By Darin Tyson-Chan, Editor of selfmanagedsuper
I’d like to begin my column this month with a correction. The capital gains tax (CGT) discount applying to superannuation funds is 33.33 per cent and not the 50 per cent that once applied to gains for assets held personally. My June column indicated the discount for super funds was also 50 per cent, which it is not. However, I can confirm the 33.33 per cent CGT discount for assets held inside of super will be continuing, unlike the 50 per cent CGT discount for assets owned by individuals. To this end, superannuation now presents a more attractive environment in which to hold assets from a taxation perspective.
But while it has increased its appeal as an investment and savings vehicle, some current moves involving superannuation should be potentially triggering a degree of scepticism and even raising questions as to their legality.
Let’s start with the news last month Australian Super has committed to a $500 million investment in India’s National Investment and Infrastructure Fund – a decision lauded by Prime Minister Anthony Albanese. The sceptics out there, including me, may interpret this as Australian Super aiding the government’s foreign aid policy.
Now I’m not privy to the machinations behind this portfolio allocation and maybe it is a good investment that will deliver some solid returns, but I think Australian Super members are entitled to know all of the reasoning behind the decision.
They should be told what the return profile of the investment will be over a set time horizon and how that stacks up against other options considered by the investment committee at the same time.
Without having provided this level of transparency, one cannot help but ask some serious legal questions. The most important element in superannuation compliance is satisfying the sole purpose test.
The obligation is set out in section 62 of the Superannuation Industry (Supervision) Act and basically states any decisions made by trustees must be done so in order to provide benefits for the members of a super fund in their retirement years.
I predominantly cover the self-managed super fund sector and there is constant scrutiny over trustee strategies to see if they satisfy the sole purpose test. To illustrate just how seriously regulators take compliance with the sole purpose test, self-managed super fund trustees can be taken to task if they admit they purchased a residential property in their fund to facilitate a sea change once they have stopped working.
An asset like this may well appreciate and generate rental income for the many years leading up to that sea change, but that will not allow trustees to escape sole purpose test examination. Basically, if they admit the real estate was acquired for sea change purposes, they are also admitting the decision was not made with the sole intent of providing income for fund members when they have retired.
If we apply this regulator approach to the Australian Super situation, we must ask whether the trustees can justify the $500 million allocated to the National Investment and Infrastructure Fund was done so solely to provide income for members when they have stopped being gainfully employed.
If this cannot be proven, then basically the trustees have breached the law, punitive action should be taken by the Australian Prudential Regulation Authority and further questions need to be asked of the government. The first and foremost should be whether we are seeing taxpayers’ compulsory superannuation savings being deployed to fund government policy and pet projects. But I doubt that debate will be happening anytime soon, even though I feel the members of Australian Super should be demanding it.
This latest chapter is a worrying sign in potentially not recognising superannuation is the members’ money and not the fund trustees’ nor the government’s to use for whatever purpose they see fit.
However, it should really come as no surprise to all of us, given some of the messages that have emitted from Capital Hill in recent years.
Around the time of the last federal election, the Albanese government was indicating a portion of a person’s retirement savings should be set aside to fund local infrastructure projects and even aid to Indonesia.
Again, that’s all good and well, but how do those objectives satisfy the sole purpose test? And if the returns on those projects are to be competitive, and even lucrative, will it mean there will be a government guarantee attached to them? So many unanswered questions.
Given our superannuation framework is now based on a defined contribution model and not a defined benefit model, these matters are very serious because the onus to fund one’s retirement is borne by the individual and the trustees in whom they put their trust.
Perhaps we should flip the script to really determine the viability of a decision like the one to invest in India’s infrastructure. So if our retirement savings system was still based on defined benefits, would the government invest in the India project to fund the resulting future liability?
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