Superannuation rollover tax relief – let’s keep it going

One of the best recommendations in the Productivity Commission (PC) draft report on the superannuation industry was the backing the PC gave to making permanent the current temporary (until 1 July 2020) tax rollover relief for fund mergers and transfer events.

Given the ongoing regulatory and political exhortation to increase the numbers of mergers in the sector – to remove underperforming funds – anything else would have been a disappointment.

But we must hope the PC’s clear recommendation for legislation in this area will be taken on by the government, as it has been curious to see tax policy contradicting the government’s overall stance – as well as being inconsistent with the permanent relief provided for a number of restructures for other types of businesses.

The relief enables the closing fund in a merger to transfer its unrealised tax positions to the ongoing fund along with the relevant assets. Without the relief, these unrealised tax positions are crystallised at the date of merger. With a number of funds having exhausted capital losses and being in an unrealised net capital gains position, this gives rise to a cash cost in the absence of rollover relief, and represents a potential impediment to a successful merger.

Among other recommendations in the PC draft report relating to super fund mergers were:

  • The Government should require trustee boards of Australian Prudential Regulatory Authority (APRA) regulated super funds to disclose to APRA when they enter a memorandum of understanding with another fund in relation to a merger attempt;
  • For mergers that ultimately do not proceed, the board should be required to disclose to APRA (at the time) the reasons why the merger did not proceed, and the members’ best interests assessment that informed the decision;
  • The Australian Securities and Investments Commission (ASIC) should proactively investigate (questionable) cases where mergers between funds stalled or did not proceed.

Collectively, if these proposals find favour, they should help drive the extensive consolidation in the sector that KPMG both favours and predicts.

From a tax perspective, the rollover relief proposal was the most important recommendation in the PC report – but there were a few other interesting observations:

  • Frequently-changing tax rules are cited a number of times in the report as one of the factors causing complexity and costs to members.
  • Nearly 30 percent of those members who have decided to commence an SMSF cited tax as an important reason in this decision.
  • The PC also cites sub-optimal tax management by funds as a factor in unnecessary member balance erosion.

I would draw two conclusions from these findings. Firstly, with improving outcomes for members now a specific requirement for super funds it is essential that funds focus on better after-tax management strategies.

And secondly, policymakers must hold fire on further super tax legislation and give the considerable changes of the past two years’ time to bed down.


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