Sent: 27-10-2009 10:35:03
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After tax returns and ETOs
In my column last week I referred to an announcement by the Health Employee's Superannuation Trust of Australia.
This announcement made much of the fact that HESTA intended to measure and remunerate its managers of Australian equities on an after-tax basis in order to make those managers accountable for the tax implications for their decisions.
Since last week I have not seen any other retail (for profit or not for profit) super fund make a similar announcement.
A planner responded to my comments about HESTA's announcement by saying that after-tax management "is a major issue which goes against active management, and is the major reason it is never at the top of the discussion list.
"Fundamentally all active managers are not interested in the tax position as long as they out perform the index, however, when tax is deducted as part of the return it sends many of these active funds under the index or so close as that the additional cost (MER) is simply not value to the client.
"By not addressing this they are simply ensuring the rise of index and other client focused fund managers."
Do you agree or disagree with this view?
Only a small number of SMSFs get involved in using Exchange Traded Options or ETOs. For those funds that do use them they will want to know that later last week the ATO issued two Interpretative Decisions on Self Managed Super Funds which deal with the tax treatment of these ASX listed financial products.
One ID deals with ETOs which are not held until expiry but closes out open positions by selling them from the same series. When the positions are closed out they make "a capital gain or loss equal to the difference between the cost base of the ETO and the amount received on its expiry or termination."
The other ID deals with ETOs as part of a hedging strategy "will make a capital gain (or loss) of the difference between the capital proceeds (that is, the premium receivable) and the cost of granting the option (for example, brokerage fees) at the time the option is granted." Importantly no CGT discount is available.
These Interpretative Decisions can be read at the following two links: http://www.atcbiz.com.au/r.php?r=771dyym
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