The Government has released the Tax and Superannuation Laws Amendment (2015 Measures No. 2) Bill 2015 which, if passed in its current form, will provide for “look through” tax treatment for trusts set up for limited recourse borrowing arrangements (LRBA).

In effect, this means that, from a tax law perspective (except for certain limited exceptions), the asset of the LRBA trust will be deemed to be held by the super fund and the actions of the trustee of the LRBA trust in relation to the asset will be deemed to be the actions of the trustee of the super fund. This will reduce adverse tax consequences (eg capital gains tax on collapsing the trust, losses being trapped in the trust and difficulties of passing franking credits) and result in a reduction to tax administration (eg the trust will not require a TFN or be required to prepare a tax return). It also means that, from a tax law perspective, super funds no longer need a bare trust for a LRBA in order to achieve a look through approach.

The Federal Court, in the decision of Elecnet (Aust) Pty Ltd v FCOT, has ruled that a trust established to pay out redundancy benefits for employees of the electricity industry was a unit trust for the purposes of the public trading trust rules.  This was held notwithstanding that the employees’ interest in the trust is not unitised but rather operates in a way that is akin to a superannuation fund. In coming to this conclusion, the Court found, for the purposes of the public trading trust rules, that the employees have a beneficial interest in the property of the trust.

The Commissioner of Taxation has concluded, in ATO ID 2015/10, that using a self managed superannuation fund (SMSF) to hold a life insurance policy for the purpose of a buy sell agreement breaches the sole purpose test and the prohibition against providing a member (or a relative) financial assistance.

So does this mean that superannuation funds cannot be used to hold insurance in buy-sell arrangements? Not necessarily. The position of the Commissioner would appear not to apply to insurance held in public offer superannuation funds and potentially does not apply to SMSFs that don’t have any formal buy sell arrangements.

In the decision of Australian Annuities v Rowley Super, the Victorian Court of Appeal has held that over $1.6 million of super contributions made by a discretionary trust and members to a self managed superannuation fund (SMSF) could be clawed back to a liquidator on the basis that the director of the corporate trustee breached his fiduciary duties to the corporate trustee.

The Australian Taxation Office (ATO) has set out its view in ATO Interpretative Decisions, ATO ID 2015/2 and ATO ID 2015/3 that the superannuation laws and tax laws prohibit superannuation death benefits from being paid by mere journal entries.

In the ATO IDs, the taxpayer/beneficiary and self managed superannuation fund (SMSF) trustee wished to effect the death benefit to the beneficiary by the transfer of money from the deceased member's account, to the beneficiary's own account in the SMSF by way of journal entry (to save on transactions costs). The ATO noted that set offs can occur in a superannuation context, but that there needs to be “mutual liabilities between the taxpayer and the SMSF and there is an agreement between those parties to set-off the liabilities”. Here, the ATO found there was “not a mutual liability in this case as the taxpayer does not have a liability to the SMSF”.