The super reform’s capital gains tax (CGT) relief continues to dominate queries received by Accurium as professionals look to complete their clients SMSF annual returns for 2016-17. In particular, there still appears to be significant confusion over which method must be used when applying the CGT relief.
Confusion around method for claiming CGT relief
It came to our attention that an update made to the ATO webpage on Transitional CGT Relief in mid-February may have fuelled some confusion. The updated page suggests a link between the method used for a fund’s
exempt current pension income (ECPI) calculation and how they apply the CGT relief. Headings say ‘If you calculated your ECPI using the proportionate method’ and ‘If you calculated your ECPI using the segregated method at 9 November 2016’ when referencing the method you are able to use to apply the CGT relief.
This may have raised some confusion around the scenario where:
We have seen many funds implement this approach. Would these funds be required to use the proportionate method for CGT relief since they used the proportionate method to claim ECPI?
This would imply the cost base reset net gains would be subject to the actuarial tax exempt percentage determined under the unsegregated method for ECPI. While this would benefit funds with material capital losses (which they could carry forward), for the majority resetting the cost base of assets in a gain position it would mean paying some tax.
It had always been our understanding that CGT relief was applied based on the status of assets at 9 November 2016, as defined by the ATO’s view of the law on segregated pension assets, not driven by how an SMSF actually claims ECPI in 2016-17.
The information in this document is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.