In a submission to Treasury, the Tax Institute made a recommendation to implement changes to the application of certain provisions in division 305 of the Income Tax Assessment Act 1997 (ITAA 1997) and related legislative provisions.
The Tax Institute said in the submission that in certain circumstances the application of the provisions of sub-division 305-B, particularly the calculation of applicable fund earnings, may result in unfair or unintended consequences for taxpayers and the ATO.
“Furthermore, there are a number of areas where the legislation or its application lack certainty, and clarification by legislative amendment, regulation or taxation rulings should be provided,” it said.
The Tax Institute said in many scenarios, “applying the formula in s305-75, the taxpayer is subject to tax on amounts that would be in excess of the amount that would generally be regarded as earnings accrued in the foreign superannuation fund whilst an Australian tax resident”.
“Conversely, there are scenarios where the taxpayer may be assessable on amounts that would generally be regarded as less than the earnings whilst an Australian tax resident.”
It called on Treasury to simplify the formula for calculating applicable fund earnings and remove barriers to the transfer of benefits that have accrued in foreign superannuation funds that result from contribution caps and funding caps.
It also called for a reduction in restrictions regarding elections that have an amount of “AFE deposited with an Australian superannuation fund included in the assessable income of that fund notwithstanding that it is from a foreign superannuation fund”.
The submission also said that foreign income tax offsets (FITO) should be able to be claimed by an Australian superannuation fund where the individual has elected for the fund to be assessable on the AFE but where the individual suffers personal foreign tax liabilities on that same amount.
“The Tax Institute considers this area of the legislation needs revising to provide better clarity and certainty, and to ensure that the legislation is operating correctly for the benefit of the Australian community,” it said.