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Wednesday, 31 August 1994
Page: 736

(Question No. 1410)


Senator Watson asked the Minister representing the Treasurer, upon notice, on 30 May 1994:

  With reference to the tighter prudential standards and administrative complexity involved in compliance in superannuation which have caused funds to merge, and given that in support of such rationalisation Mr Dawkins, when Treasurer, said that mergers of superannuation funds were common and part of the orderly rationalisation of the industry:

  (1) Is the Minister aware that capital gains tax is a major obstacle to rationalisation since members' assets are diminished in value by the capital gains tax, although there is no change in beneficial ownership when assets are transferred in a merger.

  (2) Does the Government intend to remedy the situation; if not, why not.


Senator Cook —The Treasurer has provided the following answer to the honourable senator's question:

  As Senator Watson has noted, tighter prudential standards and other regulatory legislation have encouraged a number of superannuation funds to restructure. The Government welcomes moves to improve efficiency through mergers of funds in the superannuation industry.

  Superannuation is an integral part of the Government's retirement incomes policy. In light of the important role that superannuation plays, and recognising that the current CGT rules operate in a manner which may affect the short run liquidity of merging superannuation funds, the Government announced a limited form of roll-over relief in its Superannuation Policy Statement of 28 June 1994. In that Statement, the Government announced, as part of its small contributions package, that it will allow certain eligible superannuation funds which merge on or after 1 July 1994 and before 1 July 1997 to roll-over their capital gains tax liabilities or losses.

  The Government remains of the view that capital gains tax should generally be payable as a result of a realisation of assets which occurs on the merger of entities. The basis of levying CGT is a change of legal ownership of an asset. Existing tax law provides CGT roll-over relief in limited circumstances and only where there is an involuntary disposal or, in the case of business restructures, where there is no change in beneficial ownership. As this is not the case for superannuation fund mergers, the CGT roll-over concession provided to superannuation funds will be strictly limited to that appropriate to the special circumstances of this case. Access to CGT roll-over for capital gains and losses that would arise from the deemed disposal of assets during a complete merger of superannuation funds will be limited to:

  existing complying superannuation funds, not including superannuation roll-over vehicles such as Approved Deposit Funds, Deferred Annuities and Eligible Roll-over Funds, life offices and friendly societies and `excluded' funds under the SIS legislation (ie., funds with less than 5 members); and

  the transfer of assets taking place on or after 1 July 1994 and before 1 July 1997 (ie., a period of three years).