House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 2 - Loss relief for merging superannuation funds

Outline of chapter

2.1 Schedule 2 to this Bill removes significant income tax impediments to mergers between complying superannuation funds by permitting the roll-over of capital losses and transfer of revenue losses (including losses realised under the merger and previously realised losses). This loss relief will be available for complying superannuation funds and approved deposit funds (ADFs) that merge with a complying superannuation fund with five or more members. The loss transfer and asset roll-over will preserve the offsetting value of the losses, thereby removing a potential barrier to superannuation fund consolidation.

Context of amendments

2.2 Capital gains tax (CGT) is the primary code for calculating gains or losses of complying superannuation funds. There are certain gains and losses that are treated on revenue account, such as those from a debenture stock or bond (see section 295-85 of the Income Tax Assessment Act 1997 (ITAA 1997)).

2.3 The transfer of assets from one superannuation fund to another, under a merger between the two funds, will typically trigger CGT event A1 (about disposals of a CGT asset - section 104-10 of the ITAA 1997) or may trigger CGT event E2 (about transferring a CGT asset to a trust - section 104-60 of the ITAA 1997). Therefore, the asset transfer will lead to the realisation of capital gains and/or capital losses for the transferring fund. Following this asset transfer and the transfer of members' accounts to the receiving fund, the transferring fund will typically be wound up.

2.4 Capital losses are extinguished on the ending of an entity. As capital losses can be used to offset present and future capital gains, they carry some value - the value of the tax liability that would otherwise be payable on the reduced capital gains. This value is extinguished on the winding up of the transferring superannuation fund.

2.5 Similarly, revenue losses, such as foreign exchange losses, are also extinguished on the ending of an entity. Revenue losses also have a value as they can be offset against current year income, or carried forward where the entity continues to exist. However, where there is a merger and the transferring entity ceases to exist, the value of the revenue losses is also extinguished.

2.6 In the absence of the optional loss relief provided by the amendments, where the tax benefits of unrealised net capital losses or revenue losses have been included in the valuation of members' superannuation interests, then the merger of their superannuation fund with another fund will lead to a reduction in the value of their superannuation interests. This can act as an obstacle to the superannuation fund merging with another fund because the trustee has to take this reduction into account when considering such a merger. The trustee may decide to abandon any merger plans where there is a significant negative impact on members' benefits. The optional loss relief provided by the amendments removes the impediment to eligible funds merging that the extinguishment of the losses would otherwise impose.

2.7 This loss relief encompasses transfers to and from pooled superannuation trusts (PSTs) and life insurance companies as well as superannuation funds and ADFs. Providing the loss relief to superannuation fund mergers involving these kinds of entities recognises the commercial reality that a significant amount of superannuation is invested via PSTs and life insurance companies rather than being directly invested by the superannuation fund.

2.8 In light of the uncertain conditions in the global economy and recent global financial market turmoil, it is important that potential barriers to a robust and efficient superannuation industry are minimised. This measure will enhance the efficiency and robustness of the superannuation system in response to these uncertainties.

2.9 Capital gains do not have the same disincentive impact on mergers of superannuation funds as capital losses. Superannuation funds typically include the tax cost of any unrealised capital gains when they calculate the value of their members' interests. The tax cost of the realisation of the unrealised capital gains has already been proportionally included in that value. This means that when the merger takes place, the CGT that is paid on the net capital gain of the merging fund does not lead to a reduction in member benefits.

Summary of new law

2.10 Schedule 2 amends the ITAA 1997 by inserting Division 310. This Division allows a complying superannuation fund or a complying ADF to choose to roll-over capital losses and revenue losses arising from an arrangement to merge the fund with a complying superannuation fund with five or more members. This is achieved through the provision of a loss transfer and an asset roll-over. The transferring fund may also transfer previously realised capital losses and revenue losses, including its prior year losses.

2.11 The Division allows for two options for the asset roll-over depending on the net capital gain or loss position of the entity in relation to the transferred assets. If an entity is in a net capital loss position in relation to the transferred assets for the current year, it may choose either the global asset approach or the individual asset approach. If the entity is not in that position, it can only choose the individual asset approach.

2.12 Subdivision 310-B sets out what entities are eligible for the loss relief and Subdivisions 310-C to 310-E set out the consequences of choosing the loss transfer or asset roll-over for these entities.

Comparison of key features of new law and current law

Detailed explanation of new law

When an entity may choose the loss transfer and asset roll-over

2.13 New provisions are inserted into the ITAA 1997 to specify the conditions necessary for the trustees of certain entities to be eligible to choose the optional loss transfer and asset roll-over when there is an arrangement to merge complying superannuation funds. The broad term 'arrangement' is used in these provisions as it is not intended to limit the manner in which superannuation entities may merge. [Schedule 2, Part 1, item 1, Division 310]

2.14 The satisfaction by the transferring superannuation fund of the eligibility rules for the loss relief does not of itself authorise the particular merger or transfer transaction. The trustees of the relevant funds would need to consider the applicable governing trust deeds and legislation. This may include relevant prudential regulatory requirements for the proposed transaction. For example, the requirements of the Superannuation Industry (Supervision) Act 1993 (SIS Act 1993) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Reg 1994), such as the rules protecting member entitlements in the continuing superannuation entity, may need to be considered.

2.15 The measure does not impose any additional record-keeping requirements on the parties to the merger arrangement. However, the ordinary record-keeping provisions of the income tax law will apply to these arrangements. The parties to the merger arrangement should prepare sufficient documentation to satisfy the applicable income tax requirements.

2.16 An eligible entity with an arrangement to merge superannuation funds may choose:

•

a loss transfer only;

•

an asset roll-over only; or

•

a combination of the loss transfer and the asset roll-over,

where the relevant conditions are satisfied. [Schedule 2, Part 1, item 1, subsections 310-10(1), 310-15(1), 310-20(1) and 310-45(1)]

2.17 Eligibility for the asset roll-over is conditional on an entity being eligible for the loss transfer, but will not be dependent on the entity actually choosing the loss transfer. This will permit an arrangement to merge superannuation funds to occur in the following ways:

•

the transfer of cash only following the disposal of all the transferring entity's assets;

•

the transfer of assets only; or

•

a combination of cash and asset transfers.

