Stop Press Government to remove SuperGearing uncertainty

The Superannuation Minister, Chris Bowen, has announced that the Government will amend the taxation law in relation to instalment warrant arrangements (including super gearing arrangements). 

The amendment will be to ensure that the trust which arises when the underlying property is held by the security trustee (aka custodian) is disregarded for taxation purposes so that super fund trustee will be deemed to be the owner of the underlying property.  This means rental income will be income of the super fund and expenses of the underlying property will be expenses of the super fund.  Also the transfer from the security trustee (aka custodian) to the super fund will have no CGT implications and the cost base of the underlying property will be determined as if the super fund owned the property from the outset.

The Government has requested submissions to be made in respect of the proposed changes and has issued a proposal paper.  Submissions must be made by 9 April 2010 and the changes will relate to the 2007/08 and following tax years.

SUPERCentral’s Lawyers views

SUPERCentral’s legal advisers, Townsends Business & Corporate Lawyers, have advised that the changes will not affect properly structured super gearing arrangements where the role of the security trustee (aka custodian) is simply to hold legal title to the underlying asset and to transfer the legal title as and when requested by the super fund.  In Townsends view, the proposed change will provide legislative relief to poorly structured super gearing arrangements where the security trustee had active duties to perform or where the security trustee had no power to transfer title to the trustee unless and until the lender was discharged.

Guarantees in Supergearing transactions

One interesting comment in the Proposal Paper is that for ‘non-super gearing’ instalment warrant transactions – guarantees for the benefit of the lender are unacceptable.  The Proposals Paper is silent on this point in relation to super gearing transactions.