Tax and Superannuation Law Amendment (2014 Measures No. 7) Bill 2014: Providing Certainty for Superannuation Fund Mergers was released yesterday.
Speaking to SMSF Adviser, Peter Burgess, AMP SMSF’s head of policy, technical and education services, explained that if passed, this legislative amendment will apply to situations where an individual’s super benefit is being transferred from one super fund to another without the member’s specific consent or request.
It may be the result of a merger of funds under a successor fund arrangement, for example, Mr Burgess said. Under the current law it is possible that the underlying tax components of the member’s benefit may be adversely impacted by such a fund merger.
“Following the GFC, this was identified by many funds, and the industry in general, as a major barrier to super funds merging as transferring a member’s benefit that had been impacted by negative investment returns could have the effect of capping the member’s tax-free component at the time of transfer rather than allowing the tax-free component to recover to its pre-GFC level over time,” Mr Burgess said.
“This amendment, if passed, will have the effect of ensuring that where an individual’s benefits in a super fund are involuntarily transferred to a new super fund, the individual will remain in the same taxation position as if the transfer had not occurred.”
“Even though member balances have now largely recovered since the GFC, and therefore the potential for a member’s tax components to be adversely effected by an involuntarily fund transfer reduced, this measure is still very much welcomed as it will ensure a member’s underlying tax components can never be adversely impacted by a decision, beyond the control of the member, to transfer their benefit to another fund.”
However, Mr Burgess stressed this concession will not apply to voluntary transfers: for example, situations where a member is transferring their benefit from an APRA-regulated fund to an SMSF.
“In this regard, and particularly for members who may have experienced negative investment returns, this Bill serves as a reminder for advisers to also check the impact on the member’s underlying tax components before recommending the transfer,” he said.