Australia’s Superannuation Sector Faces Unprecedented A$500 Million Tax Hit

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Australia is facing a major tax hit as the new Labor government works to implement changes to the superannuation sector.

The government took action to address a tax gap that would have allowed it to recover A$550 million (€354 million) in lost revenue by banning what is known as the off-market share buyback.

Stuart Dall, a partner at the law firm Pitcher Partners, responds when asked if super funds are the main target of the government measure. 

Speculation about the new Australian government’s potential plans for the superannuation sector was rampant in the run-up to the first budget by a Labor government in 12 years.

Dall stated, “Yes, on the basis that super funds are among the largest investors in Australian-listed equities, which makes them the primary target of the government measure. They will be the group most negatively impacted by this measure. Super funds are often strong participants in buyback offers.”

“Commentators have been reporting this…. as ‘closing a loophole, which is a misnomer. 

“The off-market share buyback has been known to governments and markets for the last couple of decades. As such, it wasn’t a loophole but a policy matter in which previous governments had acquiesced by letting it continue. It wasn’t a secret,” Dall added.

The Australian Labor Party (ALP) ran a campaign in the 2019 election to restrict the ability of super funds to claim franking credits, according to Raewyn Williams, a principal at Sydney law firm Jefferson & Shea and an expert in off-market buybacks.

 “Some people would say they lost the election because of the fierce lobbying against it,” Williams said.

“The government has framed this as an integrity measure – cracking down on a tax loophole – and that plays into the broader platform of exploiting tax loopholes.”

Additionally, there have been 47 share buybacks over the past 15 years by companies like the mining behemoths BHP and Rio Tinto, major retail chains like Woolworths, and banks like Westpac and Commonwealth, according to Williams.

Whether these reforms ultimately prove to be a positive or negative development for Australia’s supers remains to be seen. Still, one thing is sure – there will be intense scrutiny and debate as this process moves forward.

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