Pam Roberts
Advisermag Technical Strategy

How an SMSF can take advantage of tax rollover relief by rolling over to Pursuit Select Personal Super

By Pam Roberts

Running your own superannuation fund can be more complicated than you think. Some clients are questioning whether an SMSF is still appropriate for them, and are seeking advice on how to transfer their benefits into a public super fund. However, where the SMSF is in a capital loss situation, winding up the SMSF and transferring to another super fund can mean losing valuable tax benefits as capital and revenue tax losses cannot be rolled over to the new fund.

The good news is there is some temporary relief available that will allow a super fund to rollover losses to another super fund. Although this relief was intended to help facilitate the merger of large super funds under successor fund arrangements, it can also apply to an SMSF transferring into a larger super fund. The relief only extends to transfers that occur after 24 December 2008 and before 30 June 2011. This means the relief is only available for transfers occurring before 30 June 2011.

IOOF has made this facility available to financial advisers whose clients wish to wind up their SMSF and rollover capital losses to Pursuit Select Personal Super. What this means is that clients will not lose their capital losses when they wind up their super fund. IOOF will take the capital losses and record them against the member’s new Pursuit Select account until they can be used against any future realised capital gains that the member incurs in the account. Unused capital losses remain attached to the account indefinitely until used. Further, if IOOF can use any of the capital losses against capital gains incurred by other members, the member’s account will receive a cash credit for the value of the capital losses used.

If the SMSF is holding revenue losses, these can also be rolled over to Pursuit Select. Members receive an immediate cash credit to their account for the value of any rolled over revenue losses.

Terms and conditions for rolling over losses to Pursuit Select

  • All members of the SMSF must rollover all their benefits in the SMSF to Pursuit Select. Nothing must be left behind in the SMSF.
  • All members and benefits must be transferred by 30 June 2011.
  • The rollover must be to a Pursuit Select Personal Super account (as the losses cannot be used in a pension account).
  • The trustees of the SMSF must agree in writing to transfer losses to Pursuit Select and also provide details of the transferred losses including the amount of any:
    - previous year’s capital losses;
    - current year capital losses; and
    - revenue losses.
    Where the SMSF had more than one member, the above amounts must be allocated to each member transferred.
  • Preferably, all details of transferred losses should be provided at the same time the benefits are transferred. However, SMSF trustees can provide details of capital losses no later than when they do their final tax return. Any details of revenue losses, however, must be provided to IOOF by the end of October 2011, so they can be included in the 2010/11 tax return for Pursuit Select.
  • The transfer is a normal rollover of a super benefit and therefore will usually be done by cheque or BPAY. Where the SMSF trustees want to transfer assets in-specie, normal IOOF in-specie transfer rules apply and the adviser may need to seek approval first.

Background to loss relief for merging super funds

Transferring from one super fund to another super fund is a CGT event. The transferring fund will ordinarily incur capital gains or losses from either selling assets to cash prior to transfer (CGT event A1) or by transferring investment assets in-specie to the new super fund in-specie (CGT event E2). Either way, for CGT purposes, the assets are deemed to have been realised by the transferring fund and CGT is liable on net gains. Capital losses that cannot be used by the transferring fund cannot be rolled over and are effectively forfeited.

As capital losses cannot be carried over to the new super fund, the members may lose valuable tax benefits as a result. This has proved a stumbling block for a number of large super funds wanting to merge under successor fund arrangements.

Consequently, to facilitate large fund mergers, the Government agreed to provide temporary loss rollover relief until 30 June 2011. The relief is not limited to large fund successor fund transfers and can apply to the voluntarily transfer of an SMSF into a large super fund (like Pursuit Select Personal Super). The legislation provides merging super funds with relief to either:

  • Realise the assets for tax purposes and transfer excess capital losses to the new fund. This option is available to SMSFs choosing to transfer all members and benefits to Pursuit Select Personal Super; or
  • Transfer assets without realisation. Funds may use the global method (all assets are not realised) or the individual assets method (some assets are realised and some not). This option requires a transfer of the individual asset’s tax history to the new fund and is not available for SMSF transfers into Pursuit Select Personal Super.

The legislation also extends loss rollover relief to revenue (tax) losses and provides relief for accepting s.290-170 Tax Deduction Notices where loss rollover relief applies. Under the latter relief, a receiving fund can accept an s.290-170 Tax Deduction from a member in respect of personal contributions made to the previous fund.

Loss relief applies to SMSF choosing to wind up and transfer all members into a larger super fund from 24 December 2008 through to 30 June 2011. There is possibility that the legislation will be extended beyond 30 June 2011 to facilitate further consolidation of the superannuation industry in light of the Cooper Review recommendations.

How transferred losses are treated in Pursuit Select Personal Super

If the conditions for relief have been met, on transfer to Pursuit Select Personal Super, the prior year’s capital losses and current year’s capital losses will be recorded against the new member’s account. These losses will then be used to offset against future realised capital gains incurred in the account by the member. If the trustee of Pursuit Select can use excess capital losses held by a particular member against other members’ realised gains, the donating member’s account will receive a cash credit for the value of the losses used.

Advisers should note that, although the Pursuit Select Personal Super administration system will record the transferred losses against the member’s account and apply them against future realised gains, the amount of unused losses held in an account are not reported on Portfolio Online. Advisers will need to ensure they keep their own records of the amount of unrealised losses going forward for their client’s benefit.

If an SMSF is transferring revenue losses, IOOF will provide an immediate cash credit to the member’s account for the value of the revenue losses, as revenue losses can be used by Pursuit Select in the year of transfer.

How do I go about transferring losses to Pursuit Select?

Step 1: An ‘arrangement to merge’ must be agreed to by the SMSF and Pursuit Select Personal Super. A document evidencing an ‘arrangement to merge’ does not have to meet specific criteria.

  • It is enough that all members of the SMSF complete the application forms to rollover all their benefits from the SMSF into Pursuit Select and IOOF accepts those application forms.
  • The trustees of the SMSF will need to make clear declarations that the transfer meets the relief conditions. This declaration should be provided with the applications to rollover to Pursuit Select Personal Super, however, it can be received later (see Step 3).

Step 2: Transfer benefits for all members from SMSF to Pursuit Select

  • Normal processes apply here.
    - SMSF assets may need to be sold down to provide for the rollovers to Pursuit Select.
    - IOOF approval may be required for in-specie transfers.
  • All members of the SMSF must transfer all their benefits to Pursuit Select Personal Super. Otherwise, loss relief will not be available.

Step 3: Election and declaration

  • The SMSF can make the formal election to transfer losses in the SMSF’s final tax return.
  • However, IOOF will require details of the losses transferred and a declaration that the merger conditions have been met. SMSF trustees (or their advisers) will need to complete this declaration and provide the required information. The declaration must be attached.

What about SMSFs that have already wound up?

  • The relief does not apply to SMSFs that wound up before 24 December 2008.
  • Where an SMSF has wound up and all benefits were transferred to Pursuit Select after 24 December 2008, the trustees of the SMSF can choose to transfer capital losses up until the time it puts in its (last) tax return. If the SMSF’s last tax return has already been lodged, the SMSF trustees can apply to the ATO for an extension of time.
  • The same applies for revenue losses. However, IOOF will not be able to take revenue losses for tax years before 2009/10 and must receive details prior to preparing the tax return for Pursuit Select Personal Super (ie the IOOF Portfolio Services Superannuation Fund).