[Schedule 2, Part 1, item 1, paragraph 310-45(1)(a)]

2.18 The detail of the asset roll-over mechanism is explained in paragraphs 2.58 to 2.105. Rules to specify the consequences for the various types of losses and assets for each entity that is a party to an arrangement to merge superannuation funds are described in paragraphs 2.45 to 2.57 and paragraphs 2.84 to 2.107.

2.19 The conditions that must exist for an entity to choose the loss transfer and the asset roll-over in respect of an arrangement to merge superannuation funds are specified separately for the different ways in which a complying superannuation fund or ADF may hold assets. Assets may be held directly, through a PST or though a policy with a life insurance company. [Schedule 2, Part 1, item 1, sections 310-10, 310-15, 310-20 and 310-45]

Original fund's assets extend beyond life insurance policies and units in pooled superannuation trusts

The first condition - assets held by a fund

2.20 The first condition for the loss transfer is that the assets must be held by a complying superannuation fund or a complying ADF (the transferring fund) just before the arrangement to merge was made.

•

A 'complying superannuation fund' is defined in section 41 of the SIS Act 1993.

•

An 'ADF' is defined in section 10 of the SIS Act 1993.

[Schedule 2, Part 1, item 1, subsections 310-10(1) and (2)]

2.21 Although the transferring fund is required to have held the assets just before the arrangement was made, it is not required to transfer these assets to the continuing fund in order to access the loss transfer. This allows for the possibility of an arrangement under which the transferring fund, for example, liquidates its assets and then transfers cash and realised losses to the continuing fund. [Schedule 2, Part 1, item 1, subsection 310-10(2) and section 310-30]

The second condition - fund ceases to have members

2.22 The second condition for the loss transfer is that the transferring fund ceases to have any members and the individuals who cease to be members become members of one of more complying superannuation funds(s) (the continuing fund(s)). The time that this occurs is the completion time for the merger arrangement for the purposes of the loss relief. [Schedule 2, Part 1, item 1, subsection 310-10(3)]

2.23 This condition ensures that the loss relief is only available in circumstances where funds are merging with each other for the purpose of superannuation industry consolidation. Where the transfer of members under an arrangement to merge funds that meets the conditions for the loss relief takes place in more than one transaction, the loss relief will be available. However, the loss transfer is not available for routine transfers of members between funds where the transferring fund continues to have members (apart from members who cannot be transferred due to a legal impediment as discussed below).

2.24 There is a limited exception to the requirement that the transferring superannuation fund must have no members at the completion of the transfer of assets. This exception recognises that there may be circumstances beyond the control of the trustee of a superannuation fund that will not allow the trustee to transfer some of the fund's members to the continuing fund. [Schedule 2, Part 1, item 1, subsection 310-10(5)]

2.25 These circumstances may include:

•

Family Court orders;

•

an unsettled insurance claim for death or disability with the transferring fund; or

•

extant legal proceedings that relate to a member of the transferring fund which mean that the member retains rights against the trustee of the transferring fund.

2.26 This exception allows funds that merge to obtain the loss relief even though they cannot fully satisfy the requirement that all members be transferred to the continuing entity due to legal impediments beyond the control of the trustee. [Schedule 2, Part 1, item 1, subsection 310-10(5)]

Example 2.1

Warm Super is a complying superannuation fund with 150 members. The trustee of Warm Super decides to merge with and transfer its members to Hot Super, a complying superannuation fund with 1,000 members. Hot Super holds units in the Jalapeno PST.

Under the merger, Warm Super disposes of all its assets and gives the proceeds to Hot Super which uses the proceeds to purchase additional units in the Jalapeno PST. Warm Super would qualify for the loss transfer if it ceases to hold all its assets and ceases to have any members just after the transfer.

Example 2.2

Silver Super is a complying superannuation fund with 12,000 members. Its trustee decides on a merger with Gold Super, a complying superannuation fund with 200,000 members.

Silver Super transfers it assets, losses and members to Gold Super. However, Silver Super has a member who cannot be transferred to Gold Super because the trustee of Silver Super has an unresolved insurance claim for disability in relation to that member. As this insurance claim is a circumstance beyond the control of the trustee of Silver Super, this member is exempt from the requirement that Silver Super transfer all its members to Gold Super.

The third condition - number of members of the continuing entity

2.27 The third condition of the loss transfer concerns the minimum number of members that the continuing fund or funds must have just before the arrangement to merge the funds was made.

2.28 The general principle is that the continuing fund must not be a small superannuation fund. A small superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as being a complying superannuation fund with four or fewer members.

2.29 Small superannuation funds include self-managed superannuation funds (SMSFs) and small Australian Prudential Regulation Authority (APRA) regulated funds. Small APRA regulated superannuation funds are APRA regulated superannuation funds with less than five members that are managed by an independent trustee. Consequently, a large (non-small) complying superannuation fund is a complying superannuation fund with at least five members.

2.30 Consistent with the objective of removing impediments to the consolidation of the superannuation industry, the continuing fund must not be a small fund. [Schedule 2, Part 1, item 1, paragraph 310-10(4)(a)]

2.31 The loss relief may be available in circumstances where a SMSF merges with a non-small APRA regulated superannuation fund. However, it will not be available where the two funds are SMSFs before the merger or where a SMSF merges with a small APRA regulated fund. The continuing superannuation fund must be a complying large APRA regulated fund immediately before the transfer of assets. [Schedule 2, Part 1, item 1, paragraph 310-10(4)(a)]

Example 2.3

Miser Trust and Prudent Trust are two SMSFs. Miser has two members and Prudent has four members. The trustees of the two funds wish to merge the two funds with one another. As neither of the funds is a complying superannuation entity with at least five members before the arrangement is made, the merger arrangement will not satisfy all the conditions for the loss relief and therefore will not be eligible for the relief.

2.32 However, there is a limited exception to these general rules. A rule is inserted to ensure that the loss transfer is available in circumstances where two or more superannuation funds merge under an arrangement whereby a new superannuation fund is created. In these cases it will be necessary for at least one of the funds that is merging into the new entity to not be a small superannuation fund just before the arrangement was made. It will also be necessary for the continuing entity to not be a small superannuation fund just after the earliest time when both the other fund and the transferring fund cease to have any members. [Schedule 2, Part 1, item 1, paragraph 310-10(4)(b]

Original fund's assets include a life insurance policy

2.33 An eligible complying superannuation fund or ADF may hold assets via a complying superannuation/first home saver account (FHSA) life insurance policy. The transferring superannuation fund may, as part of its merger with the continuing fund, transfer its policy to the continuing fund or request the insurance company to transfer the value of the assets that supported its policy to the continuing fund, PST or another life insurance company.

