Here’s what you need to know about the Government’s CGT relief for Self-Managed Super Funds (“SMSFs”).
What is CGT relief?
Under the new super reforms, you may be eligible for relief from certain capital gains that may arise as a result of complying with the Transfer Balance Cap ($1.6m) and the Transition to Retirement Income Stream reforms that began on 1 July of 2017.
The CGT relief, which is only available for this financial year (2016/17), allows you to make an election to reset the capital gains tax cost base for certain fund assets as at 30 June 2017.
What are the benefits of the CGT relief?
As a result of the 1.6 million Transfer Balance Cap and the new rules that apply to Account Based Pensions & Transition to Retirement Income Streams, some funds that sell assets post 1 July 2017 may incur capital gains that would not have arisen had the Transfer Balance Cap not been introduced.
The relief allows members that have a superannuation balance (including SMSFs) balance above the Transfer Balance Cap of $1.6m by $100,000 or less, to remove the excess amount by the 31st of December 2017 without having to pay the excess transfer balance tax.
What types of CGT relief are available?
There are two types of CGT relief ‘proportionate’ and ‘segregated’, each with a different method of calculation. The one that will apply to your SMSF will be based on the structure your fund was in as at 9 November 2016. To find out which applies to your SMSF, touch base with your financial advisor.
If you do not have a financial advisor, contact me, Janean Hicks, Director of Wealth. I will be able to provide clarification and guidance on this technical legislation.
The qualifying criteria
There are a number of qualifying criteria a SMSF needs to meet in order to be eligible for CGT relief. The first is that the SMSF member is either:
- Receiving a Transition to Retirement pension between 9 November 2016 and 30 June 2017;
- Is required to transfer an amount out of their pension to comply with the Transfer Balance Cap.
There are additional requirements, but these differ depending on the type of fund and the time period in which the asset was held by the fund.
What are the next steps?
CGT relief is not automatically provided, even if you meet all qualifying criteria. A trustee must choose it.
You should review your SMSF as soon as possible and determine if CGT relief is available and suitable for your particular circumstances. All SMSFs are different, the decision on whether CGT relief is right for your fund should one you make with your financial advisor. If you do indeed choose to partake in CGT relief, the ATO will need to be notified of this decision on or before the day you are required to lodge your SMSFs 2016/17 income take return. Once chosen, this decision cannot be changed.
It is also important to note that once the 2017 Financial Reports are lodged, the CGT relief will no longer be available. Please review and discuss with your professional advisors to ensure you have not missed out on any opportunities.
Our wealth management and financial planning team have a great deal of experience in this area. Here Business & Wealth is your trusted business management partner, financial advisor and accountant all rolled into one. If you need advice on CGT relief for your SMSF or on any related matter, chat with us.