Income Tax Treatment of Instalment Warrants

On 10 March 2010, the Assistant Treasurer, Senator the Hon Nick Sherry, announced that the Government will introduce legislation to amend the income tax treatment of ‘traditional instalment warrants’.

The Minister for Financial Services, Superannuation and Corporate Law, the Hon Chris Bowen MP, announced that the Government will introduce legislation to amend the income tax treatment of limited recourse borrowings of complying superannuation funds.

Specifically, the Government will legislate to treat:

the owner of an instalment warrant over an exchange traded security as the owner of the security; and

a superannuation trustee who enters into a limited recourse borrowing arrangement for the purpose of purchasing an asset, as permitted under subsection 67(4A) of the Superannuation Industry (Supervision) Act 1993 (the SIS Act), as the owner of the asset.

The discussion paper also introduces the concept of “Non-Traditional Instalment Warrants, and highlights some concerns the government has around the structure of these arrangements. This is a cautionary note to those who are considering such an arrangement, to ensure that the structure is complying.

The media releases are available on the Assistant Treasurer’s website and the Minister for Financial Services, Superannuation and Corporate Law’s website. Click Here to read the article...

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Cooper bans collectables from SMSFs

SMSFs will be banned from including collectibles and 'personal use' assets into their fund and will be subject to tougher penalties if they break the rules, according to the preliminary recommendations of the Cooper Review released today.

The preliminary report is a response to issues raised in its Phase Three: Structure (including SMSFs) issues paper released in December 2009. Click Here to read the paper…

The Panel supports trustees keeping control over their SMSFs so it is not proposing compulsory education for trustees or requiring third party custodians to hold SMSF assets.

Cooper said "Our preliminary recommendations are designed to improve the safety and integrity of SMSFs, while continuing to allow a high degree of self-determination and flexibility for trustees taking responsibility for their own retirement outcomes."

Key preliminary recommendations include:

• prohibiting investment in collectables and personal-use assets (such as artworks, wine collections, exotic cars and yachts);
• strengthening the competence and independence of approved auditors;
• an online SMSF resource centre to help SMSF trustees build skills and make better decisions;
• making the ATO's penalty regime more flexible to enable more effective and equitable regulation;
• tightening the SMSF registration process, including the introduction of member identity requirements, to reduce instances of fraud and illegal early release schemes; and
• reducing the potential to benefit illegally from related party transactions by prohibiting the acquisition of in-house assets and imposing restrictions on the way in which an SMSF can transact with related parties.

"The panel accepts that some of these types of assets may appreciate in value over time and investors with the appropriate specialist knowledge can profit out of them," said the report.

"However, the panel points out that people who want to own such assets are free to do so outside the SMSF environment in a way that does not involve special concessions from the tax system."

SMSFs that do own the assets that will be banned if the Review's recommendations become law will have up to 30 June 2020 - a 10-year transitional period - to dispose them or move them out of their fund.

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The Future of Australias Tax System

The Henry Review is a review of the entire taxation system. It is known as the 'root and branch' review of the taxation system.

On 13 May 2008 the Australian Government announced the Australia's Future Tax System Review.

The Review Panel made a final report in December 2009 to the Treasurer about the position of Australia to deal with the demographic, social, economic and environmental challenges of the 21st century.

As part of the review, the Australian Government also announced an investigation into measures to strengthen the financial security of seniors, carers and people with disability. The Review Panel will report on this aspect of the review by 28 February 2009.

In August 2008 the Treasury released a discussion paper 'Architecture of Australia’s tax and transfer system' and on 19 August the Panel called for public submissions guided by four broad consultation questions. Click Here for Report

The consultative paper can be read through this link. Click Here

To read the Retirement Income Strategic Issues Paper Click Here

To read the Retirement Income Consultation Paper Click Here

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Disclaimer: The material contained in this publication is in the nature of general comment and information only and neither purports nor is intended to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this publication without taking appropriate professional advice.