2.34 The life insurance company may be able to use the loss transfer upon cancellation of the life insurance policy, in relation to those of its assets reasonably attributable to and reflected in the value of the policy. Given the type of life insurance policy to which this aspect of the relief applies, the policy would be supported by assets in the complying superannuation/FHSA asset pool of the life insurance company, in terms of the life insurance company taxation rules in Division 320 of the ITAA 1997. The complying superannuation/FHSA asset pool comprises the assets of a life insurance company that are segregated from other assets for the purpose of discharging its complying superannuation/FHSA liabilities. The loss relief will preserve the value of losses associated with assets having the necessary relationship with the policy held by the superannuation fund.

2.35 Where the asset is a life insurance policy, it is the life insurance company that may choose the loss transfer. [Schedule 2, Part 1, item 1, subsection 310-15(1)]

2.36 Provisions are inserted to specify relevantly the same conditions and exceptions for the loss transfer where assets are held in a life insurance company as the conditions and exceptions for assets other than life insurance policies or units in a PST held by a complying superannuation fund or ADF. [Schedule 2, Part 1, item 1, subsections 310-15(2) to (5)]

2.37 Where appropriate the conditions are modified to reflect that the superannuation fund holds assets via a complying superannuation/FHSA life insurance policy. For example, the first condition for the life insurance company to be eligible to choose the loss transfer is framed from the perspective of the life insurance company and a life insurance policy to reflect the characteristics of this form of holding superannuation fund assets. [Schedule 2, Part 1, item 1, subsection 310-15(2)]

Example 2.4

JOH Ltd is the trustee of Yellow Super, a complying superannuation fund. The trustee invests in a complying superannuation/FHSA life insurance policy with Bountiful Life. JOH Ltd transfers all the members of Yellow Super to Mauve Super, another complying superannuation fund.

The trustee of Mauve Super does not intend to have a policy with Bountiful Life. However, as part of the transfer Mauve Super has agreed to accept losses and assets of Bountiful Life which were attributable to the policy with Yellow Super.

If Yellow Super, Mauve Super and Bountiful Life satisfy the requirements of the loss transfer, Bountiful Life will be able to obtain the loss transfer and transfer capital losses and revenue losses having the necessary relationship with the Yellow Super policy to Mauve Super.

2.38 The cancellation, novation or transfer of the relevant life insurance policy to the continuing superannuation fund may receive CGT relief for the transferring superannuation fund through the operation of section 118-300 of the ITAA 1997, which disregards certain capital gains or capital losses that arise from CGT events happening in relation to interests in life insurance policies.

Original fund's assets include units in a pooled superannuation trust

2.39 Where assets of an eligible superannuation fund or ADF are held via units in a PST, the trustee of the PST will be able to qualify for the loss relief. PSTs may be used by superannuation funds to indirectly hold the investment assets from which their members derive benefits. This permits the superannuation funds to allocate the assets supporting superannuation account holders between different investment types to reflect the risk and investment preferences of particular account holders.

2.40 Superannuation funds may hold units of a PST which reflect a percentage of the underlying value of the PST's pooled assets that are attributable to the superannuation fund's members' accounts. Upon deciding to merge with another fund, a superannuation fund may choose to transfer its units in the PST to the continuing fund, or the PST may transfer the assets attributable to the units in the PST to the continuing superannuation fund, another PST or a life insurance company.

2.41 Where the asset is a unit in a PST, it is the trustee of the PST that may choose the loss transfer. [Schedule 2, Part 1, item 1, subsection 310-20(1)]

2.42 Again, provisions are inserted to specify relevantly the same conditions and exceptions for the loss transfer where assets are held in a PST as for assets other than life insurance policies or units in a PST held by a complying superannuation fund or ADF. [Schedule 2, Part 1, item 1, subsections 310-20(2) to (5)]

2.43 Where appropriate the conditions are again modified to reflect that the superannuation fund holds assets via units in a PST. For example, the first condition for the PST to be eligible to choose the loss transfer is framed from the perspective of the trustee of the PST and with reference to PST units to reflect the characteristics of this form of holding superannuation fund assets. [Schedule 2, Part 1, item 1, subsection 310-20(2)]

2.44 The transfer of units held by a superannuation fund in a PST to another superannuation fund receives CGT relief at the fund level through the operation of section 118-350 of the ITAA 1997, which disregards a capital gain or a capital loss that arises from such transactions.

Consequence of choosing to transfer losses

2.45 An entity that is eligible for and chooses the loss transfer may choose to transfer certain types of losses to the continuing entity. The transfer of these losses prevents the value of the losses being extinguished upon the winding up of the transferring superannuation fund and allows accompanying members' benefits to remain intact.

2.46 The losses may be transferred to one or more of the following entities, called receiving entities:

•

a continuing fund for the loss relief;

•

a PST in which the units are held by a continuing fund for the loss relief just after the completion time of the arrangement to merge the funds; and/or

•

a life insurance company which has issued a complying superannuation/FHSA life insurance policy that is held by a continuing fund for the loss relief just after the completion time.

[Schedule 2, Part 1, item 1, section 310-25]

2.47 The ability for losses to be transferred to one or more entities caters for circumstances where the transferring fund wishes to match an investment with the member preferences or for differing fund entitlements. For example, this will allow losses to be transferred to different continuing entities that provide for members with accumulation plans or defined benefit plans.

Losses that may be transferred

2.48 The losses that may be transferred are capital losses and revenue losses realised before the merger, specifically:

•

net capital losses for earlier income years than the transfer year to the extent that they were not utilised before the completion time;

•

net capital losses for the transfer year, worked out as if the transfer year ended at the completion time;

•

tax losses for earlier income years than the transfer year to the extent that they were not utilised before the completion time; and

•

tax losses incurred for the transfer year, worked out as if the transfer year ended at the completion time.

