Challenger identifies barriers to DLAs


By Elizabeth Somerville

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Challenger has called for the federal government to consult with the states to remove state stamp duties, which could apply to parts of some types of deferred lifetime annuities (DLA).

“The issue of some types of annuity with particular features may result in part of the product becoming subject to state stamp duties, which can be as high as 10 per cent,” the listed investment management firm said in its submission to the government’s tax white paper.

“This is because state revenue offices often have a broad view of what amounts to general insurance and will construe peripheral aspects of the product to be dutiable riders.”

In some cases, states had sought to have that explicitly enshrined in legislation, however, as DLAs were superannuation annuities, they should not attract stamp duty, either in whole or in part, it said.

In addition, prior industry experience had demonstrated the need for explicit and clear announcements at the time of product inception to prevent contrary interpretations emerging down the track, it said.

“The stamp duty rules as they apply to these types of annuity products are uncertain, ambiguous and inconsistent across jurisdictions,” it said.

“In our view, the complex, uncertain and inconsistent possible application of ‘nuisance’ taxes, such as insurance duty to DLAs, clearly highlights the broader inefficiencies and difficulties in administering certain state taxes.

“More importantly, the current system of state taxation can impose real and significant obstacles to the promotion of products such as DLAs, which should otherwise be facilitated as a matter of good policy.”

Through consultation with state governments, the federal government should seek to eliminate that “potential unnecessary additional cost”, in terms of inefficient state taxes, specifically with regards to insurance duty on DLAs, as well as on a broader level through the removal of inefficient state taxes, such as insurance duty and other stamp duties, in their entirety, it said.

In addition, recent research from Investment Trends found more than 80 per cent of retirement planners were open to using DLAs even though they were not yet available in Australia.

“The ‘December 2014 Retirement Planner Report’, [which was based on an in-depth survey of 617 financial planners], reveals that 83 per cent of planners are open to using DLAs or similar products,”
Investment Trends senior analyst Recep Peker said, adding advisers identified access and flexibility as the most sought after features.

“There’s strong planner appetite for DLAs in Australia. However, to ensure the success of DLAs, product providers need to ensure that planners’ minimum product feature requirements are met.”

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