Super funds seek more definitive carve-out

Superannuation funds are seeking a broader and more detailed carve-out from proposed new legislation aimed at curbing excessive use of debt deductions.

The Government has already proposed a carve-out for complying superannuation entities, but the Association of Superannuation Funds of Australia (ASFA) wants it to go further, particularly with respect to funds with wholly-owned investing holding entities.

In a submission filed with Treasury, ASFA said that under the proposed rules there continued to be a risk that wholly-owned investment holding entities could be brought into the thin capitalisation regime.

As well, it said that In relation to the concept of ‘wholly owned investment entities’, ASFA  submitted that “this should extend not just to entities that are 100% owned by a particular complying superannuation entity, but also to entities where 100% of the ownership interests of the entity are held by one or more complying superannuation entities”.

The submission said that it was sometimes the case that a small portion of a particular investment entity may be owned by non-qualifying entities – for example, self-managed superannuation funds or where there is ownership under management equity incentives.

“We submit that a ‘de minimus’ rule should apply, such that the carve-out would still apply if up to an agreed percentage of total ownership was held by non-qualifying entities.”

“This percentage could potentially align to either the 5% or 15% existing de minimus rules in the Pillar 2 Model Rules for Excluded Entities. That is:

• 5% subject to the holding entity operating exclusively or almost exclusively to hold assets or invest funds for the benefit of the complying superannuation entities or undertaking activities that are ancillary to those carried out by the complying superannuation entities; or
• 15% subject to the holding entity deriving substantially all its income from dividends or equity gains in relation to its portfolio investments.”