[Schedule 2, Part 1, item 1, subsection 310-30(1)]

2.49 Where the loss transfer is chosen by a life insurance company in relation to a complying superannuation/FHSA life insurance policy, the losses related to the policy are those determined by reference to capital gains, capital losses, assessable income and deductions from assets of the complying superannuation/FHSA asset pool to the extent that the assets are reasonably attributable to the policy. An asset realised in the past may still be reasonably attributable to a policy, albeit indirectly, if for example the realised asset was previously reasonably attributable to the policy and an income tax loss it generated is still reasonably attributable to the policy. [Schedule 2, Part 1, item 1, subsection 310-30(2)]

2.50 Similarly, where assets include units in a PST and the loss transfer is chosen, the losses are determined by reference to the assets of the PST that are reasonably attributable to the units in the transferring superannuation fund. [Schedule 2, Part 1, item 1, subsection 310-30(3)]

Effect of transferring a capital loss

2.51 The previously realised net capital loss for an income year that is not the transfer year will be taken, if it is transferred, not to have been made by the transferring entity and an amount equal to the loss will be taken to have been made by the continuing entity for that income year. [Schedule 2, Part 1, item 1, subsection 310-35(1)]

2.52 If the continuing entity that is receiving the net capital loss is a life insurance company, the transferred loss is taken to be a net capital loss from complying superannuation/FHSA assets. [Schedule 2, Part 1, item 1, subparagraph 310-35(1)(b)(i)]

2.53 A transferring entity can transfer net capital losses from the transfer income year to a continuing entity by reducing these capital losses by the amount transferred. [Schedule 2, Part 1, item 1, paragraph 310-35(2)(b)]

2.54 If the transferring entity is a life insurance company its capital losses from its complying superannuation/FHSA assets are reduced by the amount transferred to the continuing entity. Likewise, if the receiving entity is a life insurance company, the transferred amount of net capital losses from the transfer income year is taken to be a capital loss from complying superannuation/FHSA assets. [Schedule 2, Part 1, item 1, paragraphs 310-35(2)(a) and (c)]

Effect of transferring a tax loss

2.55 Similar to capital losses, an earlier year tax loss can be transferred to a continuing entity by the transferring entity. As a result, the transferring entity will be taken not to have incurred the loss for that year and an amount equal to the loss will be taken to have been made by the continuing entity for that earlier income year. If the continuing entity is a life insurance company, the tax loss that was transferred is taken to be a tax loss of the complying superannuation/FHSA class of that earlier income year. [Schedule 2, Part 1, item 1, subsection 310-40(1)]

2.56 Tax losses of the transfer income year can be transferred to a continuing entity and the transferring entity must reduce their transfer year deductions by an amount equal to the transferred amount of losses. An amount equal to the transferred tax loss amount is taken to be a tax loss for the continuing entity for the transfer year. [Schedule 2, Part 1, item 1, subsection 310-40(2)] .

2.57 Life insurance companies transferring transfer year tax losses to a receiving entity must reduce deductions covered by subsection 320-137(4) of the ITAA 1997 by an amount equal to the tax loss transferred to the continuing entity. If a life insurance company is receiving a transfer year tax loss, then the tax loss is a tax loss of the complying superannuation/FHSA class for the transfer year. [Schedule 2, Part 1, item 1, paragraphs 310-40(2)(a) and (c)]

Example 2.5

Small Super superannuation fund has net assets of $2 million, a carried forward net capital loss from an earlier income year of $100,000 and tax losses for earlier income years (treated on revenue account) of $25,000. Small Super enters into a deed of arrangement to transfer all assets and members to Best Super superannuation fund, a large APRA regulated superannuation fund, on 1 April 2009.

Small Super elects to transfer its losses. The $100,000 carried forward capital loss and the $25,000 revenue loss are transferred to Best Super. The losses are excluded from the calculation of Small Super's taxable income for the current year or any future income year. Best Super may include the losses in determining its taxable income for the 2008-09 income year or may carry the losses forward to future years.

Roll-over for assets

2.58 Superannuation funds, ADFs, PSTs and life insurance companies that meet the eligibility conditions for the loss transfer may also choose a roll-over for assets that are to be transferred from the transferring entity to another entity (the receiving entity) under the arrangement to merge superannuation funds provided certain additional conditions are satisfied. [Schedule 2, Part 1, item 1, subsection 310-45(1)]

2.59 There are three additional conditions for the asset roll-over that must be satisfied.

The first condition - one or more CGT events happen to the CGT assets

2.60 The first condition is that under the arrangement one or more CGT events (transfer events) happen resulting in the transferring entity ceasing to hold the specified assets (the original assets). The provision does not specify the particular CGT events that may happen, but refers to CGT events generally. This ensures that the rules accommodate the wide range of transactions and CGT events that may occur. [Schedule 2, Part 1, item 1, subsection 310-45(2)]

2.61 The original assets of the transferring entity are described separately for the ways in which a superannuation fund may hold assets, with reference to the losses choice under the loss transfer:

•

for the transferring superannuation fund or ADF, all its CGT assets for a losses choice;

•

for a life insurance company, all its CGT assets reasonably attributable to the complying superannuation/FHSA life insurance policy held by the transferring superannuation fund for a losses choice just before the arrangement was made; or

•

for a PST, all its CGT assets reasonably attributable to the units in that entity held by the transferring superannuation fund for a losses choice just before the arrangement was made.

[Schedule 2, Part 1, item 1, subsection 310-45(2)]

The second condition - transfer events all happen in the transfer year

2.62 The second condition is that the transfer events all happen in the year that is the transfer year for the purposes of the loss relief. That year is the income year for the transferring entity that includes the completion time for the losses choice (see paragraph 2.22 for a discussion of the completion time). [Schedule 2, Part 1, item 1, subsection 310-45(3)]

2.63 The second condition significantly simplifies the operation of the amendments and minimises complexity by providing that the benefits of the loss relief are only available to entities that complete their asset roll-over within a single income year. The arrangement to merge funds covers the transactions under which the assets and members are transferred between the merging funds. It does not include the planning stage, negotiations between the trustees of the funds and preparatory work to implement the arrangement.

2.64 It is expected that in most cases the transfer of members and assets will take place on a nominated effective date, or over a relatively short timeframe. The nomination of the income year as being that of the transferring entity means that the income years of the transferring entity and the continuing entities do not need to align, catering for substituted accounting periods.

2.65 In practice the transfer of assets may take place in a number of transactions within a single income year. The asset roll-over will be available in these cases provided the other conditions for the loss relief are satisfied.

2.66 The amendments do not provide a roll-over for the fund members in respect of the exchange of their interests in the transferring fund for interests in the continuing fund because of the exemption already provided for in the existing CGT provisions. Section 118-305 of the ITAA 1997 provides an exemption for certain capital gains or capital losses in respect of members' interests in a superannuation fund.

