Government must urgently provide capital gains taxation relief when superannuation funds merge

Over the last year ASFA has made extensive efforts to communicate to the Federal Government the need to urgently provide capital gains taxation (CGT) relief when superannuation funds merge, ASFA chief executive Pauline Vamos said today.

“To date, the Government has yet to provide a statement on whether it will or will not provide relief. The lack of certainty is now impacting on the super industry’s ability to transition efficiently to MySuper,” Ms Vamos said.

“ASFA has consistently argued that CGT merger relief should be ongoing. Notwithstanding this ASFA has argued that where the Government introduces significant regulatory changes that have impacts on the structure of the superannuation industry then it is appropriate that CGT merger relief be provided to enable super funds to make a properly considered decision whether to continue to operate on a standalone basis.

“ASFA believes that the introduction of the Government’s Stronger Super reforms will lead many superannuation funds to consider whether to continue to operate as standalone funds. ASFA has argued that, as with other periods of significant regulatory change, it is appropriate for the Government to provide CGT merger relief through the Stronger Super transition period.

“A key consideration for superannuation funds in making a decision to remain a standalone entity is the financial impact on members of the loss of the value of the Deferred Tax Assets of the fund should the fund decide that a merger is the appropriate course of action. As such a loss represents a real economic cost to the members, it may prove to be an impediment to merger significant enough to result in trustees deciding against a merger.

“From our confidential discussions, super funds are currently carrying Deferred Tax Assets equivalent to between one and three per cent of member account balances. The level of Deferred Tax Assets is fluctuating due to the continued volatility of global investment markets.

“A superannuation fund trustee’s interpretation of their fiduciary duties means that a trustee is unlikely to complete a merger where it would result in a significant loss to members.

“ASFA’s advocacy on CGT with the Federal Government has been extensive. When the GFC hit, ASFA was a strong voice for the provision of CGT relief for merging superannuation funds; this was provided until 30 June 2011. We have argued hard for that relief to be made permanent. So far, we have only succeeded in seeing an extension of the relief to 30 September 2011.

“With Stronger Super reforms signalling significant changes to the way the industry operates, it is imperative that the CGT relief, at a minimum, be extended throughout the reform period.

“On 17 October 2011 ASFA provided a formal submission to Treasury’s consultation. A copy of this can be obtained on the ASFA website.

“On 19 March 2012 ASFA arranged for senior executives from seven super funds that are in the process of merging to brief the Treasurer’s adviser in Canberra on the individual circumstances of superannuation funds that are considering mergers. Specifically, senior executives were able to explain to the Treasurer’s office that trustee fiduciary duties meant mergers could not be enacted without CGT relief. Executives also provided the Treasurer’s office with detailed explanations as to why an announcement before the Federal Budget was required in order to enable funds sufficient time to enact a merger before 1 July, explaining the processes that superannuation funds need to go through in order to provide members and service providers with notice of the merger. If a fund is unable to execute a merger by 30 June then significant additional costs are incurred through need to run two sets of accounts for the next financial year.

“If the Government has an intention of providing CGT merger relief then ASFA believes it needs to make an announcement before the Federal Budget. The fact that funds will not merge without the provision of relief means that there is no revenue loss to Government, and therefore there is no reason why an announcement should be made in the Budget in the first place.

“If the Government has decided not to provide CGT merger relief then ASFA believes that it should announce this in order to end industry uncertainty. The Government should in this case acknowledge that the overall benefits of introducing MySuper will be reduced, and that in fact some funds may need to increase fees in order to compete in the new environment when they may otherwise have merged.

“The beneficiaries of CGT merger relief are not high-income earners. ASFA has demonstrated to Government that it is working Australians who are most impacted.”

For further inquiries, please contact:

Pauline Vamos, CEO, 0433 169 342

Rebecca Glenn, GM Marketing and Communications, 0416 170 439

Megan McDougall, Media and Communications Coordinator, (02) 8079 0849

About ASFA – the voice of super

The Association of Superannuation Funds of Australia is the peak industry body representing the superannuation and retirement industry. ASFA is the only organisation that represents all types of superannuation funds (retail, industry, corporate and public sector) and associated service providers. ASFA members manage or advise on the bulk of the $1.3 trillion in superannuation assets as at September 2011. Its members represent over 90 per cent of the approximately 12 million Australians with superannuation.