The $1.6m Transfer Balance Cap and Transitional CGT Relief

About the author:

Author name:

By Terri Bradford

Job title:

Head of Wealth Management

Date posted:

13 January 2017, 12:37 PM

Australians are terribly confused, and they have every right to be.

The $1.6m Transfer Balance Cap is complicated enough, but everyone is having a hard time trying to decipher exactly how the transitional CGT relief will work if the fund needs to restructure a pension account.

Check out our brief summary below which may shed some light on the CGT relief rules for SMSFs:

1. Transitional CGT relief is only available where the super account's value is $1.6m or more AND is in the pension phase prior to 30 June 2017. This includes Transition to Retirement pensions.
2. If a member account is less than the $1.6m, the member cannot utilise the transitional CGT relief.
3. Any asset of the SMSF, or all assets of the fund, if eligible, can have their cost base reset up to 30 June 2017. This includes property and/or shares.
4. An asset must have been held by the fund from 9 November 2016 up to 30 June 2017 to be eligible for transitional CGT relief (where the unsegregated accounting method is used).
5. An asset must have been held in a segregated pension account from 9 November 2016 to 30 June 2017 to be eligible for transitional CGT relief (where the segregated method is used).
6. Trustees cannot simply reset an asset's cost base by a Member Notice or Minute. An ATO prescribed form must be used. The ATO is yet to provide instructions so no point resetting now in any case.
7. DO NOT sell and re-purchase an asset to reset the cost base. This will be considered an anti-tax avoidance measure and the Trustees could be penalised accordingly by the ATO.
8. It is not compulsory to apply the transitional CGT relief. There will be situations where it is not required. Example: Trustees of a two member SMSF with a large single asset – one member is in the pension phase and one member is going into the pension phase in the near future – may choose not to apply CGT relief as the fund could be in full pension mode when the second member retires.
9. Cost bases cannot be reset where a capital loss applies on an asset.
10. SMSFs with account balances greater than $1.6m from 1 July 2017 will not be able to segregate assets for tax purposes.
11. If an election is made to reset a cost base it is effectively a CGT Event even though only on paper. This will reset the 12 month window for discounting purposes from 1 July 2017.
12. If an election is made to reset a cost base on an asset, the election is irrevocable.
13. Lastly, but most importantly, speak to your SMSF adviser or SMSF accountant before you take any action.

If you want to discuss your current superannuation strategy, contact your Morgans adviser.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.