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Australia Announces Optional Capital Gains Tax Loss Roll Over For Super Funds

by Mary Swire, Tax-News.com, Hong Kong

30 December 2008


Australian Senator Nick Sherry, Minister for Superannuation and Corporate Law, has announced that the Rudd government is now providing an optional Capital Gains Tax (CGT) roll‑over for capital losses arising from mergers between certain superannuation funds.

The new regime, which took effect on December 24, will see the implementation of an optional CGT roll-over for capital losses arising from CGT events happening under a complying superannuation fund's merger with an APRA-regulated superannuation fund with at least five members before July 1, 2010.

"Mergers of super funds can lead to improved economies of scale, including more cost effective services to members. In the current financial climate, it is important that potential barriers to a robust and efficient super industry are minimized," Sherry explained, adding:

"Limited CGT roll-over will assist super funds in a net capital loss position seeking to merge with other funds by preserving the CGT offsetting value of any net capital loss."

Typically, the transfer of assets from one super fund to another, as part of a merger of the funds, triggers the realization of capital gains or losses for the transferring fund. If the transferring super fund is in a net capital loss position, its winding up following these transfers will lead to these losses being extinguished.

This roll-over will preserve the value of these capital losses in the receiving super fund, allowing them to be offset against capital gains in the future.

Any capital gains that may be realized under such a merger would continue to be taxable.

However, as capital gains and losses are calculated on an asset-by-asset basis, providing an optional roll-over will allow the transferring fund to choose not to disregard capital losses realized under the merger to offset against any realized capital gains.

The government is providing this limited CGT roll-over as a short-term measure. The Australia's Future Tax System Review is also considering the taxation of capital. The government intends to reconsider this measure after receiving the Review Panel's final report. It will also issue a consultation on these amendments.


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