Example 2.6

Prince Super is a complying superannuation fund with 9,500 members. The trustee of Prince Super decides to merge the fund with Princess Super, a complying superannuation fund with 300,000 members.

On 6 April 2010, staff of Prince Super and Princess Super begin the preparatory work for the arrangement of the transfer of losses, assets and members from Prince Super to Princess Super. The preparatory work is finished on 10 January 2011.

The losses, assets and members of Prince Super are transferred to Princess Super in 3 tranches between 21 January 2011 and 24 February 2011. Because the transfer of assets and members occurs in a single income year it may be eligible for the loss relief.

The third condition - CGT assets become assets of another complying superannuation fund, pooled superannuation trust or life insurance company

2.67 The third condition is that the CGT assets become assets of another complying superannuation fund, a PST or a life insurance company with which a continuing fund holds a complying superannuation/FHSA policy because the transferring entity ceased to hold the CGT assets. [Schedule 2, Part 1, item 1, subsection 310-45(4)]

2.68 The roll-over does not have a provision relating to keeping the pre-CGT status of CGT assets. An asset has pre-CGT status if acquired before 20 September 1985. There is no need for such a provision as section 295-90 of the ITAA 1997 treats the trustee of a complying superannuation fund as having acquired on 30 June 1988 any assets it already owned on that day. An equivalent rule applies to life insurance companies (section 320-45 of the ITAA 1997) in relation to complying superannuation/FHSA assets.

2.69 The transferring entity that chooses to obtain the roll-over must cease to hold all the CGT assets held for the benefit of its members, except for those assets retained to pay expected debts and for the entitlements of members that cannot be transferred to the continuing fund. [Schedule 2, Part 1, item 1, subsection 310-45(5)]

2.70 In circumstances where an entity eligible for the loss transfer chooses not to transfer losses but chooses the asset roll-over:

•

the original fund for the losses choice means the fund that would have been the original fund had the loss transfer been chosen;

•

the completion time for the losses choice means the time that would have been the completion time had the loss transfer been chosen; and

•

the continuing fund for the losses choice means the fund that would have been the continuing fund had the loss transfer been chosen.

[Schedule 2, Part 1, item 1, subsections 310-45(2) to (4)]

Transfer of assets held by a life insurance company

2.71 A life insurance company choosing the asset roll-over must cease to hold all the assets reasonably attributable to a complying superannuation/FHSA life insurance policy held by the superannuation fund that is transferring its members to the continuing fund. [Schedule 2, Part 1, item 1, paragraph 310-45(2)(b)]

2.72 Such assets must be transferred to the continuing superannuation fund, another PST or life insurance company. [Schedule 2, Part 1, item 1, subsection 310-45(4)]

2.73 The nature of a life insurance policy will mean that it may not be possible to directly attribute particular assets in a life insurance company to any one particular life insurance policy held by a superannuation fund. To overcome this problem, the assets subject to the asset roll-over (the original assets) are described as the assets of the life insurance company reasonably attributable to the relevant complying superannuation/FHSA life insurance policy of the superannuation fund and reflected in its value. To distinguish such assets, it is expected that a portion of the assets of the life insurance company's complying superannuation/FHSA asset pool could be identified, including by reference to normal industry practice, as being reasonably attributable to a particular policy and reflected in its value. In addition there are provisions in the superannuation industry supervision law that require member benefits to be protected where there is a merger of superannuation entities, for example SIS Reg 1994, Regulation 6.29. This protection would ensure in these circumstances that an appropriate portion of the assets of the life insurance company would be transferred under the merger. [Schedule 2, Part 1, item 1, paragraph 310-45(2)(b)]

2.74 The transferring life insurance company may retain assets that it requires to pay existing or expected debts relating to the transfer of assets and to meet its liabilities in respect of individuals who have remained members of the original fund because of circumstances outside the control of the trustee of the fund. [Schedule 2, Part 1, item 1, subsection 310-45(5)]

Transfer of assets held by a pooled superannuation trust

2.75 The asset roll-over will allow for the assets held within a PST whose value is reasonably attributable to units of the original fund to be transferred to the continuing fund, another PST or life insurance company without extinguishing the losses associated with those assets. [Schedule 2, Part 1, item 1, paragraph 310-45(2)(c) and subsection 310-45(4)]

2.76 The nature of a pooled investment will mean that it will not be possible to directly attribute particular assets in the pool to the interest of a particular superannuation fund. To overcome this problem, the assets subject to the asset roll-over are the assets in the pool that are reasonably attributable to the investment of the superannuation fund. To distinguish such assets, it is expected that a portion of the PST's assets could be identified, including by reference to ordinary industry practice, as reasonably attributable to a particular fund's interest in the PST. [Schedule 2, Part 1, item 1, paragraph 310-45(2)(c)]

2.77 A PST choosing the asset roll-over must cease to hold all the assets whose value is reasonably attributable to the units of the original complying superannuation fund that is transferring its members to the continuing superannuation fund. [Schedule 2, Part 1, item 1, paragraph 310-45(2)(c)]

2.78 Such assets must be transferred to the continuing superannuation fund, another PST or life insurance company. [Schedule 2, item 1, subsection 310-45(4)]

2.79 The transferring PST may retain assets that it requires to pay existing or expected debts relating to the transfer of assets and to meet its liabilities in respect of individuals who have remained members of the original fund because of circumstances outside the control of the trustee of the fund. [Schedule 2, Part 1, item 1, subsection 310-45(5)]

Choosing the form of the asset roll-over

2.80 An entity that is eligible for the asset roll-over may, depending on its circumstances, be able to choose between the two methods for executing the roll-over. These two methods provide flexibility and minimise compliance costs for such entities. The consequences for both the transferring entity and continuing entity of each of these methods are specified in paragraphs 2.84 to 2.87 and paragraphs 2.88 to 2.92 respectively.

2.81 If an entity is in a net capital loss position in relation to the transferred assets for the current year, it may choose either the global asset approach or the individual asset approach. This net capital loss position of the entity is determined by subtracting the capital gains on the assets from the capital losses on the assets. Where the result exceeds zero, the entity has a net capital loss position on those assets. [Schedule 2, Part 1, item 1, subsection 310-50(1)] .

