ASFA supports Govt super borrowing proposals

The Association of Superannuation Funds of Australia (ASFA) has supported amendment proposals made by the Government around borrowing in super arrangements.

ASFA supports the proposal that borrowing arrangements by superannuation fund trustees permitted by the Superannuation Industry (Supervision) Act 1993 are considered financial products under the Corporations Act 2001, which would make it necessary that service providers hold an Australian Financial Services Licence to deal in instalment warrants.

ASFA chief executive Pauline Vamos said this would better protect the super savings of working Australians.

Philip La Greca, technical services director at Multiport, said this amendment would ensure that the appropriate questions are asked by anyone recommending these structures.

“Issues such as the capacity to service the loan, the diversification and liquidity risk will now need to be considered before making such a recommendation,” he said.

La Greca added that the proposed amendment would also allow the Australia Securities and Investments Commission to use the powers of the Corporations Law to pursue promoters who do not ensure this is undertaken.

“The only concern is that with a three-month grace period once the regulations are issued, some unsavoury practices may surface to take advantage of this window,” he said.

ASFA stated it also supported proposals around the treatment of limited recourse borrowing arrangements to purchase an asset, which would see the super trustee treated as the owner of the asset for income tax purposes.

“This provides clarification for the super industry as there has been uncertainty about whether there is a CGT [capital gains tax] liability created when the asset is transferred from the bare trust to the super fund when the final instalment was paid,” Vamos said, which she added removed uncertainty and makes it clear that there is no CGT event at the point of transfer.

Vamos said proposed amendments to the tax law to confirm the practice of treating the investor in an instalment warrant as the owner of the listed security for income tax purposes is another key step taken by the Government that would provide further clarity on who should account for the income of the asset while the warrant exists.