Supplementary Explanatory Memorandum
(Circulated by the authority of the Minister for Finance and Administration, Senator the Hon Nick Minchin)Schedule 7 - amendment of other acts
The amendments to Schedule 7 insert a new item 3 in Schedule 7 of the Bill. Item 3 provides a capital gains tax (CGT) roll-over (ie, effective deferral of any CGT liability) for the transfer of CGT assets as part of the restructure from the PSS Board to the trustee of a pooled superannuation trust. The roll-over applies automatically rather than by election.
The provision of the CGT roll-over reflects the fact that there will be no change in underlying economic ownership of the assets at transfer and also the special circumstance of the new superannuation arrangements for new employees that would reasonably characterise the CGT taxing-points arising from the restructure as involuntary.
Item 3 modifies the application of the Income Tax Assessment Act 1997 (ITAA 1997) but without changing the text of that Act.
[Schedule 7, subitem 3(1)]
Section 22 of the Superannuation Act 1990 (1990 Act) provides for the functions and powers of the Board as set out in the Trust Deed under that Act and includes the power to establish a pooled superannuation trust for the purposes of managing the assets of the PSS Fund. The Bill and the Superannuation Bill 2005 ensure that the PSS Board is able to perform functions and exercise powers in relation to the PSS, the PSS Fund, the PSSAP or the PSSAP Fund as appropriate without intending to reduce or limit the functions or powers that the Board held under the 1990 Act before its amendment by the Bill and the establishment of the PSSAP. The CGT rollover facilitates the PSS Board establishing a pooled superannuation trust that is used for investing the assets of the PSS Fund and the assets of the PSSAP Fund. [Schedule 7, subitem 3(1)]
The roll-over applies if all of the following conditions are met.
- •
- One or more CGT events (ie, CGT taxing-points) happen because the PSS Board as trustee of the PSS Fund ceases to hold all CGT assets of that fund.
- •
- Because of the cessation, CGT assets that, together, are identical to all of the CGT assets of the PSS Fund just before the CGT events happen start to be held by the trustee of a pooled superannuation trust.
- •
- The cessation is part of a scheme under which CGT assets of the PSS Fund are replaced with units in the pooled superannuation trust.
Bracketed words in paragraph 3(2)(b) ensure that the identical assets need not have been assets of the PSS Fund just before the CGT event. An example of where the bracketed words would be relevant is where the transferor entity owns units in a unit trust as investments and has them cancelled at its request followed by the issue of identical units to the transferee entity.
A statutory note at the foot of subitem 3(2) explains that the transferee trustee may be the PSS Board and refers to subsection 960-100(3) of the ITAA 1997. Subsection 960-100(3) provides that a legal person can have a number of different capacities in which the person does things and that, in each of those capacities, the person is taken to be a different entity for the purposes of the ITAA 1997. [Schedule 7, subitem 3(2)]
The effect of the CGT roll-over is that the capital gain or capital loss that would otherwise be recognised when the transfer of assets by the PSS Board as trustee of the PSS Fund occurs is disregarded and that the recognition of the accrued capital gain or capital loss in effect is deferred until later disposal (or other CGT event) of the assets by the trustee of the pooled superannuation trust. [Schedule 7, subitem 3(3)]
For the transferee trustee, the first element (ie, acquisition cost) of the CGT cost base of each of the identical assets the transferee trustee holds is the cost base of the corresponding asset for the PSS Board as trustee of the PSS Fund at the time of the relevant CGT event. Cost base is relevant for calculating a capital gain. [Schedule 7, subitem 3(4)]
For the transferee trustee, the first element (ie, acquisition cost) of the CGT reduced cost base of each of the identical assets the transferee trustee holds is the reduced cost base of the corresponding asset for the PSS Board as trustee of the PSS Fund at the time of the relevant CGT event. Reduced cost base is relevant for calculating a capital loss. [Schedule 7, subitem 3(5)]
The roll-over does not have a provision relating to keeping 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 306 of the Income Tax Assessment Act 1936 treats the trustee of a complying superannuation entity as having acquired on 30 June 1988 any assets it already owned on that day.
For the purposes of the ITAA 1997, a roll-over that item 3 covers is treated as a same-asset roll-over. The significance of this is that subsection 115-30(1), table item 1 of the ITAA 1997 ensures that, for the purpose of determining whether the transferee pooled superannuation trust has owned the CGT assets for at least 12 months to be eligible for the one-third CGT discount available to complying superannuation entities (including pooled superannuation trusts), the period the PSS Board as trustee of the PSS Fund owned the asset counts towards the 12 months. Put more simply, the CGT discount 12-months clock is not reset.
For other purposes, the transferee pooled superannuation trust is still treated as acquiring the asset on the date of transfer. This is consistent with the approach taken in other CGT roll-overs. For example, the transferee pooled superannuation trust is not eligible to claim CGT indexation to 30 September 1999 instead of the one-third CGT discount. This is because the transferee pooled superannuation trust did not acquire the assets at or before 11.45 am, 21 September 1999.
[Schedule 7, subitem 3(6)]
An expression used both in item 3 and in the ITAA 1997 has the same meaning as in that Act. Examples of these expressions are CGT event, CGT asset, pooled superannuation trust and same-asset roll-over. [Schedule 7, subitem 3(7)]
The amendments do not provide a roll-over for exchange of members' interests because it is already provided for in existing CGT provisions. Section 118-305 of the ITAA 1997 provides an exemption for certain capital gains or capital losses in relation to members' interests in a superannuation fund.