tax offset (FITO) is limited to the treaty rate (even if in practice, this treaty rate is difficult or very costly to obtain)," it said. "This means that no FITO is available for any withholding tax that exceeds the treaty rate. In these circumstances, the Australian superannuation fund actually incurs higher total taxes on dividend income from these jurisdictions than on the equivalent dividend income from a jurisdiction with which Australia has no treaty."

The ASFA submission suggested that when negotiating tax treaties with other countries the circumstances of Australian superannuation funds needed to be specifically addressed.