There may be significant tax implications of year-end distributions from Australian managed funds because of the coronavirus (COVID-19) pandemic.
High levels of equity market volatility and sharp movements in foreign exchange rates, particularly from March through to June 2020, have meant that many funds that were previously on track for a positive year-end performance have experienced a substantial decline.
This may create a number of potential tax issues not only for managed funds but also their investors.
For institutional investors (such as superannuation funds), this uncertain environment may have a number of repercussions for year-end tax provisioning and also unit pricing. When preparing tax provision calculations, superannuation funds will often treat cash distributions from managed funds as assessable income or estimate these components for the year.
The actual attributable income will be corrected once the AMMA statements are made available—often at the time of preparing the income tax return. For funds that are reclassifying income as return-of-capital or tax-deferred distributions this year, this approach could lead to a substantial over-provision of tax.
The tax provisioning process in respect of managed fund distributions will also have a knock-on consequence for the unit pricing of superannuation funds, with significant adjustments to reverse the effect of over-provisioning. Superannuation fund tax teams need to be vigilant in respect of the potential impact on their fund’s tax provisioning and tax accruals within unit pricing and consider these aspects in line with the fund’s unit pricing policies and overall tax governance framework.
For more information, contact a KPMG tax professional in Australia:
Natalie Raju | +61 2 9335 7929 | firstname.lastname@example.org
Edward Tweddle | +61 2 9346 5623 | email@example.com
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