The capital gains tax (CGT) roll-over relief provisions do not extend to changes to a merged superannuation fund and trustees are often left to maintain inefficient structures, which in turn increases costs to members, according to a super body.
In a submission to the Board of Taxation on its review of CGT roll-overs, the Association of Superannuation Funds of Australia (ASFA) said the provisions did not extend to changes to a super fund’s investment structures that occur on or around the time of a merger.
“There is no CGT roll-over relief to enable the rationalisation of such structures to create greater (non-tax) operational efficiencies. As such, the tax impediments of bringing forward the tax consequences on unrealised positions in order to achieve structural efficiencies may be significant,” it said.
“Without appropriate CGT relief, trustees of merged superannuation funds are often left to maintain inefficient structures, thereby increasing the cost to members, due to the tax impediments which may arise on the rationalisation of post-merger structures.”
ASFA noted that the loss relief for merging super funds provisions enabled merging funds whether had either revenue of net CGT losses to be rolled over to the continuing fund, preserving the value of those losses within the members’ account balances.
“However, in the event that there are unused revenue losses ‘trapped’ in Australian unit trusts which are at least owned 50% by the closing fund, such losses will be extinguished on the merger of the superannuation funds as the 50% stakeholder test in Schedule 2F will be failed.
“There can be a wide variety of situations where revenue losses may exist in an Australian unit trust, including losses arising from taxation of financial arrangement assets, various derivatives, and foreign currency, net rental losses arising in trusts holding real property, and net partnership losses in trusts formed to hold some types of foreign investments. They may also be present during the early stages of an investment.
“In some circumstances, extinguishing tax losses within Australian unit trusts may be a barrier to a superannuation fund merger occurring and the merger does not proceed due to the quantum of losses at stake.”
