16 January 2009

Minister Releases Discussion Paper on Tax Relief for Merging Super Funds

Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today released the Treasury discussion paper on the Government's measure to provide an optional capital gains tax (CGT) roll-over for superannuation funds that merge with other complying funds.

Under the measure, the Government will provide optional CGT roll-over for capital losses arising from CGT events happening under a complying superannuation fund's merger with an APRA-regulated superannuation fund with at least five members before 1 July 2010.

"Mergers of superannuation funds are one way to increase cost efficiencies in the super system or to "renovate the house" in superannuation system terms."

"Superannuation fund mergers can lead to improved economies of scale, including provision of more cost effective services to members and the Rudd Government is keen to remove barriers that would prevent such cost efficiencies from being achieved," Minister Sherry said

Typically, the transfer of assets from one super fund to another, as part of a merger of the funds, triggers the realisation of capital gains or losses for the transferring fund. If the transferring super fund is in a net capital loss position, its winding up following these transfers will lead to these losses being extinguished. Such losses, which reduce member balances, have acted as a barrier to fund mergers.

Accordingly, the roll over will preserve the value of these capital losses in the receiving super fund – allowing them to be offset against future capital gains.

"Limited CGT roll over will assist super funds in a net capital loss position seeking to merge with other funds by preserving the CGT offsetting value of any net capital loss," Minister Sherry said.

The Treasury discussion paper forms the basis for consultation on the design of the roll over measure. Industry and other stakeholders are invited to comment. The paper is available at www.treasury.gov.au.

The period for submissions ends on 13 February, 2009.