Legacy product rule changes a tax benefit to SMSFs
An industry lawyer says the government’s agreement to amend the current framework surrounding legacy products could enable SMSF trustees to have an easier transition to less costly, newer-style products, without some of the existing tax consequences.
Speaking to SMSF Adviser, Townsends Business and Corporate Lawyers special counsel Michael Hallinan said that with the current rules, there are often difficulties in moving SMSF trustees – or any type of investor – from legacy products to newer products since there are usually capital gains tax issues which are triggered when investors move products.
In its response to the Financial System Inquiry, the government agreed to “introduce a mechanism to facilitate the rationalisation of legacy products in the life insurance and management investment fund sectors”.
The government said it would explore how some of the existing tax implications of transitioning away from a legacy product could be removed and how some of the other consumer, constitutional and fiscal issues could be addressed.
The response by the government stressed that “consumers should not be worse off due to any transition to a newer product”.
“This [action by the government] should be a good thing for investors generally, particularly if it’s an SMSF who’s an investor in these old-style closed products,” said Mr Hallinan.
“Product issuers would [also] much prefer investors get out of these products or to move investors across to a more modern product open to other investments and investors.”
Mr Hallinan said SMSF trustees are likely to be paying higher fees in these older-style products and potentially higher administration costs given that it is costly for product issuers to continue to run these closed products.
“Product issuers have to support these closed products through their computer systems and so forth, so it becomes very expensive for them to maintain these products,” he explained.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.