Tax an impediment to super fund mergers – myth or reality?

Is tax an impediment to super fund mergers?

Legislation before Parliament raises questions as to whether the tax relief goes far enough.


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Assistant Minister for Superannuation, Financial Services and Financial Technology Jane Hume says the notion that tax implications are a disincentive preventing superannuation funds from merging is a myth, but questions remain as to whether current tax relief measures go far enough.

Senator Hume made the comments during a speech to the Association of Superannuation Funds of Australia National Conference last November, where she quite rightly observed that the Federal Government had accepted the recommendation from the Productivity Commission to make the current temporary rollover relief for fund mergers permanent.

Legislation to make the relief permanent was introduced into Parliament on 12 February 2020.

However, the question remains whether, in its current form, the relief goes far enough to ensure that efficiencies are captured for members. In particular, the question arises as to whether the circumstances in which the relief allows losses and/or assets to be transferred in fund mergers without relevant taxes being crystallised covers the full range of such circumstances.

Two particular practical matters frequently arise

Firstly, for the merger of a smaller fund (which is principally invested in underlying managed funds), into a larger fund, the larger fund will typically not wish to hold units in most of these managed funds, as these holdings may be sub-scale in the context of the larger fund. Rollover relief presently extends only to the transfer of units in the managed funds, and not to the transfer of underlying assets or a unit holder’s share of underlying losses from the managed funds (though the relief does extend to the transfer of underlying assets and losses from pooled superannuation trusts or life assurance companies). As one of the efficiencies sought from the merger may be to transfer the underlying assets from these managed funds to mandates held by the larger fund, the present relief does not enable these efficiencies to be achieved without an immediate tax cost.

Secondly, the structure of the typical retail fund often comprises tiers of interposed unit trusts. For example, the fund may invest in a layer of trusts that mirrors the investment options available to members, with these trusts investing in a layer of sector or asset class trusts, and these then investing in external trusts or mandates. This contrasts with the typical large industry fund structure where the fund directly holds most assets (bonds, shares, cash) and only uses trusts for specific types of investments.

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