SELF-MANAGED superannuation funds have recently received a timely reminder about the hoops they must jump through to satisfy the regulators.
SELF-MANAGED superannuation funds have recently received a timely reminder about the hoops they must jump through to satisfy the regulators.
The reminder came in the form of a joint policy ruling by the Tax Office and the Australian Prudential Regulation Authority (APRA) concerning the new Coles Myer discount card scheme.
Julie Matheson of Sovereign Bridge, a specialist adviser to self-managed super funds, believes fund trustees need to be alert to new policy rulings to ensure they do not run foul of the regulators.
“Numerous self-managed super funds hold Coles Myer shares, and the trustees need to ensure they do not get caught by the new rules regarding the discount card scheme,” Ms Matheson said.
She added that the treatment of the discount card scheme illustrated the wide-ranging impact of the ‘sole purpose test’ on super fund investments.
The ruling from the Tax Office and APRA, which regulate about 214,000 small super funds, concluded that super funds cannot participate in the Coles Myer discount card scheme.
Such an investment would be in breach of the ‘sole purpose test’, which provides that the overriding consideration in all investment decisions must be the provision of retirement benefits for members.
The ruling flowed from changes introduced by Coles Myer to its shareholder discount scheme.
In the past, holders of 500 or more Coles shares automatically qualified for discounts of between 3 per cent and 10 per cent at the group’s retail outlets, such as Coles Superm-arkets, Target, Liquorland and Myer.
The discount scheme attracted thousands of new investors to Coles’ share register, but most held between 500 and 1,000 shares, just enough for the discount card.
Under the new arrangements introduced last year, Coles has created two classes of share – ordinary shares and discount card shares.
In order to participate in the discount scheme, new shareholders must purchase at least 500 discount card shares and pay a $25 service charge twice yearly, via reduced dividends.
This payment is central to the ruling from the Tax Office and APRA, since the discount scheme is no longer considered ‘incidental’ to the underlying investment.
The regulators concluded that: ‘the direct use of superannuation money (in the form of dividends received by the fund) to pay for a non-superannuation benefit is not consistent with the sole purpose test’.
While the regulators have no prima facie objection to investment in the discount card shares by a super fund, it is their view that the associated dividend income should not be reduced to obtain a new discount card.
Importantly, the new policy does
not apply to super funds that held
Coles shares under the old
discount scheme, since they do not
have to pay the $25 service charge.
However, Ms Matheson warned that this ‘grandfathering’ benefit only applies if there is no change in the holding or registration of the Coles shares.
If the trustees of a self-managed super fund switch brokers, for instance, or transfer their investments into a Wrap service, this could trigger a change in the holding or registration of the Coles shares.
This outcome can be avoided if Coles’ share register is advised in writing that there is no change in the holder.
Otherwise, long-term holders of Coles shares may unwittingly find themselves in breach of the superannuation rules.