2.82 If the entity is not in a net capital loss position in relation to transferred assets it can only choose the individual asset approach. [Schedule 2, Part 1, item 1, subsection 310-50(1)]

2.83 An entity that can choose either the global asset approach or individual asset approach to transfer its CGT assets must use one method only in relation to all its transferred assets. The entity cannot use the individual asset approach in relation to some of the transferred assets and the global asset approach in relation to the remaining transferred assets. [Schedule 2, Part 1, item 1, subsection 310-50(1)]

Example 2.7

Brown Super is eligible for the loss relief and wants to transfer its assets to Orange Super. In doing so, Brown Super wants to take advantage of the asset roll-over in order to preserve the value of unrealised losses in its CGT assets.

Brown Super holds four different types of assets:

•

20,000 shares in Shelley Co, each of which has a reduced cost base of $25 and a current market value of $17;

•

40,000 shares in Big Mining Co, each of which has a reduced cost base of $40 and a current market value of $29;

•

80,000 shares in Little Mining Co, each of which has a cost base of $9 and a current market value of $15; and

•

5,000 units in Great Property Trust, each of which has a reduced cost base of $30 and a current market value of $26.

In order to work out whether Brown Super can choose the global asset approach or the individual asset approach, Brown Super adds up any capital loses it would have for the transferred assets and subtracts any capital gains it would have for the transferred assets.

Brown Super would have total capital losses of $620,000 and total capital gains of $480,000.

Subtracting the capital gains from the capital losses results in $140,000 - a result more than zero. This means that Brown Super can choose either the global asset approach or the individual asset approach for the transfer of its assets.

However, Brown Super cannot choose the global asset approach to apply to some of its assets and the individual asset approach to apply to the rest.

Consequences for CGT assets - global asset approach

2.84 A superannuation fund that qualifies for the global asset approach may elect to treat those assets subject to the asset roll-over as being transferred (or disposed of) to the continuing entity by treating:

•

the assets that would otherwise realise a capital gain as being transferred at their cost base; and

•

the assets that would otherwise realise a capital loss as being transferred at their reduced cost base.

[Schedule 2, Part 1, item 1, subsection 310-55(1)]

2.85 The effect of these rules is that the transferred CGT assets will have neither a capital gain nor a capital loss on their transfer.

2.86 For the continuing entity, the first element of the cost base and reduced cost base of the transferred asset in its hands is taken to be equal to the cost base and the reduced cost base respectively of the asset just before its transfer (when it was still held by the transferring entity). [Schedule 2, Part 1, item 1, subsections 310-55(2) and (3)]

Example 2.8

Effort Super is a complying superannuation fund with 10 members. Effort Super enters into a deed of arrangement to transfer all of its assets and members to Big Super, a complying superannuation fund with 1,000 members.

At the time of the transfer of assets, Effort Super has shares in Beagle Co whose total market value exceeds their total cost base by $25,000; and shares in Rufus Co whose total market value exceeds their total cost base by $50,000. Effort Super also has shares in Ugly Duckling with an unrealised loss of $100,000.

Because Effort Super's unrealised capital losses exceed its unrealised capital gains, it can choose to roll over all the capital gains and the capital losses on its shares to Big Super. In effect, Effort Super will roll over a net unrealised loss of $25,000 to Big Super.

2.87 The rules for the transfer of revenue assets are explained in paragraphs 2.93 to 2.100.

Consequences for CGT assets - individual asset approach

2.88 The other method that a superannuation fund may use if it is in a net capital loss position and it chooses not to use the global asset approach is the individual asset approach. However, a fund must use the individual asset approach if it is not in a net capital loss position in relation to transferred assets. Under this approach, the transferring entity may disregard all the capital losses it realises, or it may choose to disregard some or none of its capital losses. The choice as to what losses to disregard is a matter for the transferring fund. Any capital gains realised on transferred assets are not disregarded. [Schedule 2, Part 1, item 1, subsection 310-60(1)]

•

For example, the fund may choose not to disregard some realised capital losses when these losses could be used to offset any capital gains that may also be realised under the merger. The fund could choose to disregard any remaining capital losses that are realised under the merger and transfer the attributes of those assets to the receiving fund.

2.89 If the transferring fund uses the individual asset approach, the capital proceeds received on the disposal or transfer of the assets to the continuing entity that are subject to the roll-over will be taken to be equal to the reduced cost base of the asset in the hands of the transferring fund. [Schedule 2, Part 1, item 1, subsections 310-60(2) to (4)]

Example 2.9

Green Super is a complying superannuation fund with 10,000 members. It holds various assets, some of which have unrealised capital gains while others have unrealised capital losses. The trustee of Green Super considers merging with Yellow Super members. This merger would be achieved by Green Super transferring its assets and 10,000 members to Yellow Super before being wound up.

Among its assets, Green Super owns 50,000 shares in Bull Ltd, acquired on 18 July 2004.

The cost base for each of these shares is $2 (total cost base of $100,000) and at the time of the transfer the shares in Bull Ltd are each worth $5. The transfer of these shares would therefore realise a capital gain of $150,000 for Green Super.

•

Total capital proceeds less total cost base equals total capital gain.

•

(50,000 shares × $5 capital proceeds) - (50,000 shares × $2 cost base) = $150,000 capital gain.

Green Super also owns 100,000 shares in Bear Ltd. These shares were acquired on 28 September 2007. The reduced cost base for each of these shares is $10 (total reduced cost base of $1 million) and at the time of the transfer they are worth $5 each. The transfer of these shares would therefore realise a capital loss of $500,000 for Green Super.

•

Total reduced cost base less total capital proceeds equals total capital loss.

•

(100,000 shares × $10 reduced cost base) - (100,000 shares × $5 notional capital proceeds) = $500,000 capital loss.

Green Super subsequently transfers its assets and members' accounts to Yellow Super and is wound up.

The trustee of Green Super may choose either the global asset approach or the individual asset approach as the fund is in a net loss position ($350,000). The trustee chooses the individual asset approach.

The trustee now has the choice either to transfer all or realise some of the capital losses applicable to its Bear Ltd shares. Suppose the trustee decides to realise some of these losses to eliminate the capital gains arising on the transfer of the Bull Ltd shares. The trustee would therefore choose to realise the capital losses on 30,000 Bear Ltd shares by not choosing the roll-over for each of these shares, which would produce a total capital loss of $150,000. This would eliminate the $150,000 capital gain on the Bull Ltd shares.

