Can SMSFs and SMAs indefinitely postpone CGT?
A key industry funds organisation has told the Government that Self-Managed Superannuation Funds (SMSFs), wraps and separately managed accounts (SMAs) are being used to potentially indefinitely postpone the payment of Capital Gains Tax (CGT).
The Australian Institute of Superannuation Trustees (AIST) has used a submission responding to the Tax White Paper discussion process to point to the strategy and has argued that leverage is therefore not appropriate for superannuation.
Dealing with the question of CGT and negative gearing, the AIST submission said it had been argued by many that the CGT discount discouraged short-termism and cited academic argument that "any tax on capital gains provides the added difficulty that the taxation of assets can potentially be postponed indefinitely".
"… indeed a widely promoted strategy in SMSFs and some APRA-regulated funds (notably superwraps and super-SMAs) is to migrate long held assets between divisions of a superannuation fund. This in turn, means that CGT liabilities may never arise," the AIST submission said.
"We note the problem that the growing presence of investment gearing in superannuation funds has led to the exacerbation of this issue, as more and more funds are diverted into large bulky and illiquid assets, which are unable to be disposed of quickly," it said.
The AIST submission said that it had already pointed out the risks associated with leverage to the Financial System Inquiry (FSI).
"In particular, we pointed to the fact that a relatively unlevered superannuation sector greatly cushioned the impact of the global financial crisis," it said.
"We stand by our assessment of this and point to effective CGT collection as a way to reduce this risk. Furthermore, we reiterate our recommendation that leverage is not appropriate for superannuation, which is designed to be a retirement savings regime, not a borrowings regime."
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