Although it had no revenue implications, the Government included in the Budget papers proposals that would tighten the investment restrictions on all superannuation funds (including self-managed superannuation funds).
The Government has decided to modify the transitional arrangements for this measure.
A view has been put to the Government that the measure will have a retrospective effect. While this is not strictly true, the Government recognises that many people have made investment decisions on the basis of the existing law and would face costs in seeking to unwind these arrangements.
In order to address this concern, and as this measure would not impact on Budget revenues, the Government has decided that the new restrictions will not apply to investments made before 7.30pm 12 May 1998 (Budget night). Such investments will remain subject to the existing law.
Transitional arrangements for investments made after 7.30pm on 12 May 1998 will continue to apply as announced in the Budget. That is:
- for investments made between Budget night and the introduction of the legislation, funds will have until 30 June 2001 to comply with the new rules; and
- investments made by funds after the introduction of the legislation will be required to comply with the new rules.
Draft legislation implementing this measure will be issued for consultation and comment prior to its introduction into Parliament.
Under the new investment restrictions announced in the Budget superannuation funds (including self-managed funds) will be permitted to hold no more than 5 per cent of the funds assets (calculated on market value) in certain assets. These include:
- investments in associated parties, including trusts;
- investments involving associated parties eg leasing assets to members or employer-sponsors (exceptions will apply to ensure consistency with the rules relating to the acquisition of property used in the business the 40 per cent rule); and
- investments in certain non-associated parties which invest directly or indirectly in the employer-sponsor or its associates (these restrictions would not apply to certain specified investments such as widely held unit trusts).
Additionally, the current restriction on acquisition of assets from members and relatives will be extended to all associates.
The new rules will act to ensure that superannuation savings are invested with retirement income generation as the primary purpose rather than with the aim of providing current day support to members, the employer-sponsor or their associates.
28 May 1998
Contact:
Penny Farnsworth
(02) 6277 7360
(0419) 482 497