The superannuation industry has won a temporary extension of the capital gains tax relief on fund mergers that was due to be scrapped from July 1, 2017.
CGT relief on super fund mergers and rollovers has been extended until July 1, 2020, but the industry has failed in its bid to have the relief made available permanently.
The door remains open for that to happen, however, following the completion of the Productivity Commission’s ongoing review into the efficiency and competitiveness of the superannuation industry.
The CGT relief on super fund mergers and rollovers has been in place since December 2008, allowing funds to transfer capital and revenue losses to a new merged fund while deferring taxation on gains and losses from revenue and capital assets.
Ahead of the budget, the industry had been lobbying for the tax break to be made permanent, or at least extended, by arguing that its cancellation would be an impediment to industry consolidation – something the regulator has called for more of.
Super funds also win ADI exemption
The budget papers state that extending this relief will “ensure superannuation fund members’ balances are not reduced by tax when superannuation funds merge”.
“It will remove tax as an impediment to mergers and facilitate industry consolidation,” the papers state. “Consolidation should lead to better retirement outcomes through reduced costs.”
Superannuation funds have received relief in another form with their exclusion from the major bank levy – to be introduced from July 1 this year – on approved deposit-taking institutions (ADIs) with liabilities of more than $100 billion.
The levy is expected to raise $6.2 billion over the four-year forward estimate period, and is designed to level the playing field between the majors, on the one hand, and smaller banks and non-bank competitors, including super funds, on the other.
Future Fund locked up beyond 2020-21
Meanwhile, drawdowns from the sovereign wealth manager the Future Fund have been deferred and will not commence in 2020-21, as originally permitted.
The budget papers state that this measure will have a positive impact on revenue of just over $238 million, by preserving assets of the Future Fund for an additional year.
“The government will review whether drawdowns will commence in 2021-22 prior to the 2018-19 budget,” the papers state.
Treasurer Scott Morrison told reporters that leaving the Future Fund’s assets intact for as long as possible would increase the likelihood that all future pension liabilities – which run until 2126-27 – could be met from the fund’s earnings.
Starting to drawdown now could mean its assets were exhausted as soon as 2037.
The Future Fund Act 2006 provides that drawdowns may, but are not necessarily required to, start from 2020-21 to help meet the unfunded liabilities of government civilian and defence superannuation schemes.