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The tax guidance super funds aren’t hearing

by Matthew Smith | 15 Dec 2016

Public offer superannuation funds can be torn between the demands of regulators when it comes to considering tax implications, says Raewyn Williams, a managing director of research for global funds manager, Parametric.

While Australian Tax Office-regulated risk and compliance receives much of the attention in the mainstream media and within the investment committees of large super funds, often forgotten is the Australian Prudential Regulation Authority’s requirement for tax impacts of investing and investment outcomes on an after-tax basis to be considered, says Williams, in an interview with InFinance.

“The ATO has every right — both legal and moral — to demand that super funds pay their legally required amount of tax, and this is not something super funds would have any interest in contesting,” Williams comments.

“What gets far less discussion but is equally important is that a duty to consider the tax impacts of investing and manage investment outcomes on an after-tax basis is a requirement now embedded in the SIS [Superannuation Supervision] Act,” she says.

Williams says there is currently no guidance addressing this tension between competing stakeholders — the ATO on the one hand, which, very broadly speaking would like more tax, and APRA which would like less — and how the government overall would view it and how super funds should manage this tension.

Williams’ comments on super funds’ obligations to manage tax to build after-tax wealth for members comes at a time when fresh calls are being made by the government to crack down on companies avoiding tax following the publishing of the ATO’s latest list of taxpayers and avoiders during 2015

“The largest super funds are among the top taxpayers in Australia and funds should be pleased to think that they are doing their bit to subsidise our standard of living in Australia through their important tax contribution to the Budget,” she comments.

“Every dollar of tax not paid to the ATO is a dollar to the member to help fund their retirement,” she points out.

“The ATO should respect its mandate [to demand that super funds pay their legally required amount of tax] and go no further, lest it subvert what APRA and, more broadly, what the government is trying to achieve with the super system,” Willams says.

Super funds thinking about these different stakeholder interests with respect to tax need to take a broader view and ensure that tax is positioned as part of investment thinking, and not just consigned to the legal, risk and compliance box within the fund, she points out.

Williams publishes her insights into after tax returns for the Seattle, US-headquartered Parametric here.

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