Exempt us say major super funds tell Govt

Mike Taylor

Managing Editor/Publisher, Financial Newswire

27 February 2023

At the same time as accounting and financial planning groups argue against the Government’s proposed changes to non-arms-length expense rules, major superannuation funds are arguing for a return to the past and total exemption.

At the same time, the big superannuation funds are urging that their development of investment management and administration businesses are not impacted by the proposed changes.

Treasury has been told that the big superannuation funds regulated by the Australian Prudential Regulation Authority (APRA) should be allowed to return to the regime which existed before 2018.

The Association of Superannuation Funds of Australia (ASFA) is arguing that a return to the pre-2018 regime would mean that the NALE provisions would not apply to any expenses incurred by the large APRA-regulated funds.

“The basis for this view is that ASFA is not aware of any circumstance with respect to specific expenses incurred by large funds that may give rise to the types of integrity concerns the NALI provisions were designed to address,” the ASFA submission to the Treasury consultation said.

“In the event the decision is made to still include ‘specific expenses’ within the scope of the NALE provisions, ASFA’s view is that a factor-based approach – similar to the one proposed for general expenses of self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) should apply, albeit with a factor of 2 rather than 5,” the submission said.

“ASFA considers this would be a more appropriate policy position, and a more proportionate approach, than tainting all of the income to which the specific expense relates. We further recommend that the final legislation to give effect to this measure includes a definition of what constitutes a ‘specific expense’ for these purposes.”

On the question of superannuation fund-owned investment management and administration businesses, the ASFA submission said that for commercial reasons, trustees will often wish to place certain services – such as member administration services or investment management services – in a separate vehicle (such as a wholly owned unit trust or company) to quarantine the risks associated with these activities from the other investment assets held in the fund for the benefit of members.

“These vehicles will require capital at certain stages and funds are concerned about the impact on franked dividends and/or trust distributions that ultimately flow up to the fund if, in the future, these capital contributions were to be considered to be conducted on a non-arm’s length basis,” the submission said.

“An interpretation by either Treasury and/or the ATO in relation to when capital contributions (for either shares and/or units) are considered non-arm’s length may distort structuring in the industry resulting in these activities being performed by the superannuation fund, thereby unnecessarily exposing members to these commercial risks that would otherwise have been quarantined in a separate vehicle,” it said.