The trustee of Green Super would transfer the remaining 70,000 Bear Ltd shares to the trustee of Yellow Super and choose the asset roll-over in relation to each of these shares. Under the asset roll-over rules, the trustee of Green Super is taken to receive capital proceeds for each of these 70,000 shares equal to their reduced cost base of $10.

In this way, the trustee of Green Super has avoided any capital gains on assets transferred as part of the merger by not choosing the roll-over on some of the capital loss assets. The trustee of Green Super chose the roll-over in relation to the remaining capital loss assets to preserve their losses under the merger - with the total capital losses preserved being $350,000.

2.90 If the asset roll-over is chosen by the transferring superannuation fund, the first element of the cost base and reduced cost base of the corresponding received asset in the hands of the receiving entity is taken to be an amount equal to the cost base and reduced cost base, respectively, of the original asset in the hands of the transferring fund just before the transfer of assets. [Schedule 2, Part 1, item 1, subsections 310-60(4) and (5)]

2.91 A consequential amendment is made to ensure that, for CGT assets transferred from the transferring entity to the continuing entity that benefit from the roll-over, the 12 month ownership period requirement for the CGT discount will commence from the date when the transferring entity acquired such assets (see paragraph 2.118).

Example 2.10

Further to Example 2.9, for Yellow Super the first element of the reduced cost base of the shares in Bear Ltd transferred to Yellow Super would be $10. Suppose the cost base of each of the shares in Bear Ltd that were transferred to Yellow Super was $12 just before the transfer. For Yellow Super, the first element of the cost base of each of the Bear Ltd shares transferred to it would be $12.

As the capital gains on the shares in Bull Ltd were realised under the merger, the first element of the cost base and reduced cost base of each of the Bull Ltd shares transferred to Yellow Super would be determined under Division 110 of the ITAA 1997 as modified by Division 112 of the ITAA 1997.

Yellow Super will be taken to have acquired the shares in Bear Ltd on 28 September 2007. The shares in Bull Ltd will be acquired by Yellow Super on the day of their transfer because they were not subject to the roll-over.

2.92 If the asset roll-over is not chosen by the transferring superannuation fund, the fund will realise an overall loss on the disposal of the assets. This loss may be able to be transferred to the continuing fund under the loss transfer rules.

Example 2.11

Further to Example 2.10, Green Super may choose to dispose of all its shares in Bull Ltd and Bear Ltd. In this case Green Super would have a realised net loss on the assets to be transferred equal to $350,000. Under the arrangement to merge the funds, Green Super may transfer the $350,000 loss to Yellow Super.

Consequences of the roll-over for revenue assets

2.93 CGT assets that are revenue assets may be transferred under an arrangement that is eligible for the loss roll-over. A revenue asset is defined in section 977-50 of the ITAA 1997 as an asset for which a profit or loss on disposal or ceasing to own the asset is taken into account in calculating assessable income other than as a capital gain or loss and is neither trading stock nor a depreciating asset.

2.94 The transferring fund will be able to choose the global asset approach or the individual asset approach for the transfer of revenue assets if the entity is in a net loss position in respect of those assets. This choice reduces the compliance impact for the transferring superannuation fund. [Schedule 2, Part 1, item 1, subsection 310-50(2)]

2.95 The tax loss is worked out as if the current year ended at the completion time of the transfer. The net loss position in respect of CGT assets that are revenue assets is determined by subtracting the amounts that would be included in the transferring fund's assessable income as a result of the transfer from the amounts that the entity would be able to deduct as a result of the transfer. Where the result exceeds zero, the fund has a net loss on those assets and may choose the global asset approach. [Schedule 2, Part 1, item 1, subsection 310-50(2)]

Global approach for revenue assets

2.96 Under the global asset approach, the transferring fund's gross proceeds for the transfer of each revenue asset will be taken to be the amount, the deemed proceeds, it would need to have received to have no profit or loss from the transfer. This rule means that there is no gain or loss for the transferring fund. [Schedule 2, Part 1, item 1, subsection 310-65(1)]

2.97 The continuing fund will be taken to have paid an amount equal to the deemed proceeds for the transferring fund for each revenue asset received. These rules together provide the roll-over for transferred revenue assets. [Schedule 2, Part 1, item 1, subsection 310-65(2)]

Example 2.12

Further to Example 2.8, suppose Effort Super has bonds issued by Beagle Co. The total market value of these bonds is $245,000 and the total cost is $220,000, producing an unrealised net gain of $25,000.

Effort Super also has a loan to Rufus Co. The market value of the loan is $95,000 and its cost is $145,000, producing an unrealised net loss of $50,000.

As there is a net revenue loss, Effort Super may elect to roll-over the bonds and the loan asset under the global asset approach to Big Super thereby rolling over its net revenue loss of $25,000.

Big Super will be taken to have acquired the loan asset for $145,000 and each bond for $220,000 divided by the number of bonds (because all the bonds had been purchased by Effort Super for the same cost).

Individual asset approach for revenue assets

2.98 Where the transferring fund is not in a net loss position in respect of the transferred revenue assets, the fund must use the individual asset approach, which has particular consequences for the transferring entity and the continuing entity. [Schedule 2, Part 1, item 1, subsections 310-50(2) and 310-70(1)]

2.99 The transferring entity may choose to disregard any tax loss arising from the transfer event. In these cases, the transferring entity's gross proceeds for the transfer event are taken to be the amount (deemed proceeds) the transferring entity would need to have received to have a nil profit and a nil loss for the event. [Schedule 2, Part 1, item 1, subsections 310-70(1) and (2)]

2.100 The consequences for the continuing entity are that the entity is taken to have paid an amount for the received asset at the time of the transfer equal to the deemed proceeds of the transferring entity. This rule effectively transfers the asset to the continuing entity with its cost attributes from the transferring entity. The deemed proceeds will then be the cost from which any subsequent gain or loss to the continuing entity will be calculated. [Schedule 2, Part 1, item 1, subsection 310-70(2)]

Example 2.13

Further to Example 2.12, Effort Super chooses the individual asset approach rather than the global asset approach in respect of the assets it transfers to Big Super.

Effort Super has a choice to roll over the unrealised loss on the loan to Rufus Co. If Effort Super chooses to do so, the loan asset would be taken to be transferred for an amount equal to its cost of $145,000, thereby ensuring there is a nil profit and a nil loss for Effort Super for the transfer.

Big Super is taken to have paid an amount for the loan asset equal to the amount deemed to have been received by Effort Super for the asset (that is, $145,000). This rolls over the unrealised revenue loss of $50,000 on the loan asset.

