Sent: 11-08-2009 12:10:03
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Super Gearing: Turning Super on its Head?
There are many aspects to the super Instalment Gearing provisions.
The first of my articles puts the super gearing transactions into perspective together with some pitfalls. The second article talks about practical implementation. The third article continues with practical implementation issues and also looks at a very simple case study.
There are many structural and legal issues to get right with this new structure and because commonwealth law is often intermingling with state or territory law the legal fraternity still seems to be feeling its way through many of the issues.
Like any new area of the law it sometimes takes at least 5 to 10 years before the majority of legal points have been adequately examined.
I believe that these super gearing rules, if they remain unchanged from their current make-up, have the potential to dramatically alter the superannuation landscape.
In the not too distant future the retail super sectors will have to find a way of offering this structure to their investors. Some are already working on solutions.
I take this view because without question there is demand for gearing inside super but the old super rules made this almost impossible unless you wanted to use an internally geared managed fund or an Instalment Warrant product provided by an investment bank.
Rumours about the winding back or limitations being introduced into these super gearing rules are always circulating. There were strong rumours that an announcement would be made in the recent Federal Budget.
At this point in time it is difficult to know which way the government will jump. Perhaps mention of these rules will depend upon the Henry review (what changes will be suggested to the super tax regime) and Cooper which is looking into more to the structural issues of the super sector.
One area that I didn't discuss was the area of guarantees and the potential that these might be deemed to be a contribution. This issue has recently come to attention with the release of a Draft Tax Ruling on super contributions released in early June '09.
So not only might the offer of guarantees generate non-arm's length income for a super fund but the use of such guarantees might also be a contribution. Lenders will have to rethink this part of their preferred structures.
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