Instalment Warrants and Super Funds

Tony Negline

During the past week two Federal Ministers issued Press Releases and Treasury issued one discussion paper about instalment warrants including the use of these products within super funds.

The government has gone a long way to accommodate these investment structures and their changes appear to provide a reasonable level of certainty for these structures.

Once topic of discussed was the concept of Shareholder Applications.

This is best explained by an example: suppose you own shares in XYZ company which is currently trading at $10. An Installment Warrant provider has a five year Instalment over this share which can be purchase for $5.20 capital. If you purchased this with your current shareholding the provider would send you $4.80. To regain full ownership of all the shares this loan would have to be fully repaid.

Prior to December 2002 it had been assumed that Shareholder Applications were okay for Instalment Warrants.

At that time the ATO and APRA announced that they believed these types of transactions contravened the super laws because they argued that it amounted to placing a charge over the fund's assets which of course, in general, is not permitted.

With this type of structure no one was really sure if CGT applied with the Instalment Warrant was taken out. It was always assumed that it wasn't the case.

The Treasury paper says that for CGT purposes the law will be changed to ensure that it doesn't apply to Shareholder Applicants. Elsewhere it goes on to say that the "trustee of a superannuation fund that invests in a traditional instalment warrant over a single exchange traded security will be covered by both proposed rules." That is the Instalment Warrant provisions in the super laws and the income tax rules proposed in the discussion paper.

Perhaps this implies that Shareholder Applications will be allowed for super funds and their listed equities.

If this is the case then this would be a sensible outcome. I suggest that you don't take any action in relation to this until appropriate legislation is finalised (assuming that this actually does occur).

Even more sensible is the fact that the Ministerial Press Releases and Treasury discussion paper also seem to imply that Instalment Warrants and more particularly that the superannuation gearing arrangements are with us for the long haul.

This is also another sensible outcome.

Finally please consider purchasing a copy of my book. You can look at the contents page at the following link: http://www.atcbiz.com.au/smsfbooktoc.pdf

Two options are available - once only subscription - $55 inc GST - or an annual subscription will gives you access to all the updates made throughout the year ($120 inc GST).

The book can be purchased at the following link: http://www.atcbiz.com.au/smsfstore.php

Share this article

Previous article Next article

This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.