LSS

Lyon Solution Services

Keeping Tax Under Control

Funds Management

The funds management industry has grown rapidly in recent years as individuals reinvest their savings into growth assets and retirement plans.

Investments are usually held in unit trust or superannuation fund structures.  Master trusts or umbrella trusts diversify their assets by investing in other trusts or funds.  Trusts can also directly invest their assets with a number of different fund managers using a custodian to manage and benchmark the portfolio of investments.

Australian unit trusts are often described as "flow through vehicles" for tax purposes, because by distributing their income and capital gains to unit holders, tax is paid in the hands of the investor rather than the trust.

Whilst the flow through method is attractive to investors, fund managers require sophisticated systems and processes to track and compute the separate income and capital gains tax nature of components of the trust distribution made to each unit holder.  This task is particularly complex for umbrella or master trusts that need to track distributions through intermediary trusts.  Fund managers have to prepare distribution statements for unit holders containing an analysis of the tax nature of their distribution in a short timeframe, usually four weeks after financial year end.

Funds managers require comprehensive systems and processes to track asset costs, acquisitions and disposals for capital gains tax purposes.  Property funds also need reliable systems to track the cost of investments for capital allowances and CGT purposes.   CGT and capital allowance calculations need to feed into the systems performing trust distribution calculations.