Publication date: 15 Apr 98 |
Source: THE TAX INSTITUTE
Changes to DIY Super funds have created wide spread confusion in the superannuation
and advisory industry as people struggle to work out how they can restructure their affairs,
according to the Taxation Institute of Australia.
"The uncertainty created by the proposals is appalling and the Budget proposals are
very poorly explained," said Taxation Institute Superannuation Committee representative,
"The budget proposals seek to restrict all super funds to making less than 5% of their
investments in related parties, typically via trusts. Where business premises are
involved, a 40% limit may apply," Mr Butler said.
"Trustees may be subject to legal action for having put in place arms length transactions
such as leases and borrowings for greater than three years (as required by the SIS Act).
Take the typical example of a DIY fund that has invested in a unit trust that has borrowed
on a 20 year loan, acquired a business premises and leased those premises to the employer
on a 5 x 5 x 5 year lease (effectively a 15 year lease for the tenant)," he said.
"How can the trustee simply exit these transactions within 3 years without fear of legal
action and compensation claims? If the terms of the lease or loan are broken arms length
transactions require any loss or damage to be paid to the other party."
"Is the Government trying to encourage or discourage superannuation?" Mr Butler asked.
"The Government's proposed limits on fund's investments are retrospective and cut
through many legitimate investment structures that have been established in accordance
with existing law. Survey figures obtained by the ISC which purportedly show DIY funds
abusing investment rules in the SIS Act are biased and unrepresentative of the overall industry."
"If the Budget proposals are aimed at the small number of funds that may be abusing the
current rules than more careful consideration is required," he said.
There may also be serious implications for the property market if funds are forced to
comply with Budget proposal and dump property within the next three years.
"Small to medium sized businesses that have invested in their own business premises
via a super fund or unit trust are likely to suffer substantial unwind costs - possibly
sending them into bankruptcy," Mr Butler said.
"It appears that the Government is not concerned if small super funds lose significant
moneys on dumping investments within a short time period and from the likely legal
claims, not to mention the hefty transaction costs involved."
"Will there be any CGT and stamp duty exemptions?" he asked
Mr Butler also said he had serious concerns with the transfer of responsibility for
administering DIY funds to the ATO.
"How can the ATO do a decent job when they have such a severe conflict of interest?
Raising revenue does not sit at all well with safeguarding superannuation when the
ATO holds the upper hand," he said.
"The Government is clearly out of touch with trends and issues within the superannuation
industry. Detailed submissions by the superannuation industry have been ignored and
there has been no consultation with industry."
"What do these changes mean for the future of superannuation?" Mr Butler asked.
"It seems that the Government is trying to use a steamroller to crack a peanut!"