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Changes to Superannuation - Capital Gains Tax Relief - Part 4 of 6

This is part 4 of our 6 part series on the changes to superannuation. You can access the master index on this page.

Capital Gains Tax Relief

 There will be a one-off capital gains tax relief which applies in the 2017 year to offset some of the impact of the changes.

 The CGT relief will apply at an asset level, not fund level and applies only to assets held on 9 November 2016.

 Trustees can choose whether to apply the CGT relief, and to which assets to apply the relief.

There are two methods of calculating the relief – you will qualify for only one or the other (or possibly neither), and this is based on circumstance not choice.

 Method 1: Segregated method

 Applies to assets which were segregated pension assets on 9 November 2016 which stopped being segregated prior to 1 July 2017.

 The relief acts to:

  • Exempt any gains up to the day the investment stops being segregated from tax
  • Re-set the cost base of the investment on the date the investment stops being a segregated pension asset, to the market value of the investment on that date
  • Treat the date the asset stops being segregated as the new purchase date for CGT – therefore for the 12 month discount to apply in future years the investment must be held for a further 12 months from the date the asset ceased being a segregated pension asset.

 Effectively, the tax law is treating the asset as if it was sold for market value on the day it stopped being segregated, and re-purchased at market value.

Method 2: Proportionate Method

The relief acts to:

  • Reset the cost base of any or all assets at 30 June 2017
  • Calculates a notional gain to 30 June 2017 on any increase in value at that date. If you have a high actuarial tax free percentage in your fund, this notional gain is going to be relatively small
  • The gain will be taxed either with the 2017 tax return or can be deferred and taxed in the year the asset is eventually sold – the trustee must make an election to defer if this is their choice
  • Resets the 12 month eligibility period for the CGT discount to 30 June 2017 – therefore the asset will need to be held until 1 July 2018 for any future gains to be eligible for the 12 month CGT discount 

What can go wrong:

Segregated method

  • Accidentally stop segregating by contributing a new amount to the SMSF – therefore removing your ability to time the access to the concession
  • Not ‘doing anything’ to trigger the stop of segregation – if the segregation does not cease prior to 30 June 2017 the asset will not be eligible for relief.

Missing out altogether

Some funds will miss out altogether on the relief.

If an asset is segregated any time after 9 November 2016 neither the proportional or segregated method will apply and there will be no CGT relief.

For a fund which has a mix of pension and accumulation phase at 9 November, but the accumulation account is cashed out (either rolled to another fund or paid out as a lump sum) the fund will become segregated when the accumulation account ceases and will therefore not be eligible for either the segregated or proportionate method.

Assets in unit trusts

Where an SMSF holds units in a unit trust, and that unit trust holds a high value property, the cost base re-set only works to increase the cost base of the units in the unit trust, not the property held by the unit trust.

Disclaimers

This information is provided by A Squared Advisers Pty Ltd.

The information provided to you above is purely factual in nature and does not take account of your personal objectives, situation or needs. The information is objectively ascertainable and, therefore, does not constitute financial product advice. If you require personal advice you should consult an appropriately licenced or authorised financial adviser.