Taxation relief to ensure members mandatorily transferred to a MySuper product are not adversely affected

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NEED TO KNOW

On 24 April 2012, the Government announced it would provide income tax relief to superannuation funds where there is a mandatory transfer of default members’ account balances to a MySuper product in another superannuation fund to ensure those members are not adversely affected. On 22 April 2013, the Government released exposure draft legislation Tax Laws Amendment (2013 Miscellaneous Measures No. 1) Bill 2013: MySuper loss transfer and asset roll-over and explanatory material to facilitate this measure.

BACKGROUND

As part of the Stronger Super reforms, the Government introduced MySuper, a simple product designed to replace existing superannuation default products from 1 July 2013.

The MySuper reforms will require superannuation funds not wishing to offer MySuper products to transfer those default members, their benefits and relevant assets to another superannuation fund offering a MySuper product. 

If this mandatory transfer of assets creates a capital gains tax (CGT) liability, the relevant default members could be adversely affected.  This is particularly because under the current law, realised capital and tax losses cannot be transferred to the receiving fund and an income tax liability could arise from the realisation of assets on transfer.

The exposure draft legislation is intended to provide relief from the above tax consequences by amending Income Tax Assessment Act 1997 (Cth) (ITAA 1997).

SUMMARY

It is proposed that a complying superannuation fund will be able to choose

  • to defer an income tax liability for assets transferred by choosing a CGT roll-over for transferred assets (optional CGT rollover);
  • to transfer realised capital losses and tax losses to another entity (optional loss transfer); or
  • both of the above.

The choice by the transferring superannuation fund will be conveyed by the way it completes its income tax return for the income year in which the accrued default balances are transferred.

Optional CGT roll-over

A transferring complying superannuation fund can choose an optional CGT roll-over for transferred assets if they are reasonably attributable to the accrued default balance of the transferring default members.

The consequence for the transferring entity is it disregards any capital gains or capital losses associated with the asset transfer.

The consequences for the receiving entity are as follows:

  • the receiving entity is treated as having acquired the asset for the transferring entity’s cost base to ensure deferral of CGT consequences until a later dealing with that asset by the receiving entity;
  • the date of acquisition of asset is when it is transferred to the receiving entity; and
  • despite the above, for the purposes of the 12 month CGT discount ownership requirement under section 115-25 ITAA 1997, the receiving entity will be taken to have acquired the asset on the same day as it was acquired by the transferring entity.

Optional loss transfer

A transferring complying superannuation fund can choose to access the loss transfer option by transferring realised capital losses or tax losses that reflect the tax value of losses incorporated in members’ account balances.  This prevents the value of losses remaining with the transferring fund to the extent those losses are attributable to the accrued default amounts of the transferring members.

The consequence for the transferring entity is a reduction in its capital losses or tax losses by the transferred amount.

The consequence for the receiving entity is it is taken to have made a corresponding capital loss or tax loss on the day the accrued default amounts of the transferring members are transferred.  This enables the receiving entity to either:

  • use transferred capital losses against capital gains in future income years; or
  • in relation to a transferred tax loss, deduct losses in the income year of the account transfer.

Both the CGT roll-over and loss transfer options do not apply if there is an arrangement to merge the two relevant complying superannuation funds.  The Government has proposed separate tax relief for merging superannuation funds.  

TIMING OF NEW REGIME

The taxation relief to facilitate any mandatory transfers to a MySuper product will apply from 1 July 2013 to 1 July 2017.  This time period corresponds to the date when MySuper is introduced and the deadline for transferring a superannuation fund’s existing default members’ interests to a MySuper product.

NEXT STEPS

The closing date for submissions on the exposure materials is Friday, 3 May 2013.  

We are available to provide you with further information or guidance about this issue.

Please contact a team member listed in this publication.


The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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Michael Chaaya

Partner. Sydney
+61 2 9210 6627

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Joanne Dwyer

Special Counsel. Brisbane
+61 7 3228 9375

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Christine Maher

Consultant. Brisbane
+61 7 3228 9413

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