The bonds issued by Beagle Co that Effort Super owns would be realised under the merger with Big Super so that Effort Super would realise a capital gain of $25,000.

Further consequences for a transferring entity or receiving entity that is a life insurance company

2.101 Where a complying superannuation/FHSA asset is transferred from a life insurance company, or an asset (in relation to a complying superannuation policy) is transferred to a life insurance company, it is necessary to consider not just the tax consequences of the transfer between separate entities, but also any deemed sales of assets for market value under section 320-200 of the ITAA 1997. These may arise when assets are transferred to and from the complying superannuation/FHSA asset pools of life insurance companies.

2.102 The amendments will provide that section 320-200 does not apply in relation to asset realisations subject to the asset roll-over. This is to ensure that the effect of the roll-over is not unintentionally overridden by a deemed market value sale of the asset. [Schedule 2, Part 1, item 1, subsection 310-75(1)]

2.103 Similarly, where the receiving entity is a life insurance company, the relevant received assets will be taken to be complying superannuation/FHSA assets of the company, and not be a life insurance premium. This latter rule, which broadly resembles sections 320-315 and 320-320 of the ITAA 1997 that apply to life insurance business transfers, is to ensure that the Division 320 life insurance business taxation provisions do not override the loss relief that these amendments provide. [Schedule 2, Part 1, item 1, subsection 310-75(2)]

2.104 These modifications to the life insurance taxation rules ensure that they apply appropriately in respect of rolled-over assets. They will apply only to assets which are actually rolled over to the life insurance company, and not to other transferred assets.

2.105 The combined effect of the two rules is to preserve the effect of the roll-over, to ensure that assets with unrealised gains and losses that accrued in a 15 per cent tax rate environment in the transferring entity are rolled into the equivalently taxed complying superannuation/FHSA asset pool of the recipient entity, and to enable the rolled-over assets to be appropriately recognised by the fee and charge mechanisms of Division 320 of the ITAA 1997.

Method for making the choice to transfer loss or roll-over asset

2.106 The transferring entity's choice to use a particular method for calculating the losses transferred or assets subject to the roll-over will be evidenced by the manner in which it completes its income tax return for the income year in which the transfer occurs. The choice of roll-over by the transferring entity will have specific consequences for the continuing entity. However, both parties to the transaction are not required to elect the roll-over. Rather, it is expected that the eligibility for the loss relief and the consequences for the continuing entity would be considered by both parties during the negotiation of the transfer. [Schedule 2, Part 1, item 1, section 310-85]

2.107 Section 103-25 provides the mechanism for making elections in respect of the CGT provisions. These rules will apply to the new loss transfer and asset roll-over arrangements.

Consequences of the roll-over for depreciating assets

2.108 Superannuation funds may also hold assets that are depreciating assets. The disposal of a depreciating asset (that is, the asset is transferred to the continuing entity) will cause a balancing adjustment event (as defined by section 40-295 of the ITAA 1997) to occur. A balancing adjustment event may require the taxpayer disposing of the depreciating asset to adjust their taxable income.

2.109 Where there is a difference between the asset's termination value (that is, the final sale price) and its adjustable value (that is, the original cost less the decline in value while it was held by the taxpayer), a balancing adjustment may be assessable or deductible under section 40-285 of the ITAA 1997. However, section 40-285 will not apply if the roll-over provided by section 40-340 of the ITAA 1997 applies. No balancing adjustment is required if the section 40-340 roll-over applies.

2.110 An entity will be eligible for the section 40-340 roll-over if it satisfies three conditions. These conditions are:

•

there is a balancing adjustment event caused by the disposal of a depreciating asset;

•

the disposal involves a CGT event; and

•

one of the CGT roll-overs listed in the table in subsection 40-340(1) of the ITAA 1997 is chosen or automatically applies.

2.111 The roll-over provided in section 40-340 allows the entity to defer the balancing adjustment until a further balancing adjustment event. This permits the continuing entity to claim deductions for the depreciating asset which has been transferred to it. This means that the transfer of the asset from the transferring entity to the continuing entity will not extinguish the value of future depreciation deductions already built into the value of members' interests.

2.112 An amendment will be made to subsection 40-340(1) of the ITAA 1997 so that the transfer of a depreciating asset from the transferring entity to the continuing entity under an arrangement to merge superannuation funds for which loss relief is chosen qualifies for the roll-over provided by section 40-340 of the ITAA 1997. [Schedule 2, Part 2, item 2]

Application and transitional provisions

2.113 The amendments apply in relation to transfer events that happen on or after 24 December 2008 and before 1 July 2011. [Schedule 2, Part 3, item 11]

Repeals and savings provisions

Repeals

2.114 These amendments end on 30 June 2011. An automatic repeal provision is included for these amendments. The repeal will occur two years after the end date of the legislation. [Schedule 2, Part 4, items 12 to 21]

Savings provisions

2.115 These amendments will operate for a limited time and are then automatically repealed. Savings provisions are inserted into the amending law to ensure that the full legal and administrative consequences are preserved for the period of its operation after the provisions are repealed. [Schedule 2, Part 5, items 22 to 26]

Consequential amendments

2.116 A number of consequential amendments are made to ensure that the new loss relief provisions interact appropriately with the existing law.

2.117 The list of provisions which modify the cost base of a CGT asset is amended to include the new CGT loss relief provisions. [Schedule 2, Part 2, item 3]

2.118 This Bill amends subsection 115-30(1) (special rules about acquisition times for the CGT discount) of the ITAA 1997. This amendment ensures that, for CGT assets transferred from the transferring entity to the continuing entity for a roll-over under Division 310, the 12-month ownership period requirement for the CGT discount commences from the date when the transferring entity acquired the asset. [Schedule 2, Part 2, item 4]

2.119 The general provisions which specify the capital proceeds for CGT events A1, C2 and E2 are modified in respect of transactions arising from the transfer of assets covered by the CGT loss roll-over, as the roll-over rules specify the capital proceeds in those cases. [Schedule 2, Part 2, items 5 to 8]

2.120 The provisions which specify the notice requirements to enable a member in a fund to obtain a deduction for a personal contribution are amended so that a member of a fund that has merged with a continuing fund may provide the necessary notice. The rules which provide for the variation of the notice are also amended. [Schedule 2, Part 2, items 9 and 10]