Introduction

Hidden Government Super Tax – Meeting with Kelly O’DwyerBy Sam Hunt

I recently met with The Hon Kelly O’Dwyer MP in my capacity as a director and senior financial adviser of WARR HUNT to bring to the Ministers attention the issue of Capital Gains Tax (CGT) on in-specie transfers on investment between superannuation platforms/trustees.

Hidden Government Super Tax – Meeting with Kelly O’Dwyer By Sam Hunt

I recently met with The Hon Kelly O’Dwyer MP in my capacity as a director of WARR HUNT to bring to the Ministers attention the issue of Capital Gains Tax (CGT) on in-specie transfers of investments between superannuation platforms/trustees.

Overview of the Issue

  • In-specie transfer of assets (i.e. shares & managed funds) between superannuation providers (trustees) attracts capital gains tax (CGT), even though the underlying assets and account owner are the same.
  • Members in high cost retail or industry funds wanting to in-specie transfer their assets to lower cost providers are effectively penalised due to the CGT implications.
  • The savings in fees from moving retail or industry super funds might be hundreds or thousands of dollars per annum but due to the CGT payable on transferring, it might take the member many years just to break even.
  • CGT on in-specie transfers is a disincentive to rollover and consolidate and therefore erodes members super balances.

Worked Example – accumulation phase

  • A member in accumulation phase with a retail super fund has an account balance of $200,000 with a $6,000 concessional CGT liability if the funds are redeemed or rolled over prior to commencing a pension.
  • The member is invested in a widely available investment, such as, the Vanguard Australian Shares Index ETF or BHP Shares.
  • The member is currently paying 2% in fees with her current retail fund provider and wishes to rollover by making an in-specie transfer to a lower cost provider with fees of 1%
  • In this example the member will incur $6,000 in CGT and transfers $194,000 (net) to the new provider. It will take her approximately 3years just to break even.

Worked Example – pension phase

  • Some super fund providers also argue that ATO TR 2013/5 – Income Tax: When a superannuation income stream commences and ceases, does not provide sufficient guidance as to when an income stream ceases. This is important because it determines how tax applies on in-specie transfers from pensions.
  • The practical implication of this interpretation is that some super fund providers require members to commute their pensions back to the accumulation prior to rollover / in-specie transfer.
  • As a result, the member would then be subject to CGT as outlined in the previous example.

Action Required from the Government

The Government needs to implement a CGT exemption for in-specie transfer of assets between superannuation trustees/funds for members in accumulation and pension phase.

Outcome of Meeting

The Minister was unaware of the issue, was pleased to have it drawn to her attention and has subsequently been in contact to gather further information in support of the reform. In light of the recent cabinet changes, I will continue to prosecute the case for reform with The Hon Josh Frydenberg MP.

I look forward to updating you further on this issue.

Sam Hunt, Director WARR HUNT