Costello takes Ralph advice on board
The financial services industry breathed a collective sigh of relief following the the announcement by Treasurer Peter Costello that the government will take Ralph Review's advice on the tax treatment of trusts.
Costello's comments lock in the Government on maintaining the flow-through approach for cash management trusts and give "in principle" support for a similar regime for other widely held unit trusts.
However, the "devil is still in the detail", says IFSA chief executive Lynn Ralph.
There is also concern from other quarters that the Government has failed once again to address superannuation.
Mercantile Mutual managing director Rod Atfield says that while lower corporate and personal tax rates are highly attractive at face value, the report has overlooked the impact this will have on retirement income saving unless the superannuation tax regime is also reviewed.
"The omission clearly highlights the need for a separate, comprehensive review of national saving and retirement income policy," Atfield says.
"We are concerned about the potential disincentives created by the proposed tax treatment of reserve-backed investment vehicles which may have the effect of discouraging these types of investments which are so keenly sought by superannuants and others because of the security they provide."
IFSA's Lynn Ralph welcomed the alternative treatment for collective investment vehicles.
"Maintaining the longstanding "flow-through approach will keep Australia in step with the world," she says. However, she expressed concern about eventual implementation.
"All too often we have seen policies which appear simple on the surface but turn into a compliance nightmare," Ralph said. "The proposals for collective investments, life insurance companies, annuities, and pooled superannuation trusts are complex and will require extensive and transparent consultation with industry, not only on policy but also on implementation. Consultation will be essential if we are to avoid another surcharge debacle, where investors bore the cost of poorly applied policy."
FPA chief executive Michael McKenna also welcomed the flow-through treatment of widely held trusts.
"It's important for international competitiveness and also important for smaller investors with some income," he said.
However, the flow through does not apply to property trusts and according to McKenna who had an audience with Costello last week, the Government is currently examining the implications of property trust taxation.
The FPA also welcomed the recommendation to cap capital gains tax at 30 per cent. "Capping to 30 per cent brings us in line with the rest of the world," McKenna says.
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