Neil Lamb, Ross Stephens and Muska Shakaib discuss the proposed extension of tax rollover relief to merging superannuation funds.
The Government introduced Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 to Parliament on 7 February 2018, delivering on its promise on the extension of the tax rollover relief available to merging superannuation funds.
If enacted in its proposed form, the rollover relief will apply to mergers occurring from 1 July 2017 to 1 July 2020 meaning that it will apply retrospectively to mergers that occurred after the previous subset date of 1 July 2017. While this is welcome news for funds that are currently navigating a merger, the Government is urged to make this relief permanent, just like it is for a variety of corporates.
The rollover relief essentially enables a closing fund in a merger to transfer its unrealised tax positions to the ongoing fund. Without the relief, these unrealised tax positions are crystalised at the date of merger. With a number of funds having exhausted capital losses and being in an unrealised net capital gains position, this would give rise to a cash cost in the absence of rollover relief, and represent a potential impediment to a successful merger.
In light of the current focus on the efficiency and competitiveness of the superannuation industry as well as inorganic growth as a strategy in increasing the benefits delivered to members, permanent rollover relief ensures that tax does not act as an impediment to future mergers.
Given the extended due diligence associated with a superannuation fund merger, it is imperative that funds begin to consider their options now, particularly given the 1 July 2020 sunset date. This will ensure that any potential mergers are completed in time to take advantage of the tax rollover relief.