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Productivity Commission backs permanent super rollover relief

Productivity Commission backs super rollover relief

Neil Lamb, Ross Stephens and Muska Shakaib discuss key recommendations from the Productivity Commission's draft report on the superannuation industry.


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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 tax rollover relief for super fund mergers ensures that tax does not act as an impediment to future mergers.

The Productivity Commission (PC) recently released its draft report on the efficiency and competitiveness of the Superannuation industry, highlighting a number of important issues that need to be addressed by the Government and the industry.

In particular, the PC makes a number of key draft recommendations relating to super fund mergers, including that:

  • The Government should require trustee boards of Australian Prudential Regulatory Authority (APRA) regulated super funds to disclose to APRA when they enter a memorandum of understanding with another fund in relation to a merger attempt;
  • For mergers that ultimately do not proceed, the board should be required to disclose to APRA (at the time) the reasons why the merger did not proceed, and the members’ best interests assessment that informed the decision;
  • The Australian Securities and Investments Commission (ASIC) should proactively investigate (questionable) cases where mergers between funds stalled or did not proceed;
  • The Government should legislate to make permanent the (presently temporary) tax rollover relief for fund mergers and transfer events.

At present, the tax rollover relief for super fund mergers is temporary, applying only to mergers occurring on or before 1 July 2020.

The relief enables the closing fund in a merger to transfer its unrealised tax positions to the ongoing fund along with the relevant assets. Without the relief, these unrealised tax positions are crystallised at the date of merger. With a number of funds having exhausted capital losses and being in an unrealised net capital gains position, this gives rise to a cash cost in the absence of rollover relief, and represents a potential impediment to a successful merger.

It is clear that, beyond 2020, this policy setting is inconsistent with the PC’s draft recommendation as well as being inconsistent with the permanent relief provided for a number of restructures for other types of businesses.

Given that the impetus for mergers is unlikely to abate after 2020, it is important that the Government act on the PC recommendation to make the relief permanent.

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