Providing tax file numbers to superannuation funds
The Assistant Commissioner of Taxation has issued a reminder to taxpayers that they need to provide their tax file number (TFN) to their super fund by Monday 30 June 2008, or risk paying extra tax on certain contributions.
Assistant Commissioner of Taxation, Brett Peterson, said while it’s not compulsory, it is important people provide their superannuation fund with their TFN, otherwise they may end up paying more tax from 1 July 2008. He said that "recent changes to super mean that if your super fund doesn’t have your TFN they will have to pay extra tax on certain contributions your employer makes for you. Your super fund may take this extra tax directly out of your account which means less money for your retirement. Also, if your fund doesn’t have your TFN you may not be able to make personal contributions or receive a super co-contribution”.
Taxpayer Alert on arrangements involving superannuation funds
On 13 June 2008, the Commissioner of Taxation issued Taxpayer Alert TA2008/12 dealing with arrangements which have one or more of the following features.
- A person makes an in-specie contribution to the superannuation fund and the fund does not recognise and record the contribution at the true market value of the asset in its accounts.
- A person (e.g. an employer of members of the fund) pays expenses on behalf of the fund and does not subsequently seek reimbursement from the fund. Alternatively, the fund pays the expense but seeks reimbursement from another person (e.g. an employer of members of the fund).
- A person, usually a member of the fund or their associate, makes improvements to an asset of the fund to increase the asset's value without seeking reimbursement from the fund. For example, the fund owns real property and a member pays the cost of improvements to that property.
- A person, usually a member of the fund or their associate, together with the trustee of the fund, owns all of the units in a non-leveraged unit trust or shares in a company and further units or shares are issued or the rights attached to the units or shares are altered so that the value of the units or shares owned by the fund is increased.
According to the Alert, the Commissioner considers that arrangements which exhibit one or more of the features outlined above may give rise to taxation and superannuation regulatory issues, including whether:
- the trustee of the fund has properly recognised that the arrangement involves a contribution to the fund that must be allocated to a member and reported for the purposes of the excess contributions taxes at its market value
- the contributor is subject to the correct amount of tax (whether that is as a result of the application of the ordinary income, trading stock or capital gains tax provisions of the tax law) when an asset is contributed to the fund
- the general value shifting regime of the tax law applies when rights in respect of particular investments by the fund are varied and value shifting occurs
- the exclusion of superannuation contributions from fringe benefits tax properly applies if the contribution is for the benefit of an employee, and
- the derivation of non-arm's length income rule applies.
These issues will be addressed by the Commissioner on a case-by-case basis.
In the Alert the Commissioner also reminds superannuation fund trustees that, when assets other than cash are transferred to a superannuation fund, the trustees must take any steps necessary to ensure the fund's ownership of the assets is recognised, and must also ensure that they have not breached the regulatory provisions of the Superannuation Industry (Supervision) Act 1993.
Demutualisation of NIB Health Fund
The Australian Taxation Office (ATO) has published information on its website regarding the demutualisation of the NIB Health Fund, which took place on 1 October 2007. The information provided by the ATO does not, however, apply to persons who are not a resident of Australia for tax purposes. The Commissioner of Taxation notes in the information statement that the Government’s intention as announced by the Assistant Treasurer on 26 February 2008 is to provide relief from capital gains tax (CGT) for policyholders of health insurers who receive shares when their health insurer demutualises. The Commissioner further notes that, since the announcement by the Assistant Treasurer states that the law will be amended with effect from 1 July 2007, policyholders in NIB Health Fund should be able to access this CGT concession if the law is ultimately enacted as intended. Finally, the Commissioner states that the ATO will provide more information on the progress of the changes through Parliament, and how the changes will apply to policyholders as soon as they become available. Affected policyholders will need to consider the tax treatment of the demutualisation before lodging their tax return for the 2008 tax year.
Settlement payment was not income
In Murdoch v Commissioner of Taxation [2008] FCAFC 86 (28 May 2008) the Full Federal Court held that an amount received by the taxpayer, in settlement of a dispute against the trustee of a trust in which the taxpayer was an income beneficiary, was not income and thus not included in assessable income.
Briefly, the taxpayer was an income beneficiary in a number of trusts and, as required under the terms of each trust instrument, the taxpayer was provided by the trustee with her share of the income derived by each trust. However, the taxpayer claimed in a dispute with the trustee that the capital of the trusts had been inappropriately invested, and that such investments had not given rise to any exceptional increase in income of the trusts, but had greatly increased the corpus of each trust, and had involved significant risk to her as a beneficiary which was not properly rewarded. Without admitting liability, the trustee made a settlement payment to the taxpayer and it was this amount (approximately $85 million) which the Commissioner sought to assess as income.
In finding in favour of the taxpayer, the Court noted that the Commissioner had not contended that the settlement was illusory or a sham, and had not contended that the general anti-avoidance provisions of the tax law should apply. The common ground on which the tax dispute was to be resolved was that, where a taxpayer provided consideration in the form of a release of a claim, the release will ordinarily supply the ‘touchstone’ for ascertaining whether the receipt is on revenue account or not.
The Court considered the leading authorities on the rights of a beneficiary where a trustee breaches its fiduciary obligations, and said that the "line of authority is to the effect that a trustee or other fiduciary is accountable for a profit he or she made from a breach of fiduciary duty, even though the profit is one that the beneficiary to whom the trustee or other fiduciary is liable to account could not have made.” Thus in rejecting the Commissioner’s submission that the monies paid from the trust (with the consent of the capital beneficiary) was to discharge the trustee’s obligation to pay income to the taxpayer, the Court said that the taxpayer’s claim was to an accounting for a capital profit or gain made by the trustee and to an entitlement to a constructive trust over the assets of the trust estate. The taxpayer was paid a lump sum in satisfaction of those claims and in the Court’s view, this lump sum was not income.
For further information, please contact your usual PricewaterhouseCoopers adviser, or:
Mike Forsdick, Partner
Phone: +61 2 8266 5767
mike.forsdick@au.pwc.com
Chris Lowe, Partner
Phone: +61 7 3257 8561
chris.h.lowe@au.pwc.com
Cesare Scalise, Partner
Phone: +61 8 9238 3417
cesare.scalise@au.pwc.com
Bruce Ellis, Partner
Phone: +61 3 8603 3303
bruce.ellis@au.pwc.com
