The Government’s key policy settings for the super industry require funds to continue to consider scale and efficiency so as to increase value for members. The present scheduled expiry of capital gains tax (CGT) rollover relief for fund mergers occurring on or after 2 July 2017 is inconsistent with these settings.
The relief enables the closing fund in a merger to transfer its unrealised tax positions to the ongoing fund along with the relevant assets. This means that the Government continues to collect the tax in the usual timeframe (i.e. when the relevant asset is then sold in the ordinary course of business).
Without the relief, these unrealised tax positions are crystallised at the date of merger. The associated time value of money cost results in an effective cost to the members of the closing fund. The trustee of the closing fund needs to weigh this against the benefits of the merger in determining whether it is in the best interests of its members.
There will always be both costs and benefits for trustees to consider in any merger. However, given the Government’s broader policy settings, tax and especially the early payment of tax should not be an impediment to mergers.
It is time for the superannuation industry to press the Government for permanent relief, in the same way that equivalent relief is available in the corporate world. The policy imperative is clear: there is no cost to the Government, which continues to receive the tax on the gains when normal sales occur. However, there is a cost to members, if otherwise viable mergers do not proceed or are delayed, due to tax tipping the balance.