Alert

Who does this affect?

Super fund trustees

What do you need to do?

Consider the exposure draft bill and whether to make a submission

Author
Michael Mathieson  
Senior Associate

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Michelle Levy  
Partner
T +61 2 9296 2437

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John Edstein  
Partner
T +61 2 9296 2129

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The Government has released an exposure draft bill to provide roll-over relief for merging superannuation funds that have losses. The measure will provide roll-over relief for net capital losses and revenue losses, including for past income years. The relief extends to transfers where assets have been and/or will be held through a PST or life company. However, there are restrictions on the relief’s availability.

General availability

The exposure draft bill caters for each of the following asset transfer combinations (in connection with a fund merger):

The relief will be potentially available if all CGT events associated with a transfer happen between 24 December 2008 and 30 June 2011.

Key restrictions

Some key restrictions on availability include:

Only available for full transfers, not partial transfers:

The transferring fund must have no members “just after” the last CGT event associated with the transfer happens. Therefore, the relief will be unavailable for transfers of corporate plans between master funds.

A small degree of flexibility is provided in that all CGT events associated with the transfer can happen in a single income year. However, even with full transfers, the last associated CGT event can potentially happen some time before (rather than just before) the transferring fund ceases to have any members.

Technical issues:

To qualify for relief, one or more CGT events must happen “because” the original entity ceases to hold “all” of its CGT assets (or, if the original entity is a PST or life company, all of the CGT assets supporting the fund’s investment). However, the CGT event may be, or may relate to, the original entity’s ceasing to hold, but arguably may not happen “because” of it.

Also, CGT assets must become held by the continuing entity “because” of the original entity’s ceasing to hold. Again, however, the assets may become held by the continuing entity because of the making and/or completion of a transfer agreement, but arguably not because of the original entity’s ceasing to hold.

Further, the bill refers to assets being held:

• by a PST “to support” units held by a fund;

• by a life company “to support” a life policy held by a fund.

The words “to support” may require a connection between the fund’s investment and the underlying investments that is difficult to demonstrate.

Finally, with one exception, the transferred assets must be “identical” to the original entity’s assets. In practical terms, “identical” is likely to be too restrictive. Further, the exception appears to be unduly narrow - it only covers “assets retained by the original entity to pay its existing or expected debts”.

Consequences

The consequences of choosing the roll-over are complex and require close consideration. The rollover is chosen by the transferring fund’s trustee but has consequences for the continuing entity - meaning the continuing entity has an interest in a valid choice being made and the further sub-choices that are available.

Other

The closing date for submissions is Friday, 28 August 2009.

The exposure draft